Water Quality Trading

What is water quality trading?

Water quality trading is an innovative approach to achieve water quality goals more efficiently. Trading is based on the fact that sources in a watershed can face very different costs to control the same pollutant. Trading programs allow facilities facing higher pollution control costs to meet their regulatory obligations by purchasing environmentally equivalent (or superior) pollution reductions from another source at lower cost, thus achieving the same water quality improvement at lower overall cost.

How does water quality trading work?

While trading can take many different forms, the foundations of trading are that a water quality goal is established and that sources within the watershed have significantly different costs to achieve comparable levels of pollution control.

Where will water quality trading work?

Where watershed circumstances favor trading, it can be a powerful tool for achieving pollutant reductions faster and at lower cost. Water quality trading will not work everywhere, however. Trading works best when:

1) there is a "driver" that motivates facilities to seek pollutant reductions, usually a Total Maximum Daily Load (TMDL) or a more stringent water quality-based requirement in an NPDES permit;

2) sources within the watershed have significantly different costs to control the pollutant of concern;

3) the necessary levels of pollutant reduction are not so large that all sources in the watershed must reduce as much as possible to achieve the total reduction needed – in this case there may not be enough surplus reductions to sell or purchase; and

4) watershed stakeholders and the state regulatory agency are willing to try an innovative approach and engage in trading design and implementation issues.