Assessing the Impact upon the British Chlor-Alkali Industry of the EEC Directive on Discharges of Mercury into Waterways

Abstract

During the 1960s evidence of the damage which mercury could cause when discharged into waterways, ingested by fish, and subsequently eaten by humans, became an increasing cause for concern. In particular the incident at Minamata Bay in Japan galvanized public opinion and resulted in legislators throughout the world going into action to prevent any recurrence of such events. This paper examines the impact which legislation passed by the EEC had upon plants in the British chlor-alkali industry discharging mercury into the waterways by the use of the so-called waste-brine process. The purpose of the paper is to estimate the extent to which reductions in discharges and increases in pollution abatement expenditure can be directly attributable to EEC legislation. In evaluating the impact of legislative change, most econometric work has examined the industrial structure, prices, output, or employment among groups of firms prior to the introduction of legislation. It then examines these variables in the years following the changes and by presenting a counter-factual is able to estimate the impact of the legislation [see for example Moore, et al. (1974) on regional policy or Lambert (1983) on selective assistance to the clothing trades]. Using these techniques it is only possible to examine the impact of legislative change several years later. Two problems arise with this technique; first the estimation of a counter-factual is both crucial to the analysis yet subject to considerable uncertainty. Secondly, as time passes more data points become available for examining post-impact changes but this has to be offset against the disadvantage that it becomes increasingly difficult to assume that prelegislative change conditions continue to apply. Th s paper presents a counter-factual in a somewhat different context. All companies to which the Mercury Directive applied were involved in protracted negotiations over the form of these controls for many years. This meant that when the legislation was finally approved all companies were able to comply so t at the post-impact effect of the Directive would be expected to be zero. The problem conf onted in this paper is that of estimating the extent to which, during the negotiation, the firm reduced their discharges over and above that which they would in the absence of the proposed legislation. Section II provides information about the negotiations leading up to the Directive and ab ut the nature of the industry, while section III discusses the options open to the industry. Section IV develops a measure of impact and section V gives empirical estimates of this measure. Section VI discusses the implications of our results.