Total Maximum Daily Loads represent an important new approach to environmental management. Because of their potential to bring about big improvements in how we manage water pollution, (and because, one way or another, they are coming) TMDLs deserve the attention of the environmentally concerned public. This is how they work:

Under the Federal Clean Water Act, state environmental managers have to survey all the waterbodies (rivers, streams, lakes, bays) under their jurisdiction to determine their environmental health and to estimate how much pollution each could stand and still be considered healthy. This estimate, which is based on what is expected of the waterbody and how well it flushes or metabolizes pollution and a lot of other things, would become the TMDL.

Once it is established, some fraction of the TMDL would be parceled back to each polluter in the watershed as a pollution allowance. In the final step, state authorities tell the EPA how they intend to keep pollution below the TMDL levels.

The advantage of the TMDL approach is that it focuses on the ultimate problem — degraded waterbodies. Earlier approaches to water quality management have focused on what comes out of individual pipes or from the myriad of nonpoint sources. Those policies were implemented using regulations that said how much pollution could be discharged by polluters based on their type of enterprise.

A factory subject to general discharge regulations would be subject to the same rules whether it was alone in its watershed or bunched up with 10 other similar polluters. The problem with this approach is that, in some cases, the regulations were more stringent than they needed to be and in others, they were not stringent enough.

One of the most exciting prospects of using TMDLs as a management target is that the tradeoffs between different types of land use and economic activity will come under closer scrutiny. It will generate questions about how to allocate the right to pollute among potential polluters, as well as draw our attention to the fact that each of us is a member of one polluting group or another, either as consumers or producers.

This may become clearer if we consider an example of a TMDL.

The Maryland Department of the Environment has drawn up and submitted to the EPA a draft TMDL for the Transquaking River watershed in southern Dorchester County. That river is impaired by excessive loadings of nitrogen and phosphorous. More than 60 percent of the land in the watershed is forested and most of the remainder is farmland. Current nitrogen loadings are estimated to be just less than 900,000 pounds per year. The farmland accounts for about 37 percent of this; a rendering plant contributes another 40 percent. Atmospheric deposition, the forest and urban land use make up the rest. In regard to phosphorous, almost 80 percent of the total 44,000 pounds per year comes from the farmland, with 14 percent from the rendering plant.

The TMDL that has been proposed for the watershed caps allowable nitrogen at about 450,000 pounds per year, or about half of what is now flowing into the river. Phosphorous only needs to be cut by about one quarter, to 32,000 pounds per year.

The way the MDE has allocated the nitrogen and phosphorous pollution allowances among the sources is interesting. The rendering plant has to reduce its nitrogen contribution about 96 percent, while the nonpoint sources only have to reduce theirs around 25 percent. More than 97 percent of the total phosphorous reduction, on the other hand, has to come from the farmland and other non-point sources.

Is this a reasonable allocation of the pollution allowances? How would we begin to know? How did the MDE ever come up with that allocation? Moreover, how do they plan to implement these caps?

Starting with the last of these questions, the MDE plans to implement the Trans quaking River TMDLs by means of NPDES permits and by involving the Lower Eastern Shore Tributary Strategy Team. NPDES permitting is the old, end-of-the-pipe system used by the EPA and states in the past.

The tributary team is a body of interested local people who have no regulatory or enforcement powers. Basically, the MDE will tell the rendering plant to either meet its NPDES permit allowances or close, and the team will encourage and cajole farmers to adopt best management practices that might allow them to meet their reduction requirements. That’s the implementation plan.

I don’t know how the MDE came up with this allocation. Is it reasonable?

Reasonable with regard to what? If it achieves the environmental management goals, then it is reasonable in that sense. What else might matter? Is this the least socially disruptive way to achieve the reduction? Is it the cheapest way to do it?

Let’s cut to the chase. Socially disruptive is, in this case, pretty much dependent on economic impact. If the rendering plant has to close because its nitrogen reductions cannot be achieved and its workers are left unemployed; this is pretty disruptive. If farmers are forced to retire too much land for conservation practices, or if the costs associated with handling the phosphorous from their chicken houses forces them to discontinue farming, this might be socially disruptive as well. If both things happen, it would be really disruptive.

