Identifying and Analyzing Potential Watershed-Based Water Quality Trading Programs

Over thirty years since the passage of the Clean Water Act, much of the nation’s rivers and streams fail to meet water quality standards. Pollution from nonpoint sources is increasingly responsible for these failures. Existing regulatory approaches may not be capable of meaningfully reducing water quality impairments due to their inability to control emissions from nonpoint sources. Water quality trading may provide a cost-effective solution to many of the persistent water quality impairments caused by nutrients and other oxygen demanding pollutants. However, trading will require the presences of market participants-both buyers and sellers of pollution reduction credits-in order to be successful. Thus, the first paper in this thesis analyzes Tennessee’s watersheds to determine which have the conditions necessary to support a successful water quality trading market.

The second paper focuses on the reduction of pollution from nonpoint sources. Specifically, it estimates the social costs associated with a mandatory riparian grassed buffer strip for agricultural lands in the Harpeth River watershed in Middle Tennessee. In addition, this paper approximates a supply curve for buffer strips in this watershed. This latter result constitutes an important step towards understanding the supply of nutrient emissions reduction credits. The next step would be to estimate the reduction in nutrient runoff associated with these buffer strips.