Economic Evaluation of Water Pollution Abatement A Case Study of Paper and Pulp Industry in India

Economic Evaluation of Water Pollution Abatement: A Case Study of Paper and Pulp
Industry in India
Author(s): AJIT K. DASGUPTA and M. N. MURTY
Source: Indian Economic Review , July-December 1985, New Series, Vol. 20, No. 2 (July-
December 1985), pp. 231-267
Published by: Department of Economics, Delhi School of Economics, University of Delhi;
Springer
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Indian Economic Review, Vol. XX, No. 2
Economic Evaluation of Water Pollution Abatement:

A Case Study of Paper and Pulp Industry in India
AJIT K. DASGUPTA and M. N. MURTY*

Institute of Economic Growth, Delhi-7
1. Introduction
1.1 The Problem
Environmental pollution refers essentially to a process by which a natural

or man made resource is made less suitable for beneficial uses due to
physical, chemical or biological factors. Of various kinds of environ?
mental pollution (air, water, land, noise and radiation), water pollution
is the most serious in its implications for the health and well being of
people. Water pollution inflicts economic burdens on the users of water
resources. It imposes costs on municipal and industrial water supply and
irrigation and damages variety of water based activities including recrea?
tional activities and commercial fishing.
Environmental effects of developmental projects are external diseco?
nomies of developmental processes which are not normally taken note of
by the promoters of these projects in their calculations of project costs.
Such external diseconomies are particularly striking in the field of water
resources development. As one of the important developmental activities,
water resources development is both a generater and a receiver of exter?
nal diseconomies in the economy. Stagnant water bodies such as reser?
voirs, irrigation canals, or ponds that are created by man in the process
of water resources development are the breeding places of catalistic agents
of communicable diseases like malaria, filariasis, and guinea warm.
Studies have shown that the construction of large reservoirs can result in
the elevation of sub-soil water in the vicinity with consequent changes
in the levels of flouride, calcium and trace metals in soil sediments. This
?We are grateful to an anonymous referee of this journal for useful comments and
to Drs. Gopal Kadekodi and Kanchan Chopra for discussions. However, the authors
alone are responsible for the views expressed in this paper and for errors, if any. Also,
we would like to express our thanks to Mr. S. S. Yadav for statistical assistance and to
Miss Y. Kumbnani for good typing.

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232 Ajit K. Dasgupta and M. N. Murty
in turn results in the spread of diseases, such as fluorosis in the people

who are forced to use the contaminated water. On the other end, water
resources are the principal recipients of external diseconomies such as
industrial and municipal wastes created by various developmental activ?
ities. The main objective of this paper is to explore some problems rela?
ted to the control of external diseconomies (damages) inflicted on water
resources by various developmental activities.
We can minimize the external diseconomies of developmental activities
by incurring additional costs. For example, a given amount of paper can
be produced by a paper mill with less environmental pollution by incur?
ring some pollution abatement cost. However, given that environmental
pollution is an external diseconomy, the owner of the paper mill has no
incentive to incur pollution abatement cost, since the environment is a
public good. This justifies the governmental regulation or control of
pollution.
We can classify the environmental programmes of government as (a)
direct controls, (b) programmes based on market processes and (c) pro?
grammes of government investment.1 Direct controls consist of govern?
mental regulations limiting the permissable levels of emissions or specifi?
cation of equipment that can be used by polluting industries. Programmes
based on market processes or price incentives for the control of pollution
consist of such measures as taxes, subsidies, sales of pollution permits,
and extension of property rights. The governmental investment pro?
grammes consist of such programmes as waste treatment plants or reforest?
ation. Government in fact may use a combination of these programmes to
control the environmental pollution. Given the governmental programmes
to control environmental pollution, the cost minimizing or profit maxi?
mizing private firms could use a variety of pollution abatement techno?
logies related to end of pipe treatment of pollution, process changes in
production, quality changes of commodities, change of location and so
on. In the succeeding sections of this paper, we take up the economic
evaluation of alternative water pollution abatement technologies in the
paper and pulp industry in India.
1.2 Water Pollution Specific to Paper and Pulp Industry
The environmental effects pertaining to the paper and pulp industry are
threefold. They are (1) Depletion of wood and non-wood resources with the
resultant deforestation and ecological imbalances; (2) Pollution of water,
air and land and (3) Solid waste disposal. Substitution of non-con
1See Murty (19836) for detailed discussion of environmental programmes of govern?

ment.

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Economic Evaluation of Water Pollution Abatement 233
ventional inputs such as agricultural residues for conventional forest based

wood and non-wood resources in paper production could reduce defores?
tation in India. However, environmental pollution grows with the size of
the paper and pulp industry. As of 1982, Indian paper and pulp industry
consists of 159 mills with the total installed capacity of 18.16 lakh tonnes.
The installed capacity of the industry is expected to increase to 27.5 lakh
tonnes by 1993 with the attending environmental pollution.
The main constituents of waste water in the pulp and paper industry
are suspended solids (SS), colour, foam, bio-oxygen demand (BOD), and
chemical oxygen demand (COD). They also include appreciable quantities
of toxic organic and inorganic materials. Among these, lignin and its
derivatives which impart colour and exert high toxity are particularly
important. Large paper mills of the Indian paper and pulp industry consti?
tuting 75 per cent of installed capacity, account for 83 per cent of waste
water flow, 53 per cent of BOD and 57 per cent each of SS and COD
loads of the total pollution contributed by the industry. On the other
hand, small mills which account for only 25 per cent of the total-installed
capacity, contribute 17 per cent of waste water, 47 per cent of total BOD
and 43 per cent each of total SS and COD loads. Thus the small paper
mills contribute waste waters with high concentration of pollutants and the
magnitude of pollution is nearly equal to that of large mills. The daily
BOD discharged by the industry is equivalent to the BOD present in the
sewage generated per day by an urban population of 7.12 million.
1.3 National Minimum Standards of Water Pollution
Many of the natural water bodies which receive industrial effluents are
public goods. The benefits from preserving these natural resources in
their wild state accrue to society as a whole. We cannot exclude any
person from enjoying these benefits by charging a price, for it is difficult
to define or enforce property rights to the services of these resources. Many
studies have found that primary benefits from the water pollution abate?
ment in the developed countries are from the recreational services provided
by the water resources which are public goods in nature.
It is well known that in the presence of non-pecuniary external econo?
mies in the economy, market fails to facilitate the pareto optimal alloca?
tion of resources. In the case of such externalities, the market may allocate
less than optimal (more than optimal) amount of resources to the external
economies (external diseconomies) generating industries. Measures such
as taxes, subsidies and property rights arrangements based on market
mechanism may be used to facilitate pareto optimal allocation of resources
in this context. However, these methods require estimation of benefits
(damages) to recipients of external economies (dis-economies) and the

