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Water Policy Vol 10 No 1 pp 73–93 © IWA Publishing 2008 doi:10.2166/wp.2007.028

Water quality trading in the United States: trading programs and one-time offset agreements

Cynthia Morgan and Ann Wolverton

US EPA, National Center for Environmental Economics, 1200 Pennsylvania Av., NW, MC 1809T, Washington, DC 20460, USA . *Corresponding authormorgan.cynthia@epa.gov


ABSTRACT

This paper provides a systematic overview of water quality trading programs and one-time offset agreements in the USA. The primary source of information for this overview is a detailed database, collected and compiled by a team of researchers at Dartmouth College. 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 as a way to meet more stringent discharge limits or watershed-wide caps. 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 USA 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. No single characteristic appears to be a good predictor of a successful trading program.

Keywords: Market-based trading; Non-point source pollution; Offset initiatives; Water quality


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