A System Dynamics Approach to Changing Perceptions about Thermal Water Quality Trading Markets

Thermal Water Quality Trading

Thermal water quality trading is an emerging policy tool for managing water temperature. Temperature trading programs give point source thermal polluters the option to comply with effluent restrictions by paying landowners along the same body of water to plant shade trees. The shade trees cool the water, offsetting the thermal pollution emitted by the point source.

Thermal water quality trading programs are likely to use bilateral negotiations market structures, in which the point source and landowner negotiate directly with each other to make trades (Woodward et al., 2002). These markets are also likely to use trading ratios, which weigh different sources of pollution reduction by applying a multiplier to the value of a credit depending on how it was created. To reduce the likelihood of hotspots caused by trading, these policies may also use upstream-only rules, which require each point source to trade only with landowners that are physically located upstream from that source. These markets may allow landowners to sell credits created by other conservation programs, and will generally require landowners to generate some baseline amount of vegetation before they are allowed to sell credits (CTIC, 2006).

Conventionally, water pollution in the United States has been regulated using a command and control approach, in which point sources are issued permits restricting their discharge of specific pollutants. Thermal water quality trading can easily be set up within this system of water quality regulation, by designing pollutant discharge permits so that they allow point sources to comply with regulation through trading.