Tietenberg Tom, Lewis Lynne. Environmental & Natural Resource Economics
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481Traditional Water Pollution Control Policy
The Water Quality Act of 1965 attempted to improve the process by establish-
ing ambient water quality standards for interstate watercourses and by requiring
states to file implementation plans. This sounds like the approach currently being
used in air pollution control, but there are important differences. The plans
forthcoming from states in response to the 1965 Act were vague and did not
attempt to link specific effluent standards on discharges to the ambient standards.
They generally took the easy way out and called for secondary treatment, which
removes 80–90 percent of BOD and 85 percent of suspended solids. The fact that
these standards bore no particular relationship to ambient quality made them
difficult to enforce in the courts, since the legal authority for them was based on
this relationship.
Subsequent Legislation
Point Sources. As discussed in the preceding chapters, an air of frustration
regarding pollution control pervaded Washington in the 1970s. As with air pollu-
tion legislation, this frustration led to the enactment of a very tough water
pollution control law. The tone of the act is established immediately in the
preamble, which calls for the achievement of two goals: (1) “ . . . that the discharge
of pollutants into the navigable waters be eliminated by 1985”; and (2) “ . . . that
wherever attainable, an interim goal of water quality which provides for the protec-
tion and propagation of fish, shellfish, and wildlife and provides for recreation in
and on the water be achieved by June 1, 1983.” The stringency of these goals
represented a major departure from previous policy.
This act also introduced new procedures for implementing the law. Permits
were required of all dischargers (replacing the 1899 Refuse Act, which, because
of its navigation focus, was difficult to enforce). The permits would be
granted only when the dischargers met certain technology-based effluent
standards. The ambient standards were completely bypassed as these effluent
standards were uniformly imposed and, hence, could not depend on local water
conditions.
4
According to the 1972 amendments, the effluent standards were to be imple-
mented in two stages. By 1977, industrial dischargers, as a condition of their
permit, were required to meet effluent limitations based on the “best practicable
control technology currently available” (BPT). In setting these national standards,
the EPA was required to consider the total costs of these technologies and their
relation to the benefits received, but not to consider the conditions of the individ-
ual source or the particular waters into which it was discharged. In addition,
all publicly owned treatment plants were to have achieved secondary treatment
by 1977. By 1983, industrial discharges were required to meet effluent limitations
based on the presumably more stringent “best available technology economically
achievable” (BAT) while publicly owned treatment plants were required to meet
effluent limitations that depended on the “best practicable waste treatment
technology.”
4
Actually, the ambient standards were not completely bypassed. If the uniform controls were not
sufficient to meet the desired standard, the effluent limitation would have to be tightened accordingly.
482 Chapter 18 Water Pollution
The program of subsidizing municipal water treatment plants, begun in 1956,
was continued in a slightly modified form by the 1972 Act. Whereas the 1965 Act
allowed the federal government to subsidize up to 55 percent of the cost of
construction of waste treatment plants, the 1972 Act raised the ceiling to 75 percent.
The 1972 Act also increased the funds available for this program. In 1981, the
federal share was returned to 55 percent.
The 1977 amendments continued this regulatory approach, but with some
major modifications. This legislation drew a more careful distinction between
conventional and toxic pollutants, with more stringent requirements placed on the
latter, and it extended virtually all of the deadlines in the 1972 Act.
For conventional pollutants, a new treatment standard was created to replace
the BAT standards. The effluent limitations for these pollutants were to be
based on the “best conventional technology,” and the deadline for these
standards was set at July 1, 1984. In setting these standards, the EPA was
required to consider whether the costs of adding the pollution control equip-
ment were reasonable when compared with the improvement in water quality.
For unconventional pollutants and toxics (any pollutant not specifically included
on the list of conventional pollutants), the BAT requirement was retained but
the deadline was shifted to 1984.
Other deadlines were also extended. The date for municipalities to meet the
secondary treatment deadline moved from 1977 to 1983. Industrial compliance
with the BPT standards was delayed until 1983 when the contemplated system had
the potential for application throughout the industry.
