Maryland Conservation Finance Legislation - Details
I wrote last week about SB0737, the Comprehensive Conservation Finance Act, but thought I'd provide a more detailed summary, given the level of interest and feedback.
The Chesapeake Bay region is envied by many others for its level of investment in conservation. However, public funding is not enough to achieve success for the Bay, community health, or other natural resources. And public funding is under even more pressure in this pandemic-induced crisis. However, private financial investment in clean water, healthy soil, carbon sequestration, forest restoration and protection, and thriving and healthy communities is rapidly growing. For example, wetland and stream restoration attracts $4 billion in private capital annually and global carbon credit revenue last year passed $200 billion.
The bill makes changes to state code focused on clean water, environmental justice, forest conservation, carbon sequestration, wildlife enhancement, and agricultural profitability. Back of the envelope, I think changes in the bill will increase private investment in conservation and communities in Maryland by up to $100 million per year after 5 years.
What's in the bill?
PAY FOR SUCCESS PROCUREMENT
Many states like Delaware, Massachusetts, South Carolina, and Connecticut have created Pay-for-Success contracting for social outcomes in education or health - its been completely bipartisan.
Changes proposed in this bill would make Maryland the first state to create Pay-for-Success contracting authority for environmental and climate outcomes (*Louisiana was the first state just for coastal resilience outcomes).
This is a competitive procurement practice that allows the state to buy completed environmental outcomes, including buying them as commodities instead of as service contracts. Under a traditional services contract, agencies pay a successful bidder in increments, as they complete work and document costs, typically through multiple often-monthly payments over a few years. Sometimes those contracts have a small portion of the payment tied to whether construction is completed to design, but usually they are not tied to environmental results. A Pay-for-Success contract is different. Most or all funding is withheld under the contractor completes the project and has achieved pre-agreed upon environmental outcomes.
Pay for Success contracts expand private investment because contractors and bidders need to use their own funding to pay for design, planning, implementation, and post construction monitoring/repair needed to achieve outcomes. Given the revenue shortfalls facing the state and our local governments over the next several years, these contracts are beneficial because any state payments for successfully achieved outcomes would occur one or more years after contracts are executed.
DEFINES ENVIRONMENTAL OUTCOMES AS COMMODITIES
The bill creates a useful, but flexible, definition of ‘environmental outcome’ which is a quantifiable measure of environmental improvement, like pounds of carbon storage in soil, or nutrient pollution outcomes estimated with the Bay model. We've talked before about how important the term 'commodity' is for unlocking new federal funds, but its got a different value in state policy. Commodity or 'supply' contracts are different than service ones - they require a lot less paperwork. Yes, its still a government contract, but the ones states use to purchase laptops or vehicles have much simpler paperwork and administrative costs. Bringing that simplicity to carbon and water quality procurement is a big improvement.
The bill also allows local governments or others to ‘piggy-back’ onto an existing state contract to buy an environmental outcome like carbon sequestration or nitrogen pollution reduction at the same price, just like local governments can do with other types of contracts. This could simplify the process and lower the cost for local government to meet Chesapeake Bay water quality goals and requirements.
DEFINING BLUE AND GREEN INFRASTRUCTURE
The bill creates the first definition in the country for ‘blue infrastructure’ that includes assets like seagrass beds and oyster reefs and also creates a definition of green infrastructure that includes carbon and climate change benefits. Federal, state, and private investment in coastal resilience, carbon-storing soils, reef and aquatic habitat restoration, and natural solutions that reduce water pollution or flooding are experiencing a national renaissance. These definitions and a provision that puts green and blue infrastructure on par with gray infrastructure for state financing and common sense ways to make state policy reflect the opportunity this 21st century solution provides us to address climate change and meet Chesapeake Bay goals.
LEARNING FROM OTHER STATES ON CREATIVE USES OF SRFS
Changes to two state revolving funds for drinking water and clean water infrastructure make clear all the flexible ways these EPA/state-backed loan funds can be used for water projects. In Maryland, these federally-backed programs have provided $2.5 billion in infrastructure investment primarily as loans over 20 years, including at least $130 million for nonpoint source control work. The changes clarify that the programs can support:
- Easements or acquisition (as well as restoration) for the protection of forests (as well as forest restoration)
- Protection of forests in drinking water source areas (including in suburban areas)
- Local government sponsorship of green infrastructure projects led by nonprofits or for profits with no additional financing cost to their treatment facility budget
- Loan guarantees to nonprofits or for profits on Pay-for-Success, green bonds, or environmental impact bonds that make private financing less expensive at no long-term public cost
- Cross-state loans in the Susquehanna River watershed of Pennsylvania if it is to a biistate organization supported by the Chesapeake Bay Program Partnership
- Master leasing agreements with partners to produce water quality benefits from restoration of state lands
- Multi-year partnerships that combine private funds, with DNR Trust Fund grants, and loans to achieve bigger water quality goals
ENVIRONMENTAL JUSTICE
The bill includes a number of provisions that make investment in addressing past environmental injustice easier. For example, the bill adds a new priority around environmental justice to the Drinking Water SRF intended to lift up efforts to finance replacement of toxic lead water pipes, consolidate failing, small private utilities, and support green infrastructure that mitigates hazards in burdened communities. The bill also sets aside a small portion of funding for grants (instead of loans) to help disadvantaged communities plan and design water projects. The bill also adds a duty for the Commission on Environmental Justice and Sustainable Communities to recommend steps the state would take to make safe, clean, and affordable water a right of all the state’s residents. This is just a first step to get recommendations, but experience in California where this right exists in law is making a big improvement in efforts to bring better water services to burdened and struggling communities and populations.
