The Role of Tradable Permits in Water Pollution Control

This working paper 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. Next, the authors provide literature-based empirical evidence of the international experience with tradable water pollution rights (case studies from the US and Australia). 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'. This paper was prepared for the Technical Seminar on the Feasibility of the Application of Tradable Water Permits for Water Management in Chile, organized by the Inter-American Development Bank (IADB) and the National Environment Commission of Chile (CONAMA) held on November 13th and 14th, 2003 in Santiago de Chile.