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number of such recipients tends to be very large. As for example, Pigou

vian taxes (subsidies) to control externalities are based on damages (bene?
fits) of externalities generated in the economy.2 But in the absence of
information related to the damages generated by external diseconomies,
there is no way to determine the optimal taxes to control externalities.
Since the cost of gathering required information may be prohibitive, it is
necessary to utilize the political process to determine the level of external
diseconomy generating activities. From this perspective, the selection of
environmental standards can be viewed as a particular device utilized in
a process of collective decision making to determine the appropriate level
of acti vity involving external effects.3 For example, on the basis of evidence
concerning the effects of polluted water on recreational services and aquatic
life, one may decide that the BOD and COD requirements of the foreign
matter contained in a waterway should not exceed certain levels. These
acceptability standards of pollution are the set of constraints that the
society places on its activities. They represent decision makers' subjective
evaluation of the minimum standards that must be met in order to achieve
what may be described as a reasonable quality of life.
Once the environmental pollution standards are set, we have a choice
among various governmental measures discussed earlier, to control the
pollution according to these standards. Market based programmes such
as taxes may be preferable to direct controls to realise specific pollution
standards. Government can levy a uniform set of taxes or charges that
would, in effect, constitute a set of prices for the private use of resources
such as water. The charges could be selected so as to achieve specific
acceptability standards rather than fixing them on the basis of unknown
values of marginal net demages (as it is the case with Pigouvian taxes).
For example, one might tax all paper mills emitting wastes into a river,
at a certain rate, where the tax paid by a mill depends on the BOD value
of effluents, according to a fixed schedule. Each polluting mills would
then be given a financial incentive to reduce the BOD content of the effluent
it discharges. By setting the taxes sufficiently high, the government would
be able to achieve the predetermined pollution standards.
It is clear that pollution tax and standards procedure described above,
will not, in general lead to pareto-optimal levels of polluting activities.
However, it is the least cost method of achieving pollution standards. If
there is a uniform unit tax based on BOD content of waste waters of all
paper mills in a given area, it follows that each mill minimises its pollu?
tion abatement cost by choosing pollution abatement methods such that
the marginal cost of abatement is equal to tax. In this process, marginal
2See Murty and Nayak (1982) for details.

?See also Baumol and Oates (1975).

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cost of pollution abatement will be equalized accross all the mills. The
implication of this arrangement is that it is impossible to reduce the
aggregate cost of reducing BOD to the specified standard by rearranging
pollution quotas to various mills.
One limitation of the pollution tax and standards approach described
above is that it assumes direct and additive relationship between the
emission of pollutants and the degree of welfare loss suffered by the com?
munity. This assumption may be wrong depending upon the location of
the polluting mill. A mill that emits waste into the upper part of the
river may do less or more damage to the community than one which dis?
charges the same amount of effluent down stream. Because, the social
damages caused by upstream and down stream discharges obviously
differ, it may not be appropriate to tax them at the same rate. A way
out to this problem may be to have different zones based on concentra?
tion of population and current pollution levels with different tax rates
imposed on different zones. The other limitation of the pollution tax and
standards approach is the arbitrariness of the criteria (standards) selec?
ted. In the absence of any guidance from the market, pollution standards
have necessarily to be fixed by some agency normally the government.
In India, until recently, government has made very limited intervention
in the market for the environmental management. Prior to 1980, the
two main central government acts relating to environmental protection
were (i) The Insecticides Act, 1968 and (ii) The Water (Prevention and
Control of Pollution) Act, 1974. These acts have been recently subjected
to detailed review by a committee4 appointed by the Government of India
to recommend measures to ensure environmental protection. It is only in
1980, that government has come out with a well defined environmental
policy. Some of the objectives of environmental policy are: (a) conserv?
ation and development of a safe, healthy, productive and aesthetically
satisfying environment, (b) planning of development on sound ecological
principles with environmental impact analysis and incorporation of
appropriate environmental safeguards, (c) promotion of environmental
safety technologies, recycling of resources and utilization of wastes and
(d) evolution of environmental norms and the establishment of effective
mechanisms for monitoring, surveillance and collection and dissemination
of information. In this perspective, the Sixth Five Year Plan (1980-85)
calls for a new approach to development based on techno-environmental
and socio-economic evaluation of each development project.
Standards (norms) for environmental management in India are for?
mulated by the Indian Standards Institution (ISI). The method adopted
to fix the standards ensures that they are based on scientific and techni
4See Government of India, Department of Science and Technology (1980).

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cal data and consistent with the existing institutional structure of the
economy. ISI proceeds through a net work of technical committees
which aims at giving adequate representation to all relevant interests
concerned. The technical committee makes an evaluation of alternative
sets of pollution standards and the documents prepared by it are distri?
buted widely to obtain comments of the individuals and organisations
which are not represented on the Committee. This process of exhaustive
circulation of draft standards and subsequent finalization of standards in
the light of comments received ensures that the standards are acceptable
and implementable. Table 1.1 gives the details about ISI standards for
discharge of industrial effluents into inland surface waters and on land
for irrigation. In the succeeding sections of this paper, we attempt an
economic evaluation of alternative water pollution abatement techno?
logies as per these standards.
Table 1.1
I.S.I. STANDARDS FOR. DISCHARGE OF INDUSTRIAL EFFLUENTS
(All values except PH, Temperature, and Radioactive Materials are in mg/1)
Characteristics Tolerance Limits for Industrial Effluent

Discharged
Into inland On land for
surface waters irrigation
(IS: 2490?1974) (IS: 3307?1977)
00 (2) (3)
BOD, 5 days 20? C 30 500

