Firms Responses to Effluent Regulations: Pulp and Paper in Ontario, 1985-1989

This paper explores the effects of effluent regulatory activity in the Ontarian pulp and paper industry. The model uses instrumental variables to distinguish between that correlation between emission limits and emissions coming from regulatory capture and that coming from true influence on the part of the regulator. Results suggest that total suspended solids (TSS) limits were more effective than biological oxygen demand (BOD) limits. Firm responses to TSS limits were in part through modulating output and these responses lowered emissions. In contrast, firms reported investing in abatement technology in response to BOD limits, but these investments had no discernible impact on emissions.