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Water Quality Trading in the United States

Author

Listed:
  • Cynthia Morgan
  • Ann Wolverton

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.

Suggested Citation

  • Cynthia Morgan & Ann Wolverton, 2005. "Water Quality Trading in the United States," NCEE Working Paper Series 200507, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Jun 2005.
    • Handle: RePEc:nev:wpaper:wp200507
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    File URL: https://www.epa.gov/environmental-economics/working-paper-water-quality-trading-united-states
    File Function: First version, 2005
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    References listed on IDEAS

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    2. Richard T. Woodward & Ronald A. Kaiser, 2002. "Market Structures for U.S. Water Quality Trading," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 24(2), pages 366-383.
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    Cited by:

    1. Robert Hahn & Kenneth Richards, 2013. "Understanding the effectiveness of environmental offset policies," Journal of Regulatory Economics, Springer, vol. 44(1), pages 103-119, August.
    2. Nguyen, N.P. & Shortle, J.S. & Reed, P.M. & Nguyen, T.T., 2013. "Water quality trading with asymmetric information, uncertainty and transaction costs: A stochastic agent-based simulation," Resource and Energy Economics, Elsevier, vol. 35(1), pages 60-90.
    3. Karen Fisher-Vanden & Sheila Olmstead, 2013. "Moving Pollution Trading from Air to Water: Potential, Problems, and Prognosis," Journal of Economic Perspectives, American Economic Association, vol. 27(1), pages 147-172, Winter.
    4. Molnar, Jennifer L. & Kubiszewski, Ida, 2012. "Managing natural wealth: Research and implementation of ecosystem services in the United States and Canada," Ecosystem Services, Elsevier, vol. 2(C), pages 45-55.
    5. Andrew Manale & Cynthia Morgan & Glenn Sheriff & David Simpson, 2011. "Offset markets for nutrient and sediment discharges in the Chesapeake Bay Watershed: Policy tradeoffs and potential steps forward," NCEE Working Paper Series 201105, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Aug 2011.
    6. Ghosh, Gaurav & Kwasnica, Anthony & Shortle, James, 2010. "A Laboratory Experiment to Compare Two Market Institutions for Emissions Trading," FCN Working Papers 18/2010, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
    7. Khatri-Chhetri, Arun & Collins, Alan R, 2013. "Reducing Phosphorus Impairments with Nutrient Trading," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 149686, Agricultural and Applied Economics Association.
    8. Paragahawewa, Upananda Herath, 2006. "Market-Based Approaches to Pollution Control in the Lake Taupo Catchment in New Zealand," 2006 Conference, August 24-25, 2006, Nelson, New Zealand 31975, New Zealand Agricultural and Resource Economics Society.
    9. Zajicek, Michael Nathan, 2013. "Water quality trading on the Minnesota River: Lessons learned from the Jordan Trading Program," Master's Theses and Plan B Papers 162278, University of Minnesota, Department of Applied Economics.
    10. Jenkins, W. Aaron & Murray, Brian C. & Kramer, Randall A. & Faulkner, Stephen P., 2010. "Valuing ecosystem services from wetlands restoration in the Mississippi Alluvial Valley," Ecological Economics, Elsevier, vol. 69(5), pages 1051-1061, March.
    11. O'Hara, Jeffrey K. & Walsh, Michael J. & Marchetti, Paul K., 2012. "Establishing a Clearinghouse to Reduce Impediments to Water Quality Trading," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 42(2), pages 1-12.
    12. Galik, Christopher S. & Olander, Lydia P., 2018. "Facilitating markets and mitigation: A systematic review of early-action incentives in the U.S," Land Use Policy, Elsevier, vol. 72(C), pages 1-11.
    13. Zhao, Tianli & Poe, Gregory L. & Boisvert, Richard N., 2015. "Management Areas and Fixed Costs in the Economics of Water Quality Trading," Working Papers 250017, Cornell University, Department of Applied Economics and Management.
    14. Ghosh, Gaurav & Shortle, James, 2012. "Managing Pollution Risk through Emissions Trading," FCN Working Papers 1/2012, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
    15. James Shortle & Richard D. Horan, 2013. "Policy Instruments for Water Quality Protection," Annual Review of Resource Economics, Annual Reviews, vol. 5(1), pages 111-138, June.

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