COD 250
PH 5.5-9.0 5.5-90
Suspended solids 100
Total dissolved solids (Inorganic) 2100
Temperature ?C 40
Oil and grease 10 30
Phenolic compounds 1.0
Cyanides 0.2
Sulphides 2.0
Fluorides 2.0
Total residual chlorine 1.0
Insecticides Absent
Arsenic 0.2
Table 1.1 (contd. on page 237)

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Table 1.1 {contd. from page 236)
CO_(2)_(3)
Cadmium 2.0 ?
Chromium (Hexavalent) 0.1 ?
Copper 3.0 ?
Lead 0.1 ?
Mercury 0.01 ?
Nickel 3.00 ?
Selenium 0.05 ?
Zinc 5.0 ?
Chlorides ? 600
Boron ? 2
Sulphates ? 1000
Percent sodium ? 60
Ammonium nitrog
Radioactive material
Alpha emitters/uc 1
Beta emitters/uc 10"6
Source : IS 2490 (Pa
2. Description o
in Paper and
2.1 Big versus Sm
In the choice betw

considerations are
of production of p
paper and pulp mi
Small and medium
account only for
of government in
establishment of s
on the ground tha
utilization of agric
encouragement to
and recoupement p
tial and wider disp
developed areas.
The Agricultural R
of India in 1975,

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Table 2.1
INSTALMENT CAPACITY OF PAPER AND PAPER BOARD
INDUSTRY, 1980
Annual Capacity No. of Units Annual Installed

(Tonnes) Capacity
(Tonnes)
More than 20,000 21 10,75,460

10,001 to 20,000 8 1,12,500
5001 to 10,000 24 1,85,900
2001 to 5,000 31 1,11,160
upto 2,000 37 53,145
Total 121 15,38,165
Source: Ramanathan (1982).
with jute stalks in paper mills to be set up in 1977-82. Out of the 47

mills proposed to be set up in this period, 25 have opted to use straw as
raw material with waste paper and fibrous materials. To encourage the
use of non-conventional raw materials, the government has offered exemp?
tion from payment of excise duty on paper varying from 50 to 75 per
cent based on production capacities of mills. The increased use of agri?
cultural residues for paper making is expected to reduce the demand for
forest based material and wood, and therefore, contribute to forest con?
servation programmes.
Estimates of cost of production of paper by small and big mills show
that a small mill using non-conventional inputs has a cost considerably less
than that of a big paper mill using conventional inputs. It is estimated
that the capital cost of establishing small paper mills based on agricul?
tural residues ranging from 10 to 30 tons per day (TPD) capacity of
unbleached paper, ranges from Rs. 240 to 480 lakhs. On the other hand,
the big mill of 100 TPD has an estimated capital cost of Rs. 3600 lakhs.
Table 2.2 provides the estimates of capital cost of small paper mills pro?
ducing unbleached paper at 1976 price?.
Environmental problems associated with small paper mills differ in
some respects from those associated with larger mills. A small paper mill
(say of 20 TPD) consumes on average 49,000 to 90,000 gallons of water
while an integrated paper mill of more than 100 TPD capacity consumes
66,000 to 93,500 gallons of water to produce a ton of paper. Also, there
are considerable differences in the characteristics of the waste water
discharged by small and big paper mills. Table 2.3 provides the details.

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Table 2.2
CAPITAL AND PRODUCTION COSTS FOR SMALL PAPER MILLS
WITHOUT CHEMICAL RECOVERY
Capacity With Indigenous Machinery With Imported Machinery

(TPD) Capital Cost Cost of Production Capital Cost of Production
(Lakh Rs.) Per Tonne of Paper Cost Per Tonne of Paper
(Rupees) (LakhRs.) (Rupees)
10 240 2660-2800 186 2685

15 280 2535-2700 226 2550
20 350 2900 ? ?
30 450-490 3035-3100 476* 2960
?With chemical recovery.

Source: Subrahmanyam and Hanumanulu (1976).
Table 2.3
CHARACTERISTICS AND POLLUTION LOAD IN THE COMBINE
WATER FROM SMALL AND LARGE PAPER MILLS
Items Characteristics* Pollution Load kg I ton

SP M LPM of Paper
SPM LPM
Flowm8/tonne 200 310 ? ?

PH 8.0-9.0 6.5-8.2 ? ?
Total solids 3548 1608 710 495
Suspended solids 1428 374 286 116
BODs20?C 780 161 156 50
COD 2676 613 535 190
Sodium 423 140 85 43
?All values except flow and PH are in mg/1

Source: Ramanathan (1982).
The pollution load per ton of paper from small mills is far higher tha
that of a large mill. It is because a small mill does not practice chemic
recovery and reuse of water while it is economical to do so for a
mill. The small paper mills pose special problems for pollution control.

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First of all, they are located in isolated areas. Secondly, there are signi?
ficant economies of scale in the pollution abatement such that it may
not be economically viable to have pollution abatement plant for a small
paper mill. The existing estimates of costs of pollution abatement for
big and small mills show that comparative capital and operating cost for
every ton of paper produced per day for the small mill is more than double
of the big mill.
2.2 Existing Technological Options for Water Pollution

Abatement in Big and Small Paper Mills
The existing technology provides three methods viz. (i) physical (ii)
physico-chemical and (iii) biological, for the treatment of industrial and
municipal water pollution. In actual practice, no single process will
reduce all the major pollutants to tolerable levels and hence a combin?
ation of these three methods need to be used. The quality of effluent or
water pollution standards desired and the mode of the final disposal of
effluent determine the type of treatment to be adopted. In the case of
Physical methods, the primary step is the sedimentation of waste waters in
clarifiers to remove the suspended solids. Sludge thickners in the clarfier
are used to obtain low volume sludge for further treatment and disposal.
Chemical coagulants have also been used primarily for the removal of
suspended solids and certain amount of colour in water. But the high
chemical cost and sludge disposal problems make the process uneco?
nomical. Physico-chemical treatment methods are used to remove colour
of water due to presence of lignin in paper and pulp mill wastes. Chemi?
cal coagulants and lime are used for the treatment of effluents. Appli?
cation of this method may prove economical only if reuse of treated
effluent for paper and pulp mill processes is considered. Biological
methods such as ponds, aerated lagoons, trickling fitters, oxidation
ditches or activated sludge process are used depending upon local environ?
mental conditions.
We shall describe now three alternative technological options for the
water pollution abatement in the case of paper and pulp industry and
shall estimate for each the social cost of pollution abatement per ton of
paper produced. Detailed technical information about these technologi?
cal options is given by Subrahmanyam and Hanumanulu (1976). Each of
these alternatives are designed as a convex mix of above mentioned three
alternative methods of abatement.
Abatement method-1. In the case of Abatement method-I, 30 per cent

of black liquor is seggregated from material digester and stored in a
lagoon which can handle a flow of 300 days. The stored liquor is dis

