Water pollution from non‐point sources is a global environmental concern.Economists propose tradable permit systems as a solution, but they are difficult toimplement due to the nature of non‐point sources. We present a pollution offsetsystem for trading non‐point source water pollution permits. Conventional pollutionoffset systems suffer from thin markets and transaction costs. In this paper, we showhow to overcome these problems with a centrally managed common‐pool market. Wedefine permits as allowable nitrate loading to a groundwater aquifer. This tradingsystem utilizes estimates of potential nitrate leaching from land uses, a set oftransport coefficients generated from a simulation of nitrate transport ingroundwater, an online trading system, and a linear program to clear the market. Weillustrate the concept using a hypothetical case study.
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