Maryland’s Comprehensive Conservation Finance Act: A Blueprint for Regulatory Infrastructure

A Bill to Bring Private Capital to Public-Private Conservation Finance
In April 2019, the Chesapeake Bay Land and Water Initiative convened stakeholders from government agencies, conservation nonprofits, and private capital groups for a Roundtable on Private Capital Investment in Environmental Restoration and Conservation. A partnership between the Land Trust Alliance, Alliance for the Chesapeake Bay and the Chesapeake Conservation Partnership, the Initiative recognized the need for greater private capital investment and private landowner participation in conservation finance. The background reading document provided to Roundtable participants cited estimates that public conservation finance commitments totaled $31.7B globally in 2015 compared to only $1.7B in private commitments. The Roundtable discussed ways to increase the private share of conservation finance investment, kickstarting a process that would eventually produce Maryland SB0737--the Comprehensive Conservation Finance Act (CCFA).
The Bill is exciting because of technical changes proposed across the conservation regulatory regime rather than any one new grand initiative. The CCFA would define “Blue Infrastructure” as real infrastructure— the first such legal definition by a state. And it would alter procurement policies to permit Pay for Success, reducing the bureaucratic burden on private groups seeking to partner with government agencies for conservation projects. Importantly, these and other seemingly mundane changes were informed by diverse actual experience with previous public conservation projects. They, therefore, address those regulatory barriers that stifled public-private project execution, creating an enabling environment for greater innovation and flexibility in the future of conservation finance. Accordingly, both the CCFA itself and the developmental process to identify addressable regulatory challenges represent a strong blueprint for other states to follow. Maryland’s legislative session ran out of time before the CCFA could pass both chambers, but the concepts contained within the bill are sure to play a meaningful role in the public-private conservation finance ecosystem for years to come.
Prospects for Conservation Finance Processes
Since the CCFA was the product of discourse among participants in current Chesapeake Bay conservation programs, it represents a collection of incremental improvements to current regulation rather than a wholesale re-imagination of conservation activities. Several provisions stand out.
First, “Blue Infrastructure” and “Green Infrastructure” would be standardized terms, and watersheds receive explicit characterization as infrastructure. Maryland would be the first state to specifically define Blue Infrastructure, describing it as a "water-based natural element or engineered element designed to mimic or enhance the function of a natural element that: (I) Absorbs and filters pollutants; (II) protects communities from flooding or storm surge; (III) reduces erosion or (IV) Sequesters Carbon.”
Examples include enhanced oyster reefs, seagrass beds, and coastal marshes. The bill then explicitly notes that “blue infrastructure or green infrastructure [...] is eligible for the same forms of financial assistance as other water collection and treatment infrastructure.” In other words, some green and blue infrastructure projects would thus be eligible for low-interest loans via Maryland’s Water Quality Revolving Loan Fund and Drinking Water Revolving Fund. These revolving funds--common water infrastructure financing vehicles across states--are backed by the Environmental Protection Agency and stem from 1987 amendments to the Clean Water Act.
Ashley Allen Jones, CEO of i2 Impact Investing, says the development and formalization of the Blue Infrastructure term lays “the foundation for a completely different way of valuing resource conservation, the opposite of resource depletion […] once that’s done and the government comes to the table and says this is how we’re doing business—that eventually leads to a level of comfort around a lot more [investors] being willing to buy an environmental product as part of their regular business activity.”
That increased comfort level among private investors was a goal of Peter Stein and Elizabeth Adams of the Lyme Timber Company, who consulted the working group on the bill’s revolving fund provisions. (Peter Stein serves on the Conservation Finance Network's board.) Lyme Timber had previously partnered with PENNVEST, Pennsylvania’s clean water revolving loan fund, in a land acquisition project. Based on his experience, Stein believes “there are plenty of other authentic water quality public-private partnerships that could use [clean water revolving fund] debt.”