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posed in to the river during monsoon by controlled discharge. The
remaining waste water is primarily treated in a clarifier to remove the
suspended solids. After removal of suspended solids, the waste water is
treated in activated sludge system. Since the effluent from paper and pulp
mill is normally deficient in nutrients (nitrogen (AO and phosphorous (P))
which are essential for biological treatment, chemicals like N and P have
to be added, to bring the required BOD : N : P ratio of 100 : 5 : 1 in the
waste water. This chemically activated sludge or waste water is then taken
in to a secondary clarifier. After treatment in the secondary clarifier, the
required volume of sludge is taken to aeration tank while the surplus
sludge goes back to primary clarifier.
The thickened sludge in the primary clarifier is lagooned. The sludge
lagoons are provided with a capacity to hold 200 days of sludge. The
supernatant from sludge lagoons requires treatment and hence is taken
back for treatment.
The final effluent leaving the system is expected to have BOD and
suspended solids that satisfy Indian water pollution standards, but
violates the standards for COD value and colour. Figure 1 describes the
working of abatement method-I
Abatement method-IE This method is similar to the method-I, but

differs from it in two respects. It seggregates 50 per cent of black liquor
from the raw material digester (as against 30 per cent in the case of
Method-I) and stores it in a lagoon which is later disposed into a river
during the mansoon period. After removal of suspended solids in a pri?
mary clarifier, the other waste waters are treated in a aerated lagoon
instead of activated sludge. Nutrient or chemical addition is needed in
this case in the same proportion as in method-I. Treated effluents with
this method are supposed to meet the required standards with the excep?
tion of high COD and colour.
Abatement method-IIL In this method, the treated effluent is used for

agriculture. After seggregation of black liquor as in methods I and II,
the waste water is taken through a clarifier to remove suspended solids.
After the removal of suspended solids, the effluent is treated with cal?
cium sulphate to bring down sodium content below 60 per cent. Depend?
ing on the type of soil and crops grown and the climatic conditions, a
dose of 54 to 108 cubic metres of waste water can be applied per hectare
of land per day.
Apart from the end of pipe treatment of pollution as described in abate?
ment methods presented above, it may be economical for a paper and
pulp mill to adopt process changes for chemical recovery and recycling of
water. Existing technology provides three process options for paper pro

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duction viz., (a) the Kraft or Sulphate process, (b) the Mechanical pulp?
ing process and (c) the Sulphite pulping process. The difference between
the sulphate and the sulphite processes is that in the earlier case, the raw
materials are cooked with caustic soda-sodium sulphide mixure while in
the latter case, the cooking liquor is usually magnesium bi-sulphate and
sulphurous acid. In all these processes, a large quantity of water is used
in chipper house, pulp mill and paper mill of an integrated paper mill.
The amount of waste water released is very large if there is no recycling
of water in paper production. Chemical recovery reduces pollution load
and also facilitates saving in the cost of production of paper.
An appendix to this section describes the process changes adopted by a
big paper mill of 115 TPD capacity to reduce pollution load. Process
changes to reduce pollution loads involve additional cost which has to be
weighed against benefits. Table 2.6 provides the estimates of increased
cost of a big paper mill due to process changes which amounts to Rs.
11.05 lakhs.
2.3 Available Estimates of Water Pollution Abatement Costs of

Big and Small Paper Mills in India
Some estimates of costs of water pollution abatement for big and small
paper mills that are made in 1976 show that the comparative capital and
operating costs per tonne of paper per day for the small paper mill is
more than double that for the big mill. For example, the capital cost of a
small mill may range from about US$ 5000 to 11000 in comparison to
US$ 2000 to 4000 for a big mill per tonne depending on the treatment
alternative adopted. Similarly, the annual operating costs for the small
mill is approximately US$ 1500 to 4000 per tonne while it is about US$
750 to 1500 per tonne for a big mill.5
Table 2.4 provides the estimates at 1976 prices of capital cost, running
(operating) costs and land requirements of water pollution abatement
plants of small paper mills of different capacities using alternative methods
of abatement. Rows (2) and (3) of this table respectively provide the esti?
mates of capital and operating costs of small paper mills of different
capacities using alternative methods of abatement. For a paper mill of 15
TPD capacity, the capital cost is Rs. 9.55 lakhs for abatement method-I,
while abatement methods-II and III respectively have capital costs equiva?
lent to Rs. 7.48 and Rs. 4.82 lakhs. Thus abatement methods I and II
are relatively capital intensive in comparison with method-Ill. However,
land requirements for the pollution abatement plant also vary: abatement
method-Ill requires 40 hectares of land as against 1.80 and 2.25 hectares
5See Ramanathan (1982).

103.47.14.238 on Thu, 20 Apr 2023 14:09:35 UTC
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for methods I and II respectively. Again, the operation costs are higher
for abatement method-I (Rs. 3.75 lakhs) in comparison to method-II (Rs.
3.50 lakhs) and method-Ill (Rs. 1.38 lakbs). Row (6) of Table 2.4 provides
the estimates of water pollution abatement costs of small mills per tonne
of paper per year. Again, the cost per tonne per year is the highest for
abatement method-I (Rs. 108.3) in comparison to method-II (Rs. 97.0)
and method-Ill (Rs. 43.0). The estimates of pollution abatement cost per
tonne per year exhibits returns to scale (scale economies), the less being
the cost per tonne per year, the bigger the mill for a given abatement
method. As for example, given the abatement method-I, the pollution
abatement cost per tonne per year is reduced from Rs. 124.7 to 90.7 as
the capacity of the mill increases from 10 TPD to 30 TPD.
Table 2.5 provides the estimates of various categories of costs at 1982-83
prices for water pollution abatement of a big paper mill of 115 TPD
capacity. These estimates refer to costs incurred to treat one day effluent
of the mill. One the basis of these estimates, the cost of pollution abate?
ment per tonne per day works out to be Rs. 47.79 for a big mill of this
Table 2.5
COST FOR TREATING THE COMBINED MILL EFFLUENT PER DAY
(per day as on 28-11-82).
Cost (Rs.)
1. Nutrients
Urea 150 kg of Rs. 2320 per tonne 348
DAP 75 kg of Rs. 3460 per tonne 260
2. Electrical Energy
Average 1700 kwh., 35 PS per kwh 595
3. Man Power
Chemists two of Rs. 25 per head 50
Operators four of Rs. 20 per head 80
Helpers six of Rs. 8 per head 48
Cleaning and other incidental jobs 10
4. Maintenance and other overheads
Average 1.75 lakhs per year 479
5. Interest on investment
15% for 70 lakhs 2900
6a. Plant Depreciation Rs. 2.5 lakhs per year
726
6b. Insurence Rs. 15000 per year
7. Total cost 5496
8. Cost per tonne per year 47.79
Source: A big paper mill of 115 TPD capacity visited by one of the authors.