The final modification made by the 1977 amendments involved the introduction
of pretreatment standards for waste being sent to a publicly owned treatment
system. These standards were designed to prevent discharges that could inhibit the
treatment process and to prevent the introduction of toxic pollutants that would
not be treated by the waste treatment facility. Existing facilities were required to
meet the standards three years after the date they were published, while facilities
constructed later would be required to meet the pretreatment regulations upon
commencement of operations.
Nonpoint Sources. In contrast to the control of point sources, the EPA was given
no specific authority to regulate nonpoint sources. This type of pollution was seen
by Congress as a state responsibility.
Section 208 of the act authorized federal grants for state-initiated planning that
would provide implementable plans for area-wide waste-treatment management.
Section 208 further specified that this area-wide plan must identify significant
nonpoint sources of pollution, as well as procedures and methods for controlling
them. The reauthorization of the Clean Water Act, passed over President Reagan’s
veto during February 1987, authorized an additional $400 million for a new
program to help states control runoff, but it still left the chief responsibility for
controlling nonpoint sources to the states.
The main federal role for controlling nonpoint sources has been the
Conservation Reserve Program run by the U. S. Department of Agriculture rather
483Traditional Water Pollution Control Policy
than the EPA. Designed to remove some 40–45 million acres of highly erodible
land from cultivation, this act provides subsidies to farmers for planting grass or
trees. These subsidies are designed to result in reduced erosion and to reduce
loadings of nitrogen, phosphorus, and total suspended solids.
Since the late 1980s, efforts focused on nonpoint sources have increased
dramatically. Voluntary programs and cost-sharing programs with landowners
have been the most common tools. Section 319 of the Clean Water Act speci-
fies guidelines for state implementation of nonpoint source-management
plans. In 2003, the EPA devoted a large portion of its Section 319 funds
($100 million) to address areas where nonpoint source pollution has significantly
impaired water quality.
5
Another recent role for municipalities has been the
separation of storm water and sewer drains so that sewage treatment plants
do not overflow during rainstorms. Federal subsidies have also assisted with
these projects.
The TMDL Program
In 1999, recognizing the problems with both the technology-based national
effluent standards and the growing importance of nonpoint pollution control,
the U.S. EPA proposed new rules designed to breathe fresh life into the
previously unenforced Total Maximum Daily Load (TMDL) program of the Clean
Water Act. A TMDL is a calculation of the maximum amount of a pollutant that
a water body can receive and still meet water quality standards as well as an
allocation of that amount to the pollutant’s sources. The calculation must
include a margin of safety to ensure that the water body can be used for its
designated purpose. The calculation must also account for seasonable variation
in water quality.
The TMDL program moves water pollution control toward the ambient
standard approach long used to control air pollution. Under this program, water
quality standards are promulgated by states, territories, and/or tribes.
The promulgated standards are tailored to the designated uses for each water
body (such as drinking water supply or recreational uses such as swimming
and/or fishing). The states must then undertake strategies for achieving the
standards, including significantly bringing nonpoint source pollutants under
control.
The Safe Drinking Water Act
The 1972 policy focused on achieving water quality sufficiently high for fishing and
swimming. Because that quality is not high enough for drinking water, the Safe
Drinking Water Act of 1974 issued more stringent standards for community water
5
U.S. Federal Register Vol. 68, No. 205 (October 2003).
484 Chapter 18 Water Pollution
systems. The primary drinking water regulations set maximum allowable concen-
tration levels for bacteria, turbidity (muddiness), and chemical-radiological
contaminants. National secondary drinking water regulations were also established
to protect “public welfare” from odor and aesthetic problems that may cause a
substantial number of people to stop using the affected water system. The secondary
standards are advisory for the states; they cannot be enforced by the EPA.
The 1986 Amendments to the Safe Drinking Water Act required the EPA to (1)
issue primary standards within three years for 83 contaminants and by 1991 for at
least 25 more, (2) set standards based on the BAT, and (3) monitor public water
systems for both regulated and unregulated chemical contaminants. Approximately
60,000 public water systems are subject to these regulations. Civil and
criminal penalties for any violations of the standards were also increased by the
amendments.
