City Research Online

Effluent Trading in the United States and Australia

Wolman, A. (2003). Effluent Trading in the United States and Australia. Great Plains Natural Resources Journal, 8, pp. 1-25.


Over the last twenty years, the American public has come to recognize pollutant trading schemes as a potentially valuable way of reducing the level of pollution in our society at a lower cost than could be offered by conventional means. Most of these schemes up until now have concentrated on air pollutants; so-called emissions trading. However, in the last few years, we have seen increasing interest in effluent trading, or the trading in water pollution discharge rights.

According to one definition, effluent trading allows "one entity to remove or prevent additional pollutant discharges while allowing another to discharge more, under the control of an agreement between the two parties involved in the trade."' When properly conducted, a trading program can achieve reductions of a particular pollutant or class of pollutants at a lower cost than would be feasible under traditional command and control methods. 2 Effluent trading schemes are virtually certain to proliferate around the world in years to come, yet there has been remarkably little consensus as to what are the necessary ingredients for developing a workable trading scheme.

The goal of this paper is to provide a background of what has been learned to date about effluent trading, primarily garnered from analyzing a handful of the longest running and best studied projects in the United States and Australia. The structure of the paper will include an introduction to the history and theory of effluent trading, followed by an overview of six effluent trading schemes utilized in the United States and Australia. At the end of this discussion, certain lessons from these projects will be presented that should be of use when developing new effluent trading projects.

This paper will be organized in the following manner: Section II will briefly describe the economic theory behind effluent trading. Section III will then describe the historical development of such schemes, primarily in the United States. Section IV will examine in some detail a number of the better established effluent trading schemes in the United States and Australia. Section V will outline some lessons that can be learned from the previously described effluent trading schemes. Section VI will conclude by providing certain recommendations for the development of new effluent trading systems.

Publication Type: Article
Subjects: H Social Sciences > HF Commerce
K Law > K Law (General)
Q Science > QH Natural history
Departments: The City Law School > Academic Programmes
The City Law School > International Law and Affairs Group
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