Here's a question/idea...
Given that pollution credit trading proved a flexible and ecologically successful way of limiting the use of acidic coal (i.e. it helped slow down acid rain a great deal), why wouldn't the same principal work in rivers...I'll get back to you in few minutes on how to mathematically assign the overall cap...
I think that would be a good idea, just not sure how feasible it would be. I think air and water pollution, while similar, are very different. Air pollution is a more temporary problem- that is the atmosphere has a pretty incredible ability to self regulate. Water pollution, on the other hand, is reliant upon many systems working together and often takes much longer to self-correct and can be very persistent. Additionally, air pollution and water pollution are subject to very different scales of dilution. A mistake in terms of air pollution is buffered by the entire atmosphere while water pollution is largely contained by each particular watershed. Once a watershed becomes contaminated it becomes a big problem that is not easily fixed.
The gov't has tried to cap pollution with the use of TMDL's and its proven to be quite difficult to set those limits. What happens in wet and dry years, etc. I like the idea though I think the legalese could backfire.
Another thing I forgot to mention is the difficult in distributing pollution credits. Since industry is often not evenly distributed how do you ensure that a particular river, stream, or lake is not exposed to more pollution than it can handle (assuming some agreement can be made)? This would seem to me to severely hamper the ability of a free market to limit pollution. Do you cap pollution per watershed?