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Incentive Analysis for Clean Water Act Reauthorization: Point Source/Nonpoint Source Trading for Nutrient Discharge Reductions

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This report examines effluent trading as one option to achieve water quality objectives at least cost. While several options are discussed, the paper focuses principally on trading schemes in which regulated point sources are allowed to avoid upgrading their pollution control technology to meet water quality-based effluent limits if they pay for equivalent (or greater) reductions in nonpoint source pollution within their watersheds. The report identifies several conditions that appear necessary for an efficient and effective point/nonpoint source trading program. Reviews of three trading experiences to date--Cherry Creek and Dillon Reservoir in Colorado, Tar-Pimlico River Basin in North Carolina--indicate that the absence of one or more of these necessary conditions result in the delay of trading or will necessitate a shift in focus of the trading program to facilitate continued pollutant load reductions.

The report also discusses the economic benefits and costs, the nationwide potential, and Clean Water Act implications of effluent trading.

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