Private Enterprise and Financial Markets > Environment > Integrated Water Resources Management
The Role of Tradable Permits in Water Pollution Control
By R. Andreas Kraemer, Eleftheria Kampa, Eduard Interwies (10/04, En)
This working paper is being published with the sole objective of contributing to the debate on a topic of importance to the region, and to elicit comments and suggestions from interested parties. This paper has not gone through the Department's peer review process or undergone consideration by the SDS Management Team. As such, it does not reflect the official position of the Inter-American Development Bank.
This paper was prepared as a conceptual framework to stimulate discussions on the role and applicability of tradable permits in water pollution control among participants of the Technical Seminar on the Feasibility of the Application of Tradable Water Permits for Water Management in Chile (13-14 November 2003 in Santiago de Chile). In Chile, water pollution is a major problem. Until recently, existing regulations to control water pollution consisted mainly of non-market based instruments. Innovative instruments are now being explored via a recent national law for tradable emission/discharge permits.
The instrument of tradable discharge permits is one of several market-based instruments used in water management and pollution control. Tradable discharge permits are actually among the most challenging market-based instruments in terms of both their design and implementation. Experience to date with tradable discharge permits for water pollution control has been limited and mainly comes from several regions of the US and Australia.
The paper at first introduces tradable permits as part of an overall taxonomy of economic instruments in the field of water management. In this context, three fundamentally different fields of application of tradable permits systems relating to water are presented: tradable water abstraction rights, tradable rights to water-based resources and tradable water pollution rights. The remaining of the paper deals exclusively with the latter category, i.e. tradable water pollution rights, their role and applicability in water pollution control.
The authors provide literature-based empirical evidence of the international experience with tradable water pollution rights (case studies from the US and Australia). The practical examples are presented according to different individual substances or parameters that have been the subject of trading systems (salinity, organic pollution and nutrient pollution). Lessons are drawn from the selected examples considering also the institutional and existing regulatory context of the countries in question.
Subsequently, the authors make recommendations on the strategies for introducing tradable water pollution rights, they point out opportunities and limitations and discuss the instrument?s compatibility in instrument ?mixes?. The paper focuses on the specificity of water pollution trading discussing outstanding issues that should be considered for the introduction of tradable water pollution rights. For a systematic analysis of the various approaches and challenges relating to the overall design and implementation of tradable permits for natural resources at the national level, the reader should refer to the study of the OECD (2001).
It is pointed out that experience with tradable permits for water pollution control has been accumulating primarily in advanced economies with long regulatory history in water management and pollution control (the US and Australia). The introduction of trade for water pollution control has benefited in these cases from solid scientific understanding of the pollution problems in question, existing monitoring infrastructure and enforcement capacities. It is important to bear in mind that the pre-existing (institutional and regulatory) context may be different in other countries or regions where trading schemes are being considered.
Last updated: 03/21/07
