Pass-through of water pollution regulation: Evidence from sewer utility bills and Wisconsin’s phosphorous rule
Presented by:
Zach Raff
University of Wisconsin-Stout
Wednesday, January 26, 2022
12:00 pm-1:30 pm
Taylor-Hibbard Seminar Room (Rm103)
Online - https://go.wisc.edu/jmydkq
Wisconsin’s “phosphorus rule”, which created the most stringent water quality standards for phos-phorous in the country, imposes substantial compliance costs on point sources that discharge to waterbodies with poor ambient quality. As part of the rule, Wisconsin also implemented a water pollution offset trading program that allows affected point sources to comply at lower cost than through traditional treatment tech-nology upgrades. In this paper, we estimate the pass-through of Wisconsin’s phosphorus rule, providing the first empirical estimates of pass-through from a water pollution regulation. In our analysis, we examine how compliance with the rule affects real billing rates at sewer utilities in Wisconsin. We find that compli-ance with the phosphorous rule increases the average real sewer utility bill in our sample by 8-11%. As a second contribution, we examine the implementation of Wisconsin’s water pollution offset trading program and how it differentially impacts pass-through in this setting. A descriptive analysis of the program suggests that point sources that comply with the phosphorus rule through water pollution offset trading, rather than treatment technology upgrade, save $17.5 million per year in aggregate. Importantly, the pass-through of the phosphorus rule reflects these cost savings. Empirical results show that real sewer utility rates increase by 14.6% for utilities that comply with the phosphorus rule with a treatment technology upgrade, while these same bills increase only 6.4% for utilities that comply with the rule through water pollution offset trading. Our results suggest that pass-through of the phosphorus rule is between 72% and 88% for affected sewer utilities.
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