103.47.14.238 on Thu, 20 Apr 2023 14:09:35 UTC
type. This estimate of cost of pollution abatement does not take into
account the cost of process changes by the big paper mill to reduce pollu?
tion loads. Table 2.6 and appendix to this section describe the process
changes in paper production that are incorporated by the big mill under
study. The capital cost of process changes is estimated as Rs. 11.05 lakhs.
Table 2.6
ADDITIONAL CAPITAL EXPENDITURE FOR PROCESS CHANGES IN
BIG PAPER MILL TO REDUCE POLLUTION LOAD
Unit Cost (Rs.) Total Cost (Rs.)
1. Pulp mills
(a) 2 Chests 1,50,000 3,00,000
(b) 3 Pump sets for the above 15,000 45,000

(c) 3 Sump pumps 5,000 15,000
(d) Pipe line for the above 10,000 10,000

(e) Additional Brorm Stock Washer
in Pulp Mill 6,00,000 6,00,000
Sub-Total 9,70,000
2. Soda Recovery
(a) 3 Sump pumps 5,00,000 15,000

(b) Pump to pump foul condensate
to causticizing sutia 10,000 10,000
(c) 5 Pumps for pumping 10,000 50,000
(d) 2 Filter cake to drying beds 15,000 30,000
(e) Pipe line for above 30,000 30,000
Sub-total 1,35,000
Total (1 + 2) 11,05,000
Source: A big paper mill of 115 TPD capacity visited by one of the authors.
In the succeeding section, we make the estimates of social costs of water

pollution abatement per tonne of paper produced by big and small paper
mills using alternative methods of pollution abatement. We make the

103.47.14.238 on Thu, 20 Apr 2023 14:09:35 UTC
Ecommic Evaluation of Water Pollution Abatement 247
estimates of social cost of water pollution abatement, taking into account

the following limitations on the available estimates.
(1) Estimates of cost of water pollution for small paper mills as given
in Table 2.4 are made for mills making unbleached paper. Subrabmanyan
and Hanumanulu (1976) point out that for bleached paper, the estimated
costs in Table 2.4 may increase by 5 per cent. In order to make the com?
parative cost estimates of small mills and a big paper mill under study,
we escalate the cost estimates of small paper mills given in Table 2.4 by 5
per cent.
(2) The pollution abatement cost estimates of paper mills given in
Tables 2.4 and 2.5 do not include the opportunity cost of land used for
pollution abatement plant. We have to make an estimate of opportunity
cost of land for industrial uses so that it can be used in the estimation
of pollution abatement costs of small and big paper mills. Table 2.7 pro?
vides the required data for its estimation.
Table 2.7
VALUE OF OUTPUT AND COST PER HECTARE (BY ITEMS) OF
IRRIGATED LAND IN PUNJAB
(Rs. at 1979-80 prices)
Item Bullock Operated Farms Tractor Operated Farms
_(J)_(2)_(3)
1. Value of Crops 5,684.74 6,051.90
2. Manual labour 1,412.75 1,112.43
(i) Permanent 1,128.85 822.99
(ii) Casual 283.90 289.44
3. Bullock labour 707.46 207.24
4. Seed 202.66 210.74
5. Implements 124.61 456.42
6. Artisans 30.08 14.30
7. Tubewells and wells 592.24 450.18
8. Water rates 29.43 28.42
9. Manure and fertilizers 756.55 841.65
10. Rent 1,619.28 1,696.51
11. Land revenue 8.12 10.00
12. Miscellaneous 103.01 70.26
13. Tractor and accessories ? 1,710.00
14. Total cost 5,586.19 6,408.15
Note: Input structure in Column (3) refers to a businessman who takes land on rent,
employs hired labour and borrows the capital.
Source: Farm Accounts in Punjab, 1979-80, Economic and Statistical Organisation,
Punjab (India), Publication No. 353,

103.47.14.238 on Thu, 20 Apr 2023 14:09:35 UTC
248 A jit K. Dasgupta and M. N. Murty
(3) The cost estimates in Tables 2.4 and 2.5 are given in prices of
different years. We have to estimate all relevant water pollution abatement
costs of mills at constant prices so that they are comparable.
(4) Pollution abatement plants of big and small paper mills have capital
costs, the benefits of which accrue subsequently during project life. The
capital cost is normally expressed as an annual charge made up of amortiz?
ation at market rate of interest plus depreciation. This is not, however,
a satisfactory method of estimating the capital cost component of annual
cost of pollution abatement of paper production. First of all, the social
rate of discount that one has to use to estimate the social cost of abate?
ment may be less than the market rate of interest. Secondly, from the
point of view of economic evaluation, an appropriate measure of pollution
abatement cost would be the present value of the time-stream of the rele?
vant costs at the given social rate of discount.
(5) The estimates of costs of various inputs at market prices do not
really represent social cost of pollution abatement, if market prices are
different from shadow prices (accounting prices) of inputs. Therefore, the
social cost of pollution abatement has to be estimated valuing various
inputs like labour, land, capital, foreign exchange, fertilizers and power
and fuel at their social opportunity costs (shadow prices).
3. Economic Evaluation of Alternative Pollution Abatement

