Point-nonpoint effluent trading in watersheds: a review and critique

The 1990s have been characterized as the decade of market incentives in U.S. environmental policy-making. Not only is their use expanding for air pollution control, but the U.S Environmental Protection Agency is now also encouraging the use of market instruments for control of effluents within watersheds. After reviewing general guidelines and principles for effluent trading, this study considers the special problems of point-nonpoint (p-n) sources, the most common focus of effluent trading to date. Four case studies of p-n trading are discussed, which illustrate the promise of the policy. Although only two of these four case study programs have involved actual effluent trades thus far, they all have resulted in more cost-effective reductions of water pollution. Overall use of effluent trading to date has been modest, and suggestions are made for improvement of this innovative policy.