The problem of uncertain nonpoint pollution credit production in point and nonpoint emission trading markets

This article explores the issue of nonpoint pollution credit production in the context of water quality in rivers and streams. Such trading depends on emission reduction cost differential between point source polluters, such as publicly owned treatment plants and industrial sources, and nonpoint polluters, such as farms. In previous studies of emission trading markets, polluter production decisions are either treated outside the market analysis or made on the basis of emission credits as an input to production. In water quality emission markets there is a clear link between nonpoint (farm) production activities and nonpoint emission credits, although this is often difficult to quantify accurately in advance. The problems associated with linking cause and effect gives the nonpoint emission credit its unique nonpoint characteristic. Because water quality is a significant issue in many catchments throughout the world, further experimentation seems warranted. This article presents the results of a series of experiments in which players faced imperfect knowledge of abatement outcomes associated with nonpoint (defuse) sources of emission credits.