Technologies for Paper and Pulp Mills
3.1 Data Requirements, Sources and Limitations
We have observed in Section-1 that benefits from water pollution abate?

ment such as recreational activities, aesthetic enjoyment etc. are public
goods in nature which cannot be estimated from market observed data.
Therefore, we do not take up the problem of measuring benefits from
water pollution abatement but try to make the estimates of pollution
abatement costs to meet certain pollution standards of water, say mini?
mum national water pallution standards as described earlier. The esti?
mation of social cost of water pollution abatement per tonne of paper
produced needs detailed data about the cost breakup by resource cate?
gories for big and small paper mills. Since we are interested to make
estimates of social costs of pollution abatement for alternative methods
of abatement in small paper mills, we also need data about construction
and operation cost and the resource categories of these costs for pollution
abatement plants using alternative methods of abatement.
For a big paper mill, we have estimated the annual operation cost and
its breakup into chemicals and fertilizers, electrical energy and skilled

103.47.14.238 on Thu, 20 Apr 2023 14:09:35 UTC
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103.47.14.238 on Thu, 20 Apr 2023 14:09:35 UTC
and unskilled labour using the data in Table 2.5. But we do not have any
information about the break up of construction cost of a big paper mill
into domestic material and skilled and unskilled labour categories. The
pollution abatement plant as well as process changes in the paper pro?
duction to reduce pollution loads are capital intensive in their design for
a big paper mill. The activated sludge method and the process changes
undertaken by the big paper mill under study are capital intensive. We
assume that each of the expenditures on skilled labour and unskilled
labour constitute 2.5 per cent of capital cost of pollution abatement plant.
As far as the operation cost of process changes in the paper production
for pollution control is concerned, we assume that this constitutes same
percentage to capital cost as it is the case with pollution abatement plant.
We also assume that the percentage composition of various input cate?
gories in the operation cost of process changes is same as that of operation
cost of abatement plant.
Table 2.4 provides the estimates of water pollution abatement costs for
small paper mills of different capacities using alternative methods of
pollution abatement as given by Subrahmanyan and Hanumanulu (1976).
This table does not provide the breakup of construction cost of pollution
abatement plants of small paper mills by resource categories and gives
only the break-up of operation cost into manures and fertilizers (chemicals)
and others and land used. Since water pollution abatement plants based
on abatement methods-I and II are capital intensive in their design, we
assume that each of the skilled labour and unskilled labour input com?
ponents of construction cost constitute 5 per cent of total construction
cost in this case. However, the pollution abatement plant based on
abatement method-Ill is relatively labour intensive in its design. We
assume that skilled and unskilled labour input categories respectively
constitute 5 and 10 per cent of capital cost in this case. In the case of
power and fuel costs of pollution abatement plants of small paper mills,
abatement method-I is similar in its structure to the activated sludge
method followed by the big paper mill under study, for it uses twoclari
fiers (primary and secondary) while abatement methods-II and III use
only primary clarifiers. Therefore, for abatement method-I, we assume
that expenditure on power and fuel constitutes the same percentage to
operation cost as it is the case with the big paper mill under study. How?
ever, for abatement methods-II and III, we assume that the expenditure
on power and fuel is 50 per cent of the abatement method-I. In the case
of skilled and unskilled labour input categories of operation cost of
abatement plants of small paper mills, we assume that they constitute
the same percentages to operational cost as they are in the case of pol?
lution abatement plant of the big paper mill under study.
Pollution abatement plants for big and small paper mills use certain

103.47.14.238 on Thu, 20 Apr 2023 14:09:35 UTC
amount of land. Table 2.4 provides information about the land require?
ments for pollution abatement plants of different capacities using alter?
native methods of abatement. Depending upon the method of abatement,
the land requirement for the pollution abatement plant of a paper mill
with 10 tonnes per day (TPD) capacity varies from 1.15 to 1.57 hectares.
In the case of abatement method-IIItf paper mill with 10 TPD capacity
can provide waste water as a fertilizer to 27 hectares of land. Since small
paper mills may be designed to use agricultural residues, they may be
located in the heart lands of agriculturally prosperous areas thus facilitat?
ing the transfer of land from agricultural to industrial uses. We have to,
therefore, estimate the opportunity cost of land used for the pollution
abatement plant of a paper mill. This opportunity cost can be returns on
land in agriculture in the case of small paper mills. The big paper mill
under study is also located in a area that is otherwise used for agriculture
and uses about 15 hectares of land for its pollution abatement plant. To
estimate the returns on land in agriculture, we need, data on the per
hectare yields of the most productive mix of crops and input cost. We
use farm accounts data for Punjab state which gives details about the
value of crops and inputs used separately for bullock and tractor operated
farms as given in Table 2.7, for the estimation of opportunity cost of land
used in industry.
3.2 Estimates of Resource Flows of Costs for Alternative Technologies
We have made the estimates of resource flows of construction and

operation costs of pollution abatement plants of big and small paper
mills using data in Tables 2.4, 2.5, 2.6 and 2.7. The operation costs of
pollution abatement plant of the big paper mill under study as given in
Table 2.5 are expressed at 1982-83 prices where as the construction cost
of plant is mainly incurred during 1978-79. The construction cost expen?
diture on process changes for reducing pollution load is incurred during
J 977-78 with the expenditure on the construction work of the paper mill.
In the case of small paper mills, the cost data in Table 2.4 are given at
prices prevailing during early 1976. We deflate the cost estimates for big
and small paper mills given in Tables 2.4 through 2.7 by the relevant
wholesale price index numbers to express them at 1970-71 prices. Then,
we estimate the flows of construction and operation costs for small and
big paper mills and for alternative methods of pollution abatement for
small mills of different capacities at 1970-71 prices. Tables 3.1 through
3.4 provide these estimates.
The opportunity cost of land used for the pollution abatement plant is
the annual flow of income foregone as a result of shifting land from agri?
culture to industry. Table 2.7 provides the data related to value of crops

103.47.14.238 on Thu, 20 Apr 2023 14:09:35 UTC
Table 3.1
ESTIMATES OF COST FLOWS OF ABATEMENT METHOD-I FOR SMALL
PAPER MILLS WITH DIFFERENT CAPACITIES
(At 1970-71 prices)
L Capacity (TPD) 10 15 20 30
2. Capital Cost (Rs. lakhs) 4.60 5.82 7.05 8.17