The CCFA reflects that sentiment. In addition to allowing loans for green and blue infrastructure, the bill clarifies other uses for revolving fund programs including but not limited to loans for conservation easements or acquisitions of forestland, and loan guarantees for nonprofit or for-profit entities engaging in Pay for Success arrangements. That flexibility should encourage greater use of private capital for a diverse set of nature-based solutions.
Second, Pay for Success (PFS) receives authorization as a procurement tool, and some environmental outcomes like carbon or water quality credits would be classified as commodities. PFS is an innovative contracting scheme whereby interventions get upfront funding by private capital, and that capital gets repaid with a return by the government or other payer only if pre-specified outcomes are realized. 
Maryland would be only the second state after Louisiana to explicitly permit this kind of contracting in the environmental realm. Eric Letsinger, CEO of Quantified Ventures, claims in his letter of support that this authorization “will create a defined income stream that will spur new investment and projects. Developers will engage in new environmental projects knowing there is a customer and a transparent price for outcomes produced.” Quantified Ventures is a leader in the environmental PFS space, having helped develop the $25M DC Water Environmental Impact Bond, which finances green infrastructure to mitigate sewer overflows that pollute water sources flowing into the Chesapeake Bay. Letsinger expressed excitement at the slate of projects Quantified Ventures will get to work on should this bill be enacted.
Third, in support of carbon credit markets, private landowners receive explicit space to earn profit from sustainable use of their land. The bill directs the Department of Natural Resources and Department of Agriculture to foster the development of statewide carbon credit market programs. In his letter of support, Letsinger suggests that “facilitating landowner participation in carbon markets can result in new projects that have both water quality and carbon benefits […] Combining carbon outcome revenues with water quality outcomes can unlock enough total revenue to fund upfront costs of a project.”
The CCFA also changes the operating procedures of several government agencies in support of harmonized regulation and environmental protection. Examples include: the creation of a task force to study green infrastructure applications, prioritization of forest mitigation banks when forest loss occurs, and authorization for intergovernmental agreements related to the Susquehanna River watershed. Together these provisions open new opportunity sets for private capital and private landowners alike. 
Bill Development Process
After discussing the current state of Chesapeake Bay conservation activities at the Roundtable, a multi-stakeholder working group emerged to turn their discourse into policy action.
Maryland emerged as a prime candidate for this model legislation. One of the working group leaders was John Griffin, former Maryland Secretary of the Department of Natural Resources and currently Program Manager of the Chesapeake Conservation Partnership. Based on his experience in the Maryland State Government and relationships with legislators, Griffin believed he would likely find “support from leaders in the Maryland General Assembly.” Additionally, Griffin was in communication with Ben Grumbles, Maryland State Secretary of the Environment, who, according to Griffin, “has been a promoter of getting more capital investment in environmental restoration work”. 
In January 2020, Secretary Grumbles and his staff met with Griffin, Chesapeake Conservancy CEO Joel Dunn, and Tim Male, Executive Director of the Environmental Policy Innovation Center and facilitator of the original Roundtable to talk through some of the working group’s proposals. Secretary Grumbles’ team responded positively, and this set off a feedback gathering and proposal iteration process with Department of Environment managers. Conversations with other related agencies began in parallel, leading to the first drafting of the CCFA. Gradually, Male, Griffin, and Dunn expanded the bill feedback conversations to include parties not originally in the working group process like the Chesapeake Bay Foundation and the League of Conservation Voters that, in addition to the Maryland Department of Environment, all later wrote letters of support. 