More recent drinking water rules and standards cover MTBE, arsenic, radon,
lead, microbials, and disinfection by-products. In 2007, the EPA issued a final
ruling on lead and copper in drinking water, two contaminants that enter through
plumbing materials. Many older homes have faucets or fittings of brass, which
contain some lead, lead pipes, or copper pipes with solder.
Ocean Pollution
Oil Spills. The Clean Water Act prohibits discharges of “harmful quantities” of
oil into navigable waters. Since the EPA regulations define “harmful” to include all
discharges that “violate applicable water quality standards or cause a film or sheen
upon the surface of the water,” virtually all discharges are prohibited.
Industry responsibilities include complying with Coast Guard regulations
(which deal with contingency planning in case of a spill and various accident avoid-
ance requirements) and assuming the financial liability for any accident. If a spill
does occur, it must be immediately reported to the Coast Guard or the EPA.
Failure to report a spill can result in a fine up to $10,000 and/or imprisonment for
up to one year.
In addition to giving notice, the discharger must either contain the spill or
pay the cost of cleanup by a responsible government agency. The discharger’s
liability for the government’s actual removal cost is limited to $50 million unless
willful negligence or willful misconduct can be proved. Successful proof of
willful negligence or willful misconduct eliminates the liability limit. In addition
to cleanup costs, removal costs also include compensation for damages
to natural resources. (Natural resource damages are defined as “any costs or
expenses incurred by the federal government or any state government in the
restoration or replacement of natural resources damaged or destroyed as a result
of a discharge of oil. . . .”)
Ocean Dumping. Except for oil spills, which are covered by the Clean Water Act
and the Oil Pollution Act of 1990, discharges to the ocean are covered by the
Marine Protection Research and Sanctuaries Act of 1972. This act governs all
discharges of wastes to ocean waters within U.S. territorial limits and discharges of
485Efficiency and Cost-Effectiveness
wastes in ocean waters by U.S. vessels or persons regardless of where the dumping
occurs. With only a few exceptions, no ocean dumping of industrial wastes or sewer
sludge is now permitted. Radiological, chemical, and biological warfare agents and
high-level radioactive wastes are specifically prohibited by the statute. Under the
amended statute, the only ocean-dumping activities permitted are the disposal of
dredged soil, fish wastes, human remains, and submerged vessels. This dumping is
subject to specific regulations and is approved on a case-by-case basis.
Citizen Suits
The degree to which environmental quality is improved by public policy depends
not only on the types of policies, but also on how well those policies are enforced.
Policies that initially seem to offer promise may, in the glare of hindsight, prove
unsuitable if enforcement is difficult or lax.
The enforcement of the environmental statutes has long been the responsibility
of state and federal environmental agencies. Enforcement at the state and federal
level occurs through administrative proceedings or through civil and criminal
judicial action. Since limited staff and resources do not enable these government
agencies to fully enforce all of the environmental statutes, however, these methods
alone do not provide the necessary level of enforcement.
During the early 1970s, a pervasive recognition that the government had neither
the time nor the resources to provide sufficient enforcement led Congress to create
a private alternative—citizen suits. Although citizen suits are now authorized by a
number of different environmental statutes, the program has been particularly
successful in enforcing the Clean Water Act.
Empowered as private attorney generals, citizens are authorized to exercise
oversight over government actions and to initiate civil proceedings against any
private or public polluter violating the terms of its effluent standard.
Environmental groups, such as the Natural Resources Defense Council and the
Sierra Club, have become active participants in the process. Citizens may sue for
an injunction (a court order requiring the illegal discharge to cease), but in addi-
tion are also given the power to “ . . . apply any appropriate civil penalties.” The
amount of penalty can vary between $10,000 and $25,000 per day, per violation.
Efficiency and Cost-Effectiveness
Ambient Standards and the Zero-Discharge Goal
The 1956 amendments defined ambient standards as a means of quantifying
the objectives being sought. A system of ambient standards allows the control
authority to tailor the quality of a particular body of water to its use. Water used for
drinking would be subject to the highest standards, swimming the next highest, and
so on. Once the ambient standards are defined, the control responsibility could be
allocated among sources. Greater efforts to control pollution would be expended
where the gap between desired and actual water quality was the largest.
