A discussion paper from RFF. From the Abstract:

"Water pollution taxes, or effluent fees, have long been advocated by environmental economists as a regulatory approach to cost effectively achieve water quality improvements. The articles reviews the arguments in favor of taxes and traces the history of the idea in U.S. policy debates. Particular attention is given to the institutional challenges presented by a tax system and its application in watershed contexts where transport phenomena are important. The article also addresses the question of why effluent taxes are so rarely seen in practice."