System dynamics simulation of a thermal water quality trading market

Thermal water quality trading is an emerging policy tool for managing water temperature. Temperature trading programs give point source thermal polluters the option to comply with effluent restrictions by paying nearby landowners to plant shade trees. The shade trees cool the water, offsetting the thermal pollution emitted by the point source. Thermal trading has the potential to create greater environmental benefits at a lower cost than traditional regulation. However, only one thermal trading program has been implemented to date.;The Riparian Shading Simulator is a system dynamics model of a hypothetical thermal water quality trading program. Three distinct uses of the Riparian Shading Simulator are described here. First, it is used as part of a classroom exercise meant to teach participants about the structure, dynamics, and potential benefits and drawbacks of a thermal water quality trading market. In this exercise, players negotiate with each other to initiate trades, and are informed about shading and water temperature through a model interface. The simulation and subsequent discussion help to teach participants about policy design issues and sources of uncertainty. Second, the Riparian Shading Simulator is used to explore the consequences of trading policy designs with varying trading ratios and upstream-only rules. Results from this analysis can be used to help choose a trading ratio that balances the goals of enhancing ecosystem services and reducing costs. Finally, the model is used to conduct an uncertainty analysis of a thermal water quality trading program. The analysis considers uncertainties about climate change, environmental stochasticity, and trading behavior, and looks at the effects of each of these separately, as well as how they might affect program outcomes when combined. Results of the uncertainty analysis indicate that even with a high trading ratio, it might not be possible to reduce river temperatures sufficiently to comply with water quality standards. However, the use of trading ratios means that trading programs are likely to create larger temperature reductions than would be achieved with conventional regulation strategies.