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A Pollution Offset System for Trading Non-Point Source Water Pollution Permits

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Water pollution from non-point sources is a global environmental concern. Economists propose tradable permit systems as a solution, but they are difficult to implement due to the nature of non-point sources. We present a pollution offset system for trading non-point source water pollution permits. Conventional pollution offset systems suffer from thin markets and transaction costs. In this paper, we show how to overcome these problems with a centrally managed common-pool market. We define permits as allowable nitrate loading to a groundwater aquifer. This trading system utilizes estimates of potential nitrate leaching from land uses, a set of transport coefficients generated from a simulation of nitrate transport in groundwater, an online trading system, and a linear program to clear the market. We illustrate the concept using a hypothetical case study.

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Correspondence to R. A. Ranga Prabodanie.

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Prabodanie, R.A.R., Raffensperger, J.F. & Milke, M.W. A Pollution Offset System for Trading Non-Point Source Water Pollution Permits. Environ Resource Econ 45, 499–515 (2010).

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