2.1 Domestic material 4.14 5.24 6.35 7.35
2.2 Skilled labour 0.23 0.29 0.35 0.41
2.3 Unskilled labour 0.23 0.29 0.35 0.41
3. Operational Cost (Rs. lakhs) 1.73 2.29 2.80 3.87
3.1 Chemicals 0.79 1.25 1.58 2.44
3.2 Power and fuel 0.06 0.08 0.09 0.12
3.3 Skilled labour 0.12 0.16 0.20 0.27
3.5 Other Costs 0.71 0.73 0.84 0.92
4. Opportunity Cost of Land
Used 0.011 0.017 0.022 0.033
Source : Estimated as explained in the text.
Table 3.2
ESTIMATES OF COST FLOWS OF ABATEMENT MET
SMALL PAPER MILLS WITH DIFFERENT CAPAC
(At 1970-71 prices)
1. Capacity (TPD) 10 15 20 30
2. Capital Cost 3.58 4.55 5.55 7.47
2.1 Domestic Material 3.22 4 09 4.99 6.73
2.2 Skilled labour 0.18 0.23 0.28 0.37
3. Operational Cost 1.90 3.18 3.37 4.79
3.1 Chemicals 0.25 0.47 0.69 1.13
3.2 Power and fuel 0.03 0.04 0.05 0.06
3.3 Skilled labour 0.13 0.22 0.24 0.34
3.5 Other Costs 1.43 2.35 2.29 3.11
Used 0.015 0.C21 0.028 0.040

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Table 3.3
ESTIMATES OF COST FLOWS OF ABATEMENT METHOD-III FOR
SMALL PAPER MILLS WITH DIFFERENT CAPACITIES
(At 1970-71 prices)
1. Capacity (TPD) 10 15 20 30
2. Capital Cost (Rs. lakhs) 2.36 2.94 3.50 4.61
2.1 Domestic material 2.00 2.50 2.97 3.92
2.2 Skilled labour 0.12 0.15 0.18 0.23
3. Operational cost 0.71 0.84 0.95 1.18

3.1 Chemicals 0.22 0.34 0.44 0.66
3.2 Power and fuel 0.03 0.04 0.05 0.06
3.3 Skilled labour 0.05 0.06 0.06 0.08
3.5 Other costs 0.39 0.38 0.37 0.35
Used 0.0 0.0 0.0 0.0

Table 3.4
ESTIMATES OF COST FLOWS OF A POLLUTION ABATEMENT PLAN
OF A BIG PAPER MILL AT 1970-71 PRICES
(At 1970-71 prices; Capacity 115 TPD)
Item Pollution Abatement Plant Process Changes

for Pollution
Abatement
2. Capital Cost (Rs. lakhs) 37.76 5.97

2.1 Domestic material 35.88 5.67
2.2 Skilled labour 0.94 0.15
2.3 Unskilled labour 0.94 0.15
3. Operational Cost (Rs. lakhs) 2.40 0.38

3.1 Chemicals 0.78 0.13
3.2 Power and fuel 0.76 0.12
3.3 Skilled labour 0.17 0-03
3.4 Unskilled labour 0.07 0.01
3.5 Other costs 0.62 0.09
4. Opportunity Cost of Land Used 0.142

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and various inputs used per hectare during 1979-80 in agriculturally rich
Punjab at 1979-80 prices. We have deflated this data by the appropriate
wholesale price index numbers to express them at 1970-71 prices. Using this
deflated data, we have estimated agricultural income foregone per hectare
as Rs. 835.81 for bullock operated farms and Rs. 944.93 per hectare for
tractor operated farms. Table 3.5 describes the method of estimation.
The items like land revenue and imputed rent given in Table 2.7 are
mere transfer flows which cannot be taken as input costs in the esti?
mation of opportunity cost of land. For the estimation of water pollu?
tion abatement costs at market prices for big as well as small paper
mills, we therefore, adopt Rs. 944.93 as the annual opportunity cost of
land used by a pollution abatement plant.
3.3 Corrections for Shadow Prices
In order to estimate the social cost of water pollution abatement for

big and small paper mills, we have to make corrections for shadow prices
of various inputs in the estimates of resource flows of costs at market
prices as given in Tables 3.1 through 3.4. We have input flows of capital,
power and fuel, manures and fertilizers and skilled and unskilled labour
at market prices as some components of pollution abatement costs of
paper mill which may be much different from their counterparts at
shadow prices.
The social opportunity cost of capital (shadow price of capital) depends
on the rate of return on investment (R), the social rate of discount (r)
and the proportion of returns on investment that is available for rein?
vestment in the economy (Q). In other words we can derive the shadow
price of investment (Pr) as6
(1 - Q) R
r-QR
Given Q = 0.25 and R = 0.15 for the Indian economy, Pi can be esti?
mated as 2.65, 1.80 and 1.36, respectively for the given values r as 0.08,
0.10 and 0.12.
With the assumption of surplus unskilled labour in the economy, the
wage bill for unskilled labour incurred by pollution abatement plants at
market wage may be higher than the social opportunity cost of employ?
ing labour on the projects. The direct opportunity cost of labour may
form a certain proportion of wage bill at market wage which we take as
0.8 in this study. The indirect opportunity cost of employing unskilled
6See Dasgupta, Sen and Marglin (1972).