DAM REMOVAL AND MICRO-HYDROPOWER
Maryland has dozens to hundreds of hazardous and deteriorating small dams that often have outlived their original use and create enormous liabilities for landowners and downstream residents and businesses. So do most states. And yet there are few initiatives in the country to incentivize the efficient permitting and financing of their removal, despite public health, wildlife, and water benefits of doing so. North Carolina is one of the bright spots in the country in bringing in private investment-backed efforts to fund the removal of some of these structures. This bill includes a provision that directs the Department of Environment to identify hazardous dams to the Maryland Infrastructure Financing Authority if they have hydropower potential. It would also require MDE to prioritize purchase of mitigation credits arising from dam removals as a way to make it easier to finance dam removals that are important for fish passage. These are simple steps, but especially the action to create a market for mitigation credits could lead to more efforts to eliminate failing and useless dams in the state.
FOREST BANKING
You might have heard of wetland banks, stream banks, nutrient banks, species banks, and carbon banks. Maryland is the only state I know that has something close to a no net loss of forest policy and created forest banks as a way to offset losses that do occur. Essentially this is net zero policy just like the climate ones on everyone's mind today.
The bill amends state forest protection laws to make forest mitigation banks the first priority when off-site mitigation for forest losses occur. By mandating bank credits as the preferred option and fixing pricing so in-lieu fees are not subsidized by taxpayers at below market rates, these changes should lead to small but important increases in private protection and restoration of forests in the state.
CARBON MARKETS
Maryland forests and agricultural lands have significant potential to absorb more carbon while improving soil health, water quality, and wildlife habitat. Business interest in purchasing ‘credits’ from such carbon sequestering activities is higher than ever. However, carbon credit projects are few and far between in Maryland and the state risks missing out on modest levels of potential investment in conservation work that creates carbon additionality, including because properties are so small.
The bill would amend state Forest code to allow the state to use state forests to meet the buffer or insurance requirements of voluntary carbon markets, allowing private landowners to buy into that service and thereby make the purchase of aggregated carbon credits from either lands easier and more profitable to sell. It encourages DNR to establish a working group on carbon protocols and offset projects to help speed up the ability of offset projects and entry of those projects into markets. And it encourages DNR to negotiate partnerships with expert organizations to help aggregate privately owned forest lands for carbon markets. Similar steps in the bill would also apply to the Department of Agriculture.
DEPARTMENT OF TRANSPORTATION & GREEN INFRASTRUCTURE
Departments of Transportation are one of the most important types of agencies that could stimulate private conservation investment because they have significant effects on stormwater runoff, biodiversity, and climate change that it will often make sense for them to work with partners to offset. The bill changes the public private partnership authorities of Maryland's DOT to amend the definition of ‘public infrastructure asset’ to include ‘green or blue infrastructure.’ This will allow MDOT to use public-private partnerships to support work on living shorelines, aquatic restoration, ecological restoration, and other green infrastructure that is often necessary to offset the impacts of MDOT projects.
ACCOUNTING FOR NATURAL ASSETS
I often joke that I've tried to focus my career on the most boring parts of conservation imaginable - this one is definitely up there. It's because super-boring areas of policy often have some of the most profound impacts in decision making that helps or hurts our environment. Right now, local governments track the value of things like buildings and policy cars every year. And because they do, they are sensitive to the need to invest in replacement or repair. But we don't do that for natural assets like forests, flooding protection, or carbon stock. This bill would take a first step in that direction for Maryland. It creates a task force to assist state and local governments in developing practices and standards to account for natural capital and green infrastructure asset values side by side with traditional asset accounting practices and which would report on progress in implementing Government Accounting Standards Board recommendations and guidance on green infrastructure and natural asset accounting. Boring? Yes, but tied to trillions of dollars in infrastructure management decisions.
Sr. Finance Advisor EPA Greenhouse Gas Reduction Fund, Founder i2 Capital, Founding Board Chair Conservation Innovation Fund | Finance and Supply Chain Sustainability across Agriculture, Water and Energy sectors.
1 年Awesome as always, Tim.
Executive Director at Environmental Policy Innovation Center
3 年Bill passed the Senate Education, Health and Environment Affairs Committee today, 11-0!
Chief Ratings Officer @Bezero Carbon
3 年Congrats to you and your partners on all this, Tim. That sounds like a whole lot of progress! Any one of those would be impactful but packaging them all together is masterful!
Superintendent of NPS Chesapeake Gateways
3 年Timothy Male thank you! Thank you for this extremely helpful run through of the MD conservation finance legislation. And thank YOU, for helping to craft and champion this leap forward for Chesapeake conservation.
Climate Adaptation Policy Analyst at Defenders of Wildlife
3 年Won't "Pay for Success" contracts favor the biggest companies and drive everyone else out of business?