THE ECONOMIC EFFECTS OF WATER POLLUTION CONTROLS: A STUDY OF THE UNITED STATES ALUMINUM INDUSTRY

This study investigates the economic effects on the U.S. aluminum industry of pollution abatement requirements mandated in the 1972 Amendments to the Federal Water Pollution Control Act.;Chapter II reviews the aluminum industry's operating and water-use environment. While these factors are largely independent of water pollution controls, they nevertheless are important in determining the extent to which the abatement requirements will affect the industry.;Chapter III is devoted to an econometric study of demand for aluminum. Based on distributed-lag models, the resulting short-run demand elasticity (-0.19) and long-run demand elasticity (-1.14) confirm that demand for aluminum tends to be rigid in the short run, but in the long run, quite responsive to a price change.;The estimates of compliance costs are presented in Chapter IV. These costs are calculated for the "best practicable technology" (BPT), the "best available technology" (BAT) and New Source Performance Standards (NSPS). A sensitivity analysis is then performed to demonstrate the impact on costs of changes in factor prices, technology, and the demand and supply interactions.;Chapter I concerns the theoretical framework of analysis. We propose in this chapter a simple model, based in part on the principles of marginal analysis in microeconomics, as our analytic foundation. The model explores the short-run output fluctuations due to plant closures, the importance of quasi-rents, the incidence of compliance costs, the long-run effects of the new sources of supply, and the intra-industry competitive effects.;An evaluation of the economic effects of compliance costs is presented in Chapter V. The impact of compliance costs in terms of cutbacks in production and consumption and plant closures is generally moderate. Some facilities, however, suffer quite severe competitive disadvantages due to their unusually high costs. Overall, the aluminum industry does not appear to be seriously affected by the controls.;Chapter VI summarizes the findings and provides several remarks regarding possible extensions of the model to other similar issues.