486 Chapter 18 Water Pollution
Unfortunately, the early experience with ambient standards for water was not
reassuring. Rather than strengthening the legal basis for the effluent standards,
while retaining their connection to the ambient standards, Congress chose to
downgrade the importance of ambient standards by specifying a zero-discharge
goal. Additionally, the effluent standards were given their own legal status apart
from any connection with ambient standards. The wrong inference was drawn
from the early lack of legislative success.
In his own inimitable style, Mark Twain (1893) put the essential point rather
well:
We should be careful to get out of an experience only the wisdom that is in it—and stop
there; lest we be like the cat that sits down on a hot stove lid. She will never sit down on
a hot stove lid again—and that is well; but also she will never sit down on a cold one
anymore. [p. 125]
The most fundamental problem with the current approach is that it rests on the
faulty assumption that the tougher the law, the more that is accomplished.
The zero-discharge goal provides one example of a case in which passing a tough
standard, in the hopes of actually achieving a weaker one, can backfire. Kneese and
Schultze (1975) point out that in the late 1960s, the French experimented with a
law that required zero discharge and imposed severe penalties for violations.
The result was that the law was never enforced because it was universally viewed
as unreasonable. Less control was accomplished under this stringent, but unen-
forceable law than would have been accomplished with a less stringent but
enforceable one.
Is the U.S. case comparable? It appears to be. In 1972, the EPA published an
estimate of the costs of meeting a zero-discharge goal, assuming that it was feasible.
They concluded that over the decade from 1971 to 1981, removing 85–90 percent
of the pollutants from all industrial and municipal effluents would cost $62 billion.
Removing all of the pollutants was estimated to cost $317 billion, more than five
times as much, and this figure probably understates the true cost (Kneese and
Schultze, 1975, 1978).
Is this cost justified? Probably not for all pollutants, though for some it may be.
Unfortunately, the zero-discharge goal makes no distinction among pollutant
types. For some fund pollutants it seems extreme. Perhaps the legislators realized
this because when the legislation was drafted, no specific timetables or procedures
were established to ensure that the zero-discharge goal would be met by 1985 or,
for that matter, anytime.
National Effluent Standards
The first prong in the two-pronged congressional attack on water pollution was the
national effluent standards (the other being subsidies for the construction of
publicly owned waste treatment facilities). Deciding on the appropriate levels for
these standards for each of the estimated 60,000 sources is not a trivial task. Not
surprisingly, difficulties arose.
487Efficiency and Cost-Effectiveness
Enforcement Problems. Soon after the passage of the 1972 amendments, the
EPA geared up to assume its awesome responsibility. Relying on a battery of
consultants, it began to study the technologies of pollution control available to each
industry in order to establish reasonable effluent limits. In establishing the
guidelines, the EPA is required to take into account “the age of the equipment and
facilities involved, the process employed, the engineering aspects of the application
of various types of control techniques, process changes, nonwater quality
environmental impact (including energy requirements) and such factors as the
Administrator deems appropriate . . . .”
It is not clear whether this provision means that individual standards should be
specified for each source, or general standards for broad categories of sources.
Cost-effectiveness would require the former, but in a system relying on effluent
standards, the transaction costs associated with that approach would be
prohibitively high and the delay unacceptably long. Therefore, the EPA chose the
only feasible interpretation available and established general standards for broad
categories of sources. While the standards could differ among categories, they were
uniformly applied to the large number of sources within each category.
The EPA inevitably fell behind the congressional deadlines. In fact, not one effluent
standard was published by the deadline. As the standards were published, they were
immediately challenged in the courts. By 1977, some 250 cases had been mounted,
challenging the established standards (Freeman, 1978). Some of the challenges were
successful, requiring the EPA to revise the standards. All of this took time.
By 1977, the EPA was having so much trouble defining the BPT standards
that the deadlines for the BAT standards became completely unreasonable.
