Rutgers New Jersey Agricultural Experiment Station [Water Resources Program]

Water Quality Trading Program

Science/Engineering issues related to Water Quality Trading

It is important to determine the suitability of a pollutant before developing a trading program. Not all pollutants are suitable for trading. Toxic chemicals for example are not suitable for trading. The pollutant should also be easily characterized and measured, so that the effect of trades can be monitored.

Scientific modeling plays a critical role in constructing a water quality trading program. Any trade is based on the expectation that it will improve water quality in the watershed. Comprehensive water quality models can simulate different trading scenarios, and predict their effects on water quality.

Key issues:
• Strengths and weaknesses of the water quality modeling methodology
• Levels of uncertainty in the model and adequate safety factors
• Source dataset and data quality used to generate the model
• Accuracy of the model in quantifying nonpoint source loads
• Ability of model to account for population growth in the watershed
• Ability of model to calculate the effect of geographic location in comparing pollution from different sources: Is the pollution from a source which is closer to the impacted area more significant than the same pollution level discharged from a source farther away?

Continuous monitoring of pollutant levels in the target water body helps quantify if a trade has improved water quality. Monitoring also can verify or refute model predictions, and ensure compliance of trading parties with their obligations.

Key issues:
• Data collection parameters and methodology
• Data analysis
• Are other factors causing eutrophic conditions, such as light availability, low flow, stream bottom characteristics, etc.

Avoidance of hot spots
Water quality trading should not result in localized areas of unacceptably high pollutant concentration, or hot spots. When designing the trading program, always consider the pollutant characteristics, watershed conditions, location of trading parties, and type of trades (point or nonpoint).

The EPA recommends the following options:
• Limit the direction of trades – Favor upstream trades over downstream trades
• Impose special limits on dischargers likely to cause hot spots
• Restrict the number of credits that can be used by a discharger

Quantifying the effectiveness of nonpoint source (NPS) controls
This is an ongoing challenge and area of research. It is difficult to quantify with high certainty the effectiveness of both agricultural and non-agricultural best management practices (BMPs), such as riparian buffers or stormwater management methods. However, trading with nonpoint sources cannot function without estimates of their pollutant reductions.

Key issues:
• Measuring NPS pollution
• Quantifying BMP effect on NPS pollutant reduction
• Setting a trading ratio to reflect uncertainty in NPS pollutant reductions


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