By integrating the successful case of the European Union emissions trading system, this study proposes a water emissions trading system, a novel method of reducing water pollution. Assuming that upstream governments allocate initial quotas to upstream businesses as the compensation standard, this approach defines the foundational principles of market trading mechanisms and establishes a robust watershed ecological compensation model to address challenges in water pollution prevention. To be specific, the government establishes a reasonable initial quota for upstream enterprises, which can be used to limit the emissions of upstream pollution. When enterprises exceed their allocated emissions quota, they face financial penalties. Conversely, these emissions rights can be transformed into profitable assets by participating in the trading market as a form of ecological compensation. Numerical simulations demonstrate that various pollutant emissions from upstream businesses will have various effects on the profits of other businesses. Businesses in the upstream region received reimbursement from the assigned emission rights through the market mechanism, demonstrating that ecological compensation for the watershed can be achieved through the market mechanism. This novel market trading system aims at controlling emissions management from the perspectives of individual enterprises and ultimately optimizing the aquatic environment.
Keywords: ecological compensation; pollution control; trading of water emission rights; watershed management.
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