Assessing the Impact of Environmental Regulation on Industrial Water Use: Evidence from Brazil

Abstract

This paper aims at characterizing water demand by Brazilian manufacturing plants located in Sao Paulo and at assessing the potential impacts of environmental policies on industrial water use. We first show that the price elasticity of the water demand, -1.0 on average, is high enough for a water charge to act as an effective policy tool for reducing water consumption. Results also provide some evidence of a tradeoff between water quality improvement and water conservation policies, since more stringent environmental standards may lead to a higher water demand. A joint use of environmental norms and water charges may reconcile both policy goals.

Keywords: Industrial water demand, structure of costs, environmental regulation, Brazil

JEL Classification: Q21, Q25, L5