Water quality trading on the Minnesota River: lessons learned from the Jordan trading program

Abstract

Water quality permit trading in an attractive option lower the costs of pollution cleanup in lakes and rivers, and while similar programs for air pollution have been successful, most attempts at Water Quality Trading have failed. The Jordan Trading Program, based on the Minnesota River, is one of the few exceptions. This paper examines the program to discover how the program succeeds where others have failed. The Jordan Trading has averaged 17 trades a year, and with some assumptions has resulted in cost savings. The river is modeled using a Farrow et. al. (2005) model to show that savings are theoretically possible, even if the program does not act in the same fashion. It was found that while cost savings occur, the facilities in the program are not profit maximizers due to their status as government wastewater treatment facilities, and thus the maximum potential cost savings are not achieve. The program has still been successful, and several suggestions are made for future water quality trading programs.