Paper Number: 2005-07

Document Date: 06/2005

Author(s): Cynthia Morgan and Ann Wolverton

Subject Area(s): Water Pollution; Pollution Control Options and Economic Incentives; Non-Point Source Pollution

Keywords: water quality; market-based trading; offset initiatives

Abstract: This paper provides a systematic overview of water quality trading in the U.S. The primary source of information for this overview is a detailed database, collected and compiled by a team of researchers at Dartmouth College. This paper divides the trading programs discussed in the database into four categories: on-going offset/trading programs, one-time offset agreements, state and regional trading policies, and other projects and recent proposals that involve trading. Details discussed include: sources of the pollutant, types of pollutants traded, legal liability, main regulatory drivers, market structure, trading ratios, transaction and administrative costs, and difficulties encountered in trading. We find that trading has often been explored in the context of more stringent discharge limits, or watershed-wide caps (e.g. TMDL). The most common type of trading program in the United States is between point sources and non-point sources. Point sources are usually held liable for non-point source reductions. The pollutants most commonly traded in the U.S. are nutrients such as phosphorus and nitrogen, and almost all offset and trading programs focus on one pollutant only. However, market structures, trading ratios, and other details of the trading framework vary widely among programs.

This paper is part of the Environmental Economics Working Paper Series.

• Water Quality Trading in the United States (PDF)(53 pp, 1 MB, 06/2005)