Role of Effluent Permit Trading in Total Maximum Daily Load Programs: Overview and Uncertainty and Reliability Implications

Many jurisdictions in the United States are currently preparing total maximum daily load (TMDL) programs for stream segments that come under Section 303(d) of the Clean Water Act. Among the options being considered by many state pollution control agencies is that of permit trading, otherwise known as permit transfers, transferable permits, emissions trading, bubbles, pollution rights, marketable effluent permits, and transferable discharge permits. Under such programs, a permit to discharge into a watercourse, issued as part of a wasteload allocation program, is treated as a marketable commodity. This paper presents a qualitative discussion of the strengths and weaknesses of permit trading in the context of a TMDL program, and discusses the circumstances that favor it. The paper also presents hypothetical quantitative findings to illustrate the circumstances under which a regional administrator might wish to adopt a program of permit trading, and if so, what type of permits would suit it best.