Only a Market Can Clean Up the Bay

By David Schnare
PERC Reports, June 2007

 Catchphrases like "Clean Up the Bay" often imply that humans caused the problem but government ought to fix it. This orthodoxy distills a complex issue into a simplistic environmental status that becomes the public goal, which, allegedly when it is reached, will resolve the problems—e.g., the Bay will be clean.

 Beneath this orthodoxy lie purposes unrelated to the environmental issue, directing the problem and potential responses into  arrow paths and limiting the scope and cost-efficiency of alternatives. In so doing, opportunities may be missed to achieve better environmental quality at a lower cost. This article examines the Chesapeake Bay orthodoxy and offers an alternative means to define and achieve protection and enhancement of this remarkable environmental asset.

Down by the Bay

 Once the largest commercial fishery in the United States, the Chesapeake Bay could produce $3 billion in commercial fishing revenues per year. Now it produces less than $100 million.1 Assuming the two states of the Chesapeake Bay share equally in the economic benefits, recovering this fishery would double Virginia’s domestic product for agriculture, forestry, fishing, and hunting. For Maryland, it would triple. Regarding their total state domestic products (SDP), recovery of this income would increase Virginia’s SDP by 0.4 percent and Maryland’s by 0.6 percent. These economic benefits justify significant attention to the Bay and a search for cost-effective means to recover the fisheries. But the question remains whether the Chesapeake Bay environmental orthodoxy can produce that recovery.  Unfortunately, it hasn’t and it can’t.

 The convention begins with the statement that the Bay contains a dead zone—where no fish can live—that can cover up to 40 percent of the Bay and lasts 10 months a year. Having focused on a single ecological phenomenon, the orthodoxy then looks to the source of that problem. It argues that the most important cause of this dead zone stems from the flow of nitrogen into the Bay. Having narrowed the focus of "the problem" to a single chemical, the goal is to reduce nitrogen discharges into the Bay by approximately 35 percent.

Reducing nitrogen discharges is the foundation for solutions, which are dominated by the presumption that all solutions require governmental action, typically in the form of command-and-control regulations and governmental grants. In this example, enviromentalists look to the Clean Water Act as the means to force reduction in nitrogen discharges and as the cornucopia for grants.

When forced to move away from command and control and toward market mechanisms, it is difficult to look beyond a cap and trade approach, which still relies on regulatory mandates but allows the regulated parties to trade between themselves to find less expensive means to meet regulatory standards.

The science, engineering, and economics of the Bay condemn this orthodoxy to failure. A fresh look at the actual determinants to the Bay ecology suggests an alternative approach much more likely to protect and enhance the productivity and aesthetics of the Bay.

Leaving aside for the moment whether the nitrogen reduction goal has merit, the goal itself is beyond the reach of command-and-control or cap-and-trade solutions. Figure1 documents the antecedents of this failure. To reach the 35 percent reduction goal, it would appear that Pennsylvania, Maryland, and Virginia would need to reduce their nitrogen contributions to the Bay. A closer look at the dead zone, however, shows that this zone is caused by Maryland and Virginia and lies against the Virginia shore. The Bay does not behave like a well-mixed cauldron of ingredients from Pennsylvania, West Virginia, New York, Delaware, and the District of Columbia. Rather, the dead zone results from nutrients discharged into two of the six major river basins within the Chesapeake Bay watershed. Notably, this also excludes half of Virginia and two-thirds of Maryland. Thus, as Figure 1 suggests, the states of Maryland and Virginia do discharge an amount greater than the reduction goal; but taking only the relevant river basins into account, these two basins contribute a nitrogen loading less than the goal.

This, alone, impeaches the goal itself. Another problem with meeting the 35 percent goal stems from the limits of engineering and regulatory proposals. Despite reliance on the Clean Water Act, it does not authorize the federal agencies to regulate pollution caused by agricultural lands, forests, or open lands. Furthermore, the law does not allow the U.S. Environmental Protection Agency (EPA) to mandate application of "tertiary " waste water treatment, which basically turns waste water into drinking water. Though federal and state legislatures have refused to allocate the $2 billion needed to apply tertiary treatment to the point sources in the  Chesapeake Bay watershed, that investment would not solve the problem.

All of the waste water treatment plants in the Bay watershed now have "secondary" treatment to substantially degradethe biological content of the sewage, much of which is derived from human and food waste. To remove additional nitrogen from their discharges, industrial plants must apply the tertiary treatment. Because this process removes only 65 percent of the nutrients, it is of limited use. As shown in the third column in Figure 1, removing only two-thirds of the nutrients from the point sources over the Bay’s entire watershed will not be sufficient to meet the goal; significant reduction of nutrient discharge from the agricultural sector is required.

Farms have multiple sources of nutrients, but 55 percent of the nutrient load comes from croplands—primarily from manure and commercial fertilizers applied to the fields. Even under the aggressive regulatory efforts now in play by the EPA and the state environmental departments of Maryland and Virginia, the regulations do not apply to croplands. Moreover, even if farmers could reduce these cropland loadings (and they can using never-till crop management), and even if all the farmers in the entire Bay watershed applied these techniques, it would not be enough to meet the pollution control goal.

Markets to the rescue

Fortunately, vigorous enforcement of private property rights and the marketplace can do what the orthodoxy cannot. Free market environmentalism uses the same science and engineering, but establishes goals directly associated with the market and private property rights. Keeping the environmental concern focused on the dead zone, the free market approach asks who has trespassed on what private property rights.

The $3 billion worth of commercial fisheries includes private land underlying the rivers flowing into the Bay. Some of these fisheries have traditionally offered valuable oyster, mussel, and shellfish habitat. Although the water itself belongs to the Commonwealth of Virginia or the State of Maryland, the land on which these mollusks live belongs to private parties. In like measure, the eggs of the shellfish, and indeed of most Bay fish, sit on private lands. A myriad of other private interests accrue in the Bay, all of them harmed by the dead zone.

This nutrient and sediment pollution is a private nuisance that interferes with an individual’s right to enjoy his or her property. The Commonwealth specifically provides relief from such nuisances under Virginia Code, and Maryland has similar protections through the common law. Private actions against polluters in the Potomac and Rappahannock watersheds, for example,would rehabilitate the privately owned fish and mollusk habitat—reducing the dead zone to historical (pre-colonial) levels. The most efficient legal action would be against the point sources—those which should be held liable for their contribution to the nuisance. They would not, however, be required to add tertiary treatment unless other nutrient reduction efforts failed. Rather, they would pay farmers to shift from traditional plowing to never-till crop management. The cost per pound of never-till nitrogen removal is 25 times less costly than tertiary treatment of waste water plants.

A second marketplace will have an important role as well. The bio-fuels market is now moving into a third generation of technology. Companies such as BRI, Inc. offer means to convert manure, and especially chicken litter, directly into ethanol for farmers to use at less than a dollar a gallon—well below other bio-fuel processes.

Only vigorous protection of private property rights and markets can clean up the Bay and, equally important, they can do so regardless of the success or failureof the command-and-control orthodoxy.

 NOTE

1. Numbers presented in testimony before the Virginia Joint Committee on Funding Bay Restoration.

This article is based on a paper prepared for the Thomas Jefferson Institute for Public Policy, and delivered at the 2007 Annual Meeting of the Association of Private Enterprise Education.

David W. Schnare is an environmental scientist and an attorney licensed to practice in the Commonwealth of Virginia. He is a Senior Environmental Fellow of the Thomas Jefferson Institute for Public Policy and maintains a blog at www.TheHardLook.com.

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