Furthermore, for conventional pollutants, not only the deadlines but the
standards themselves were irrational. Many bodies of water would have met the
ambient standards without the BAT standard, while for others, the effluent
standards were not sufficient, particularly in areas with large nonpoint pollution
problems. In addition, in some cases the technologies required by BPT would not
be compatible (or even necessary) once the BAT standards were in effect. The
situation was in a shambles.
The 1977 amendments changed both the timing of the BAT standards (delaying
the deadlines) and their focus (toward toxic pollutants and away from conventional
pollutants). As a result of these amendments, the EPA was required to develop
industry effluent standards based on the BAT guidelines for control of 65 classes of
toxic priority pollutants. In a 1979 survey, the EPA discovered that all primary
industries regularly discharge one or more of these toxic pollutants. As of 1980, the
EPA had proposed BAT effluent limitations for control of toxic priority pollutants
for nine primary industries.
The 1977 amendments certainly improved the situation. Because toxics
represent a more serious problem, it makes sense to set stricter standards for those
pollutants. Extension of the deadlines was absolutely necessary; there was no
alternative.
These amendments have not, however, resulted in a cost-effective strategy.
In particular, they tend to retard technological progress and to assign the responsi-
bility for control in an unnecessarily expensive manner.
488 Chapter 18 Water Pollution
Allocating Control Responsibility. Because the effluent standards established by
the EPA are based upon specific technologies, these technologies are known to the
industries. Therefore, in spite of the fact that the industry can choose any
technology that keeps emissions under the limitation stated in the standard, in
practice industries tend to choose the specific equipment cited by the EPA when it
established the standard. This, they reason, minimizes their risk. If anything goes
wrong and they are hauled into court, they can simply argue that they did precisely
what the EPA had in mind when it set the standard.
The problem with this reaction is that it focuses too narrowly on a particular
technology rather than on the real objective, effluent reduction. The focus should
be less on the purchase of a specific technology and more on doing what is neces-
sary to hold effluent down, such as maintenance, process changes, and so on. In a
field undergoing rapid technological change, tying all control efforts to a particular
technology (which may become obsolete well before the standards are revised) is a
poor strategy. Unfortunately, technological stagnation has become a routine side
effect of the current policy, to the detriment of securing clean water.
In allocating the control responsibility among various sources, the EPA was
constrained by the inherent difficulty of making unique determinations for each
source and by limitations in the Act itself, such as the need to apply relatively
uniform standards. We know from Chapter 14 that uniform effluent standards are
not cost-effective, but it remains an open question whether or not the resulting
increases in cost are sufficiently large to recommend an alternative approach, such
as effluent charges or allowances. The fact that the cost increases are large in the
control of stationary-source air pollution does not automatically imply that they
are large for water pollution control as well.
A number of early empirical studies investigated how closely the national
effluent standards approximate the least-cost allocation (see Table 18.2). These
studies support the contention that EPA standards are not cost-effective, though
the degree of cost-ineffectiveness is typically smaller than that associated with the
standards used to control air pollution.
Perhaps the most famous study examining the cost-effectiveness of uniform
standards in contrast with emissions and ambient charges and permits was con-
ducted on the Delaware Estuary (Kneese and Bower, 1968). This river basin,
though small by the standards of the Mississippi or other major basins, drains an
area serving a population in excess of six million people. It is a highly industrial,
densely populated area.
In this study, a simulation model was constructed to capture the effect on
ambient dissolved oxygen content of a variety of pollutants discharged by a large
number of polluters into the river at numerous locations. In addition, this model
was capable of simulating the cost consequences of various methods used to
allocate the responsibility for controlling effluent to meet dissolved oxygen
standards.
Four specific methods of allocating responsibility were considered. The first was
the least-cost (LC) method, which would correspond to an ambient charge or
ambient permit system. This method takes both locations of the emissions and
control costs into account.
