The costs of water pollution regulation in the pulp and paper industry

This paper studies plant level data on actual and permitted levels of water pollution emissions for the pulp and paper industry. There is widespread a nd substantial overcompliance,with the relevant regulations: aggregate BOD emissions in 1992 were only 50% of the amount allowed. Overcompliance appea rs to imply a zero marginal abatement cost and its prevalence therefore has the potential to substantially change the debate over the costs of regulat ion. We show instead that plants incurred substantial costs to overcomply. Marginal abatement costs were roughly $13,000/ton in 1992. We discuss possi ble explanations for costly overcompliance and their implications for estim ation. (JEL Q25).