Economic basis for effluent charges and subsidies

If it is accepted that the disposal of wastes uses given quantities of water at a cost or, alternatively, uses reduced amounts of water but also creates economic damages, the question immediately arises whether a charge should be made for the disposal of waste by water, just as a charge is made for public supply of water for other purposes. The American tradition is inclined toward placing upon private industry the cost of processing industrial effluents to reduce the quantity of wastes, but it relies upon streamflow standards and specific orders rather than the economic pressure of prices to control the process. Allen V. Kneese has given us an excellent picture of German practice with respect to the Ruhr Hiver [ Kneese , 1964, chapter 7], where a system of effluent charges has been used with striking success to control a waste disposal problem proportionately worse than that of any major area in the United States. He makes a convincing case for a system of effluent charges as the preferable method of controlling pollution, in view of the flexibility it affords to industry and the relative ease of administration. Generally speaking, the charges to upstream installations would be equal to the economic loss caused by such pollution to all parties downstream. It is noteworthy that systems of effluent charges to industry based upon total wastes carried by effluents have recently been advocated in the northwest.