Water Right Trade Basing on Externality Elimination

The water right trade should consider externality (water quality degradation) elimination to maintain environment. The externality is evaluated using water quantity and quality model. Externality elimination follows with the principle that environmental requirement is satisfied with minimum pollution emission reduction. A case study is made in the midstream of Heihe River in Northwest China. The result shows that the districts having large pollution emission has to cut down their pollution emission to achieve extra water in the water market. It is helpful to sustainable development.