A Market-Based Approach to Stream Restoration in the Chesapeake Watershed Case Study
Case Study
When Private Capital Meets Public Waters
A Market-Based Approach to Stream Restoration in the Chesapeake Watershed
By Kemi Kakonge-Ruyondo, Yale School of the Environment
May 2025
Problem
The Chesapeake Bay, the largest estuary in the U.S., has suffered from historic nutrient pollution, sedimentation, and land use changes. Cecil County, located in the upper reaches of the Bay, reflects these challenges. Frequent streambank erosion and topsoil loss—especially during heavy rainfall—have contributed to the degradation of local waterways and increased nutrient loading.
Solution
In 2016, Ecosystem Investment Partners (EIP) launched the Maryland Water Quality Offset Project, a market-based conservation initiative focused on the farmlands of Cecil County, Maryland, part of the upper Chesapeake Bay watershed. It aimed to restore degraded streams while enabling the Maryland State Highway Administration (SHA) to meet regulatory requirements under the Chesapeake Bay Total Maximum Daily Load (TMDL). The TMDL is a regulatory limit on the amount of a pollutant a water body can receive while still meeting water quality standards.
To meet these obligations, developers purchased water quality credits. These tradable units represent verified nutrient reductions achieved through approved restoration activities. Local farmers received payments for hosting these activities on their land. The model provided a compliance pathway that delivered long-term improvements in water quality and stream function.
The SHA needed to restore 100,000 feet of stream habitat to meet nutrient reduction targets. Many of Cecil County’s tributaries were listed under the Clean Water Act Section 303(d), which identifies “impaired” waters that exceed pollution limits and require targeted interventions. Cecil Land Trust (CLT), which holds conservation easements over 5000 acres of land in Cecil County, identified potential stream sites where restoration could occur. It then engaged a diverse group of farmers across eleven farms adjacent to Little Elk Creek and Little Northeast Creek to discuss voluntary restoration projects. This confluence of regulatory need, impaired waterways, and willing landowners formed the basis of the project.
Partners
|
Project Developer & Stream Management |
Design Firm & Monitoring Partner |
Local Conservation Partner |
Construction Contractor |
? |
Credit Buyer |
Program Administrator (Fee-in-Lieu) |
|
Ecosystem Investment Partners (EIP) |
Wetland Studies and Solutions |
Cecil Land Trust |
Appalachian Stream Restoration |
Chesapeake and Atlantic Coastal Bays Trust Fund |
Maryland SHA |
Maryland Department of Natural Resources |
Outcomes and Benefits
By 2020, the project had restored over 95,000 linear feet of stream across 400 acres of farmland. The estimated annual nutrient and sediment load reduction was 4,522 tons, contributing significantly to regional TMDL goals. Beyond the numbers, meadows and wetlands rebounded, and frogs and fish returned to previously degraded waterways. Notably, the project achieved these outcomes at approximately 20% lower cost per pound of pollutant reduced than comparable public-sector restoration efforts. This cost efficiency stemmed from EIP’s upfront private financing, economies of scale, and a pay-for-performance model that tied payment to verified ecological results, unlike many publicly funded projects that disburse funds incrementally regardless of outcome.
The project also expanded access to under-resourced landowners. Participation did not require full land ownership, enabling renters and co-managers to engage in restoration efforts. Stream buffers were protected through permanent and term-limited conservation easements, depending on the landowners’ agreement and site conditions. This flexibility enabled participation from a diverse group of stakeholders - not just landowners, but also renters and co-managers, many of whom have historically been excluded from public and private conservation programs.
Financial Model
The project used a pay-for-performance model, paying farmers to restore degraded streams on their property while ensuring long-term ecological benefits. The restoration strategy was based on techniques used by wetland mitigation banking; the model allowed developers and public agencies to offset environmental impacts by purchasing credits from third-party restoration projects.
Stream restoration activities aimed to reduce turbulence, stabilize banks, and slow water velocity, enabling sediment and nutrient particles to settle naturally. These interventions were especially important in this region, where legacy sediment from historical mill operations complicated the use of softer, vegetation-based techniques.
Funding was fronted by Ecosystem Investment Partners (EIP), an environmental investment firm that absorbed early financial risk. The Maryland State Highway Administration (SHA) paid EIP $20.8 million to deliver nutrient reduction credits. Revenue was generated when the State of Maryland purchased verified nutrient reduction credits from EIP based on sediment load estimates from the National Fish and Wildlife Foundation’s Chesapeake Bay model—a tool used to quantify pollutant reductions at the watershed level.
Lessons Learned
Several factors contributed to the project’s outcomes. First, early-stage coordination between state agencies, environmental investors, and local land trusts streamlined implementation. Second, the pay-for-performance structure aligned financial returns with ecological results, reducing the risk of non-performance and improving transparency. Finally, outreach to farmers through trusted local partners, such as the CLT, was essential for securing participation across the implementation sites.
Challenges included the permitting timeline (12–18 months), adaptation to natural events such as Tropical Storm Isaias in 2020, and tension between restoration goals and agricultural conservation easements. Some conservation stakeholders expressed concerns about using engineered rock structures to stabilize streams, advocating for less intrusive methods such as willow planting. However, these softer techniques proved insufficient in a landscape marked by legacy sediment from historic mill operations.
Negotiating conservation easements also proved complex. Farmland preservation restrictions sometimes conflicted with converting land for stream buffers or in-stream construction, requiring careful legal alignment and community engagement.
Despite these challenges, the Maryland Water Quality Offset Project demonstrates how conservation finance can be leveraged to deliver both regulatory compliance and ecological benefits. Its design reflects a replicable model, particularly for watersheds where nutrient reduction mandates intersect with willing landowners and restoration-ready land.
References
Photo credit: Ecosystem Investment Partners / https://ecosystempartners.com
https://www.epa.gov/tmdl/overview-total-maximum-daily-loads-tmdls
https://www.youtube.com/watch?v=5aLxCiAViKA
https://www.nfwf.org/programs/chesapeake-bay-stewardship-fund
https://ecosystempartners.com/project/cecil-county/