The environmental effectiveness of water quality trading: Evidence from emissions trading programs in China

Using a comprehensive dataset compiled to document all water quality trading programs in China, this paper presents a systematic evaluation of this market-based policy approach to pollution control. We offer new evidence on the question of whether quality improvements in surface waters with water quality trading have exceeded those in areas that were only subject to more traditional regulations during the same time period. Our research design compares ambient water pollution at monitoring sites downstream of areas that saw the establishment of water quality trading programs relative to pollution at sites without such upstream programs. The findings indicate that water quality trading does not have a discernible impact on ambient water quality. These results are robust to using alternative measures of the presence and extent of upstream water quality trading. Furthermore, event study graphs provide no indication that water pollution has decreased in the long run.