An innovative transboundary pollution control model using water credit

Abstract

Market-oriented means can effectively solve the problems of a single compensation form and insufficient capital investment in water pollution control measures. Hence, we propose a new trading mechanism using water credit we call “water quality currency.” Pollution control enterprises obtain “water quality currency” by paying pollution control efforts, and production enterprises obtain production licenses by purchasing “water quality currency.” We study the pollution control chain comprising a pollution control and production enterprise and construct a differential game model of random changes in water quality. Moreover, we compare decisions about pollution control effort and trade price under three scenarios and discussed the interaction mechanism between water pollution control and “water quality currency” trade. First, we found that “water quality currency” trading mechanism has created a virtuous circle of mutual promotion between water pollution control and market trading. Second, when all enterprises are farsighted, their pollution control efforts and profits are highest in the three trading scenarios. Third, when all enterprises are farsighted and pollution control enterprises are shortsighted, pollution control responsibility and exchange coefficient affect pollution control efforts positively and negatively, respectively. Higher pollution control responsibility and lower exchange coefficient are found to be conducive to improving water quality. For shortsighted production enterprises, pollution control responsibility and exchange coefficient have negative and positive impacts on pollution control efforts, respectively. Lower pollution control responsibility and higher exchange coefficients are conducive to improving the water quality.