There are only a few weeks left for the public to comment on the Maryland Department of the Environment’s (MDE) recently issued draft regulations establishing Maryland’s Water Quality Nutrient and Sediment Trading and Offset Program. Industrial, commercial, municipal, or agricultural concerns that discharge nutrients to Maryland waterways have until July 7 to comment in advance of the formal rule promulgation expected later this summer.

The regulations establish who is eligible to participate in the Program and the rules governing the generation and sale of credits by and between those participants. A broad range of sources are eligible, including waste and stormwater point sources, industrial stormwater discharges, and a variety of non-regulated sources such as farms and septic users.

It is anticipated that holders of municipal separate storm sewer system (MS4) permits—which include Maryland’s 10 largest jurisdictions—will generate much of the demand for credits in order to offset nutrient reductions they are required to obtain through expensive restorations of impervious areas. Meanwhile, Program proponents hope that agricultural sources will be the most active generators of credits because they can generate nutrient reductions more cheaply than other sources.

Whether the demand for and supply of credits actually will materialize, however, remains to be seen. A number of key draft rules will have a direct impact on the Program’s viability. Most significantly, the draft rules would require regulated dischargers to have permits that specifically authorize trading. Given that most permits probably do not currently do so, this rule would require permit holders to seek amendments to their permits.

This could delay trading while exposing permit holders to additional public scrutiny and offering opponents of nutrient trading an avenue to challenge the Program collaterally. The current rules also prohibit participation by any sources that are in violation of their existing permits or other regulatory program. Even minor non-compliance could preclude participation in trading.

Also significant is that the draft regulations raise the possibility that delivery, reserve, retirement, and uncertainty ratios will be applied to trades, which could drive up costs and provide a disincentive to participation. With the exception of a five percent reserve ratio that would apply to each point source-generated credit, the draft regulations do not provide any specifics on these ratios. However, in the final draft Trading and Offset Policy and Guidance Manual issued in April, MDE said that an uncertainty ratio of "at least 2:1 will be applied to transactions involving credits generated by nonpoint sources and acquired by wastewater point sources."

This means that if a municipal wastewater treatment plant needed to buy credits to offset new discharges—to accommodate growth, for example—the plant would need to buy two credits for every one that it needed. It is not clear whether this ratio still will be applied since it is not in the draft regulations and it is uncertain what role, if any, the Manual will have under the regulations.

These and other issues that have the potential to make or break the Program likely will be resolved over the coming months and we strongly encourage anyone that currently discharges or is likely to discharge nutrients in the future to review the draft regulations and take the opportunity to help shape Maryland’s trading Program.

Ballard Spahr's Environment and Natural Resources Group advises on national and regional compliance, permitting, rulemaking, development, business planning, and contamination matters. The Group also provides representation in litigation, during investigations, and for transactions.

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