Economic instruments in assimilative based environment: A case study of water pollution abatement by industries in India

Environmental resources supply waste disposal services that are demanded by the industry. If the property right for the environmental resources is with the public or with the government, the supply of waste disposal services depends upon the assimilative capacity of environmental media and the damages the public receives from the pollution. If the industry has to comply with the environmental regulation, the demand for the waste disposal services by the industry depends upon the cost of pollution abatement. Marginal damages to the public from pollution and the marginal cost of pollution abatement to the industry could be regarded as the supply and demand prices for the environmental services. Pollution tax is nothing but the price of waste disposal services with respect to which supply is equal to demand. If the environmental standards are fixed depending upon the assimilative capacity of environmental media, the supply of environmental services is fixed and the tax or price then entirely depends on the demand. Since the standards are normally given for a vector of pollutants as it is the case of MINAS standards in India, there will be pollutant specific taxes. A method of estimating polluting specific taxes is described in this paper. The estimates of pollutant specific taxes for controlling water pollution from industries in India are obtained for BOD, COD and SS.