The MDE can ensure that this last outcome will not transpire, but not with its current plans to implement its TMDL for Transquaking River. To ensure that the reduction is achieved at the lowest cost and with the least social disruption, the MDE would have to either calculate all of the reduction costs and all of the polluters’ ability to pay, or, they would need to assign the various polluters tradable effluent allowances.

For almost five years, the EPA has been implementing a tradable emissions program for airborne sulfur dioxide (SO). coming from electrical power generators in the Southeastern United States. This program grants power companies the right to put a certain amount of SO into the air. Each company’s allowance is a fraction of a total amount that scientists believe is low enough to reduce acid rain problems. That is, scientists figured out how much SO could be put into the air by all of the power plants without causing or exacerbating acid rain problems and then parceled that amount back to those utilities as emission allowances.

The innovation in this program was to tell the power plants, “here’s how much SO you can put into the air, but, if you reduce your emission beyond that, you can sell the remainder of your allowance to someone else. Or, if you can’t reduce your pollution to the amount of your allowance, you can buy emissions allowances from other firms.”

An environmental organization that thinks the cap was set too high, can also enter the market for these emissions allowances to buy and retire them. This allows those firms who are best able to achieve reductions to acquire a benefit from reducing more than what regulations require. Conversely, it allows firms which are less able to reduce their pollution to buy some time. And, it lets the environmentally concerned public have a say in how much pollution it is willing to live with.

A recent publication from Resources for the Future (www.RFF.org) titled, “SO Allowance Trading: How Experience and Expectations Measure Up,” assesses this program’s short history. Since the SO emissions trading program went into effect in 1995, firms have been reducing emissions in excess of their statutory requirements and at lower costs than were expected. Furthermore, instead of selling excess allowances to other firms, most companies have been banking their reductions against more stringent allowance requirements that will arise under phase two of the program. There is some evidence though, in more recent years, of an increase in trading among firms.

The analogy between an emission allowance for air pollution and an effluent allowance for water pollution should be clear enough. Just as different air polluters face different costs in reducing their air emissions, water polluters face different costs in achieving effluent standards.

And, like the SO cap, TMDLs provide a basis for trading effluent allowances by determining the total amount of any given pollutant a waterbody can stand and then parceling this total back to the various polluters. The management authority, in allocating effluent allowances back to the various polluters, though, would have to make them tradable if they hope to achieve cost minimization across polluters.

To get an idea of how this might work, let’s go back to the Transquaking River watershed. Recall that the rendering plant contributes 354,000 pounds of nitrogen per year and that farmland and other nonpoint sources contribute 545,000 pounds of nitrogen per year. Under the MDE’s draft TMDL, the total inflow of nitrogen has to be reduced by about 50 percent to just less than 450,000 pounds per year.

To achieve its nitrogen allowance, the rendering plant has to reduce its nitrogen pollution by 96 percent. But, suppose the available technology only allows the rendering plant to reduce its nitrogen effluent 80 percent. Under the current implementation plan, they would need to shut down their operations. But, suppose that the agricultural sources reduced their nitrogen outfall by an amount that was greater than what was required. If the rendering plant is facing the choice of closure or paying for a little more pollution reduction in the watershed, it might be willing to pay the farmers to implement practices that lower nitrogen pollution from their fields and operations so that it can gain the excess allowance.

The point is, if one polluter finds it easier to meet its allowances and goes beyond its required pollution reduction, why not allow another polluter to pay for this?

Granted, the scenario above is entirely hypothetical. Maybe the rendering plant not only meets its requirements but has additional effluent allowances to spare. Either way, it is a sure bet that the costs of pollution reduction is not the same for these two polluters. Neither do they have the same ability to pay.

Why not allow those who are best able to reduce their pollution to receive some benefit for doing so and, conversely, why not allow those who are better able to pay for pollution reduction buy someone else’s allowances? The example of tradable SO2 emissions shows that, in some cases at least, this is achievable through tradable pollution allowances.