To prepare for reauthorization of the Clean Water Act, the U.S. Environmental Protection Agency (EPA) commissioned a series of studies of market-based incentive approaches to water pollution abatement. The study addresses one such approach: allowing municipal and industrial point sources to meet water quality goals by trading; i.e., by creating a market to buy and sell allowances to discharge pollutants. The study focuses in particular on the use of trading to achieve compliance with water quality standards for water quality-limited rivers, lakes, and estuaries, assuming that all municipalities and industries that discharge to these waters will remain subject to existing technology-based requirements. The study includes three components. First, it reviews the literature on the theoretical benefits of trading (focusing on case studies of specific water bodies) and identifies the major factors influencing the magnitude of the benefits. Second, it assesses data collected by EPA to determine the frequency with which trading might be employed in practice, identifying the number of water quality-limited water bodies receiving discharges from multiple point sources. Finally, staff of regulatory agencies were interviewed to determine the extent to which trading is now applied and the issues that would need to be addressed for trading to become more widely used.