489Efficiency and Cost-Effectiveness
TABLE 18.2 Empirical Studies of Water Pollution Control
Study and Year Pollutants Covered Geographic Area CAC Benchmark
DO Target
(mg/liter)
Ratio of CAC
Cost to Least-
Cost
Johnson (1967)
Biochemical oxygen
demand
Delaware Estuary 86-mile
reach
Equal proportional
treatment 2.0 3.13
3.0 1.62
4.0 1.43
O’Neil (1980)
Biochemical oxygen
demand
20-mile segment of Lower Fox
River in Wisconsin
Equal proportional
treatment 2.0 2.29
4.0 1.71
6.2 1.45
7.9 1.38
Eheart, Brill, and
Lyon (1983)
Biochemical oxygen
demand
Willamette River in Oregon
Equal proportional
treatment 4.8 1.12
7. 4 1 . 1 9
Delaware Estuary in PA, DE,
and NJ
Equal proportional
treatment 3.0 3.00
3.6 2.92
Upper Hudson River in
New York
Equal proportional
treatment 5.1 1.54
5.9 1.62
Mohawk River in New York
Equal proportional
treatment 6.8 1.22
CAC = command and control, the traditional regulatory approach.
DO = dissolved oxygen: higher DO targets indicate higher water quality.
Source
: Tom H. Tietenberg.
Emmissions Trading
:
An Exercise in Reforming Pollution Policy
(Washington, DC: Resources for the Future, 1985): 46, Table 5.
490 Chapter 18 Water Pollution
The second method was a uniform treatment (UT) strategy in which all
discharges were faced with an effluent standard requiring them to remove a given
percentage of their waste before discharging the remainder into the river. This
method mirrors, in a crude way, the EPA strategy in effect at the time.
The third method simulated the allocation attained from the use of a uniform
emission charge (UEC) or an emissions permit system. This method takes control
costs, but not effluent locations, into account. The final case simulates a zoned
effluent charge (ZEC). For this case, the river basin was subdivided into a series of
zones. All dischargers within a zone would face the same emissions charges, while
dischargers in different zones could face different emissions charges. This fourth
simulation was an intermediate step between the first and third strategies. It
allowed location to be more of a factor than in the third method, but less of a factor
than in the first method. The first simulation would be identical to the fourth if the
zones were sufficiently small that each discharger was in its own unique zone; it
would be identical to the third if one zone contained all sources.
For control of water pollution, the UT strategy does increase the cost
substantially. For either dissolved oxygen objective, the costs are roughly three times
higher. Also of interest is the fact that the zonal system results in costs that are quite
close to the minimum for the higher DO objective, while the UEC does not. This
result suggests that even rudimentary attempts to take location into account may
make a big difference for water pollution just as it does for air pollution.
Despite this evidence, the regulatory reform movement that played such an
important role for air pollution control has been much slower to emerge for water
pollution control. An early attempt at trading was implemented for the Fox River in
Wisconsin, but only one trade was completed in the first ten years after implementation.
Watershed-Based Trading
More recently, however, watershed-based trading programs are gaining attention.
In 1996, the EPA issued a “Draft Framework for Watershed Based Trading” and
began exploring trading programs for the Tar-Pamlico River in North Carolina,
Long Island Sound, Chesapeake Bay, and the Snake and Lower Boise Rivers in
Idaho. Dozens of small trading programs are now in existence. Trading for water
pollution control water pollution control typically involves point source polluters
meeting water quality standards by purchasing reductions from other sources
(point or nonpoint sources) that have lower marginal costs of abatement.
Most of the markets currently in place focus on either nitrogen or phosphorus
trading and are too new to evaluate, but at least 23 U.S. water trading programs
have carried out at least one trade (For some examples see Table 18.3).
Ex-ante studies, however, suggest that the economic benefits can be large.
Example 18.1 illustrates the potential for tradable effluent cost savings for treating
hypoxic conditions in Long Island Sound. Allowing firms the flexibility to exploit
economies of scale in pollution-control technology can provide for large savings.
This point-point trading program has resulted in cheaper and faster cleanup.
The EPA supports market-based programs for certain pollutants if they can help
meet Clean Water Act goals. In 2008, the EPA issued a Water Quality Trading