The use of transferable discharge permits in water pollution, what we will call water quality trading (WQT), is rapidly growing in the U.S. This paper reviews the current status of WQT nationally and discusses the structures of the markets that have been formed. Four main structures are observed in such markets: exchanges, bilateral negotiations, clearinghouses, and sole source offsets. The goals of a WQT program are environmental quality and cost effectiveness. In designing a WQT market, policy makers are constrained by legal restrictions and the physical characteristics of the pollution problem. The choices that must be made include how trading will be authorized, monitored and enforced. How these questions are answered will help determine both the extent to which these goals are achieved, and the market structures that can arise. After discussing the characteristics of different market structures, we evaluate how this framework applies in the case of California's Grassland Drainage Area Tradable Loads Program.

The use of transferable discharge permits as a water pollution control policy is rapidly increasing in the United States. Drawing on evidence from existing water quality trading programs, this paper provides a taxonomy of the forms that such markets take. Four main structures are identified: exchanges, bilateral negotiations, clearinghouses, and sole‐source offsets. Each of these structures has its own strengths and weaknesses; none is optimal for all scenarios. Since market structure is largely determined by a program's rules, policy makers should be aware of the differences between these structures and the conditions under which each comes to be.

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Abstract:The challenge of meeting increasing water, energy, and food needs is linked not only to growing demands globally, but also to the growing interdependency between these interconnected resource systems. Pressures on these systems will emerge to become hotspots with different characteristics, and will require a fresh look at the challenges existing both within each of the resource systems and at their respective interfaces. Proposing solutions to address different resource hotspots must be multi-faceted and need to acknowledge the multiple dimensions of the biophysical water, energy, and food systems, and the players connected with them. This commentary first explores the multiple dimensions of water, energy, and food systems as these relate to government, business, and society. It then identifies contemporary critical questions at the interface of these stressed resource systems. A 3-Filter framework is then introduced for vetting the feasibility of proposed resource allocation scenarios and to account for the bio-physical resource interactions and trade-offs, the stakeholder interactions and trade-offs, and to address governance and financing schemes for carrying forward the implementation of those scenarios.