The CCFA also changes the operating procedures of several government agencies in support of harmonized regulation and environmental protection.

In November 2020, Griffin worked with State Senator Jim Rosapepe to formally request bill drafting through the general assembly. Senator Rosapepe introduced SB0737 and Senators Elfreth, Guzzone, Hester, Smith, Washington, and Young were brought on as additional co-sponsors.
Public, nonprofit, and private groups contributed 25 letters of support for the bill. Of the 11 witnesses providing testimony for a position on the bill during Senate hearings, 10 were in favor, one was in favor with amendments, and none were opposed. As such, the CCFA passed the Senate unanimously on March 19. 
As written, the bill would tweak regulations concerning conservation programs. It would bring new protocols to the Departments of Agriculture, Natural Resources, and Environment; the Maryland Environmental Trust; and the Maryland Water Infrastructure Financing Administration, among others. Though the bill passed the state Senate unanimously, time ran out on the 2021 Maryland Legislative session before it was able to receive a vote in the state House. According to a recent email, Tim Male said he sent to supporters, “after a House committee hearing and a subcommittee work session, the Chair and Vice-Chair of the Environment and Transportation Committee decided their committee simply did not have sufficient time to thoroughly review the bill during the remaining few days of the Session.”      
Still, in that email to supporters, Male cites Senator Jim Rosapepe, sponsor of the CCFA, who has already stated that he is “looking forward to pre-filing the bill for next year’s Session with Vice-Chair [of House Environmental and Transportation Committee] Dana Stein. This will ensure early hearings and committee deliberations in both chambers, and hopefully, favorable reports leading to the passage of this legislation.”
Impact on the Conservation Finance Ecosystem
But while the CCFA improves the regulatory regime, the magnitude of the resulting conservation investment remains unclear. Joel Dunn’s  letter of support says his “belief is that [the CCFA] would provide an estimated additional $100 million per year for conservation within five years after the bill is implemented.”
But, Stein warned, we should not expect a sudden massive influx of private dollars to conservation. Infrastructure definitions and PFS permitting were not the sole barriers to further funding: “this is still high-friction, complicated stuff. And with a few exceptions it’s still pretty small scale”.
For example, parceled private land restricts the scale of potential conservation projects. High transaction costs spread across negotiations with multiple landowners and stymie the attractiveness of any effort: Stein argues that “it makes no sense for a 150-acre landowner to do this by themselves. Nor would it make any sense for a tiny amount of private capital to go partner with that landowner. But if you can get 25 of those landowners into a special purpose vehicle or land coop or an aggregation vehicle, then it does make sense.”
Similarly, the aggregate monetary value of one-off projects remains low. Stein notes: “These are $2 million to $10 million projects, not $250 million projects”. It is thus harder to attract well-capitalized investors seeking higher returns.

If you've got a regulatory hammer, you've got a more predictable, financeable market.

Nonetheless, the CCFA signals demand for private participation in conservation projects and mobilizes regulatory agencies to support conservation market mechanisms. As Ashley Allen Jones said, “if you've got a regulatory hammer, you've got a more predictable, financeable market.” Stein calls it “a solid step in the right direction [… around] the role that government agencies can play in blended finance, in partnering with private capital”. As a result, the bill might encourage a mindset shift among investors. Enterprising groups might therefore see greater incentives to proactively explore land aggregation vehicles.
According to Jonathan Doherty of the National Park Service Chesapeake Office, the resulting activity might cause positive spillover externalities to other climate-centric strategies that need land aggregation tools. Maryland’s recently passed FY2022 budget allocates $305M for parks, recreation, and open space, including a new $85M ‘Local Parks and Playground Infrastructure” capital allocation. Should land aggregation vehicles gain traction for aggregation projects, they might find a growing set of uses including, for example, creating urban land plots eligible for green space projects.
Additionally, new public-private projects flowing from the CCFA will provide capacity-building experience among environmental NGOs and private landowners who are often partners in projects run by, for example, Lyme Timber. Greater access to low-cost capital allows for a more diverse project team, bringing in those groups that were previously underfunded. In this way, NGOs and private landowners will be both better equipped for future projects and be more familiar with one another. Resulting stronger relationships and valuable project experience act as risk mitigants critical to an impact investor’s diligence considerations.
Future Considerations
Though the bill did not pass the Maryland legislature this year, it has generated dialogue and momentum. In his letter of support for the bill, Nicholas Dilks, Managing Partner of Ecosystem Investment Partners, explicitly mentioned the positive impact of such momentum:
“This legislation would almost certainly play a big role in Maryland getting the media attention it deserves and more deal development initiative from investment and restoration companies and green infrastructure advocates from across the country. And the momentum that comes from that interest is likely to beget more momentum for further investment.”
Media attention can cut both ways, of course. Momentum can generally lift conservation outcomes.