Addressing Risk and Uncertainty in Water Quality Trading Marketsby and -
This issue brief identifies the major types of uncertainties in water quality trading markets and summarizes the various mechanisms that could be used to address them.
Across the United States, water quality trading is being explored as a mechanism for reducing the costs of cleaning up impaired waterbodies. Trading between point sources, such as wastewater treatment plants, and nonpoint sources, such as agriculture, can cut costs for regulated entities needing to reduce pollutants, and generate revenue for agricultural producers who generate credits. However, water quality trading, particularly between point and nonpoint sources, can face inherent uncertainties around quantification of nonpoint source reductions, participant behavior, regulations, and market supply and demand. Effectively addressing uncertainties is crucial to ensuring the success of these markets and improving water quality.
This paper establishes a framework from which to engage federal and state agencies, program developers, and stakeholders in a dialogue about these uncertainties and appropriate mechanisms for addressing them.