Water Quality Trading Programs: An International Overview

Water quality trading is gaining traction in a number of watersheds around the world. It is a market-based approach that works alongside water quality regulation to improve water quality, providing flexibility in how regulations are met and potentially lowering regulatory compliance and abatement costs. Our research identified 57 water quality trading programs worldwide. Of these, 26 are active, 21 are under consideration or development, and 10 are inactive or are completed pilots with no plans for future trades. The majority of programs were located in the United States, with only six programs existing outside the United States—four in Australia, one in New Zealand, and one in Canada.

From our assessment of these water quality trading programs, we identified five key factors that stakeholders believed were important for the successful implementation of their trading programs:

• Strong regulatory and/or non-regulatory drivers, which helped create a demand for water quality credits;
• Minimal potential liability risks to the regulated community from meeting regulations through trades;
• Robust, consistent, and standardized estimation methodologies for nonpoint source actions;
• Standardized tools, transparent processes, and online registries to minimize transaction costs; and
• Buy-in from local and state stakeholders.

Before going to the expense of developing a water quality trading program, we recommend that the relevant bodies—either governmental or nongovernmental—ensure these factors are in place.