103.47.14.238 on Thu, 20 Apr 2023 14:09:35 UTC
labour by pollution abatement plants will be in the form of effects of
labour employment on the consumption and investment mix (net invest?
ment) in the economy while there may be social gains from the labour
employment from the point of view of income distribution. If there is a
net loss of investment as a result of labour employment, the social cost of
this investment loss has to be evaluated at the shadow price of investment.
Similarly, the estimates at market prices, of costs of power and fuel
and manure and fertilizers used by water pollution abatement plants may
understate the social cost of using these resources. In the case of power
and fuel, Murty, M. N. (1983?) has estimated the social value of a rupee
that is spent on final consumption demand for electricity as 1.155 while
it is 1.373 in the case of intermediary demand. We therefore, adopt
social opportunity cost of power and fuel as 1.373 which implies that
there is a social premium of 37.3 paise on every rupee worth of power
and fuel used by water pollution abatement plants. In the case of ferti?
lizers, part of the domestic demand for these inputs in India is met by
imports. Assuming that increased demand for fertilizers as a result of
water pollution abatement plants is met by imports at margin, we impute
a shadow price of Rs. 1.6 for every rupee spent on the import of ferti?
lizers at market prices (offical rate of exchange).7 This implies that there
is a social premium of 60 paise on every rupee spent on the imports of
fertilizers at cif prices expressed in domestic currency at official rate of
exchange.
Using the data in Table 3.5, and the values of relevant shadow prices
as described above, we have estimated the social opportunity cost of
transferring land from agriculture to industry as follows:
The opportunity cost of land at market prices is estimated from Table
3.5 as C = (1) ? (12). Now making the corrections for direct opportu?
nity cost of unskilled labour (Pu)s and the shadow price of fertilizers
(Pf), the social opportunity cost of land (SCX) may be estimated from
Table 3.5 as
SC, - (1) - (12) - (Pf - 1) (5) + (1 - Pa) (7)
Assuming that farmers, skilled labour, unskilled labour and government
are beneficiaries of land in agriculture, we can distribute SCX among these
beneficiaries as follows:
Farmers (SClF) = (1) - (12) - (14)

Skilled labour (SClL) = 0
Unskilled labour (SCxU) = (1 - Pv) (7)
Government (SClG) = (14) - (Pf - 1) (5)
7The available estimates of shadow price of foreign exchange for the Indian eco?
nomy form a range of 1.30-2.80.
sPu is defined as the proportion of wage bill at market wage rate.

103.47.14.238 on Thu, 20 Apr 2023 14:09:35 UTC
where
SCi = SCxp + SCil + SCyu SCig

Table 3.5
VALUE OF OUTPUT AND COST PER HECTARE (BY ITEMS) OF
IRRIGATED LAND IN PUNJAB
(At 1970-71 prices)
Item Bullock Operated Farm Tractor Operated

Farm
(Rs.) (Rs.)
CO (2) (3)
1. Value of crops 2752.90 2930.70
2. Tractor and accessories ? 828.09
3. Implements 60.34 221.03
4. Tubewells and wells 286.80 218.00
5. Manure and fertilizers 366.37 407.58
6. Seeds 98.14 102.05
7. Manual labour 684.14 53.96
8. Artisans (skilled labour) 14.57 6.92
9. Bullock labour 342.60 100.36
10. Water rates 14.25 13.76
11. Others 49.88 34.02
12. Total cost 1917.09 1985.77
13. (1-12) 835.81 944.93
10.00
14. Transfer flow (Land revenue) 8.12
Let the propensities to save of farmers, skilled labour, unskilled labour

and government respectively represent Qf , QL , Qu and QG, Then the

103.47.14.238 on Thu, 20 Apr 2023 14:09:35 UTC
social opportunity cost of land, after a correction is made for shadow

price of investment (Pi) is given as:
SC2 = SCX + (Pi - 1) (QFSClF + QlSCiL + QuSClL + QGSClG)
? We estimate the social opportunity cost of land (SC2) with the assump?
tion that the values of Qf, Ql, Qu and Qg are respectively given as 0.20,
0.10, 0.00 and 0.20. Table 3.6 gives estimates of SCZ at 1970-71 prices
for bullock operated and tractor operated farms in Punjab for different
values of social rate of discount. Given r as 0.10 for the Indian economy,
the social opportunity cost of land used in industry for bullock operated
and tractor operated farms in agriculture are respectively estimated as
Rs. 851.38 and Rs. 823.23. Therefore, bullock operated farms are socially
more profitable than tractor operated farms in Punjab agriculture. How?
ever, as noted in Section 3.2, tractor operated farms are more profitable
than bullock operated farms at market prices. We, therefore, adopt
Rs. 851.38 as the social opportunity cost of a hectare of land used for
water pollution abatement plants in India.
Table 3-6
ESTIMATES OF OPPORTUNITY COST OF A HECTARE OF LAND USED
IN INDUSTRY FOR DIFFERENT VALUES OF r GIVEN Pu = 0.80 AND
PF = 1.60
(At shadow prices)
Social Rate of Discount Bullock Operated Farm Tractor Operated Farm

_(r)_(RsO_(RsO_
_CO_(2)_(5)_
0.08 956.10 942.30
0.10 851.38 823.23
0.12 797.17 761.60
3.4 Estimates of Social Costs of Treatment for Alternative Technologies
We have made the estimates of net present cost at market prices (NPC)
for pollution abatement plants of big and small paper mills and for alter?
native abatement methods used by small paper mills of different capaci?
ties. These estimates are made using data in Table 3.1 through 3.5 tor
different values of social rate of discount (r) under alternative assump?
tions about the life time of pollution abatement plants. Given the plausi

103.47.14.238 on Thu, 20 Apr 2023 14:09:35 UTC
ble value of r as 0.10 for the Indian economy, and the life of pollution
abatement plant as 30 years, the NPC of water pollution abatement for
a small paper mill of 15 tonnes per day (TPD) capacity is Rs. 29.74
lakhs with the abatement Method-I while it is Rs. 51.95 lakhs and
Rs. 11.65 lakhs respectively for the abatement methods-II and III as
given in Table 3.8. Tables 3.7, 3.8 and 3.12 provide the estimates of
Table 3.7
ESTIMATES OF NET PRESENT COST (NPC) OF POLLUTION ABATEMENT
FOR SMALL PAPER MILLS WITH DIFFERENT CAPACITIES USING
ALTERNATIVE METHODS OF ABATEMENT WITH THE LIFE OF
ABATEMENT PLANT AS 20 YEARS
(Rs. lakhs at market prices)
Capacity
(Tonnes per day) 10 15 20 30
Sacial rate of Abatement Method-I

discount
.08 23.060 30.281 36.971 49.553

.10 20.905 27.426 33.479 44.723
.12 19.164 25.119 30.657 40.820
Abatement Method-II
.08 41.697 53.016 64.693 87.098

.10 37.249 47.359 57.790 77.804
.12 33.654 42.788 52.212 70.294
Abatement Method-Ill
.08 9.888 11.846 13.573 17.121

.10 9.009 10.807 12.397 15.659
.12 8.299 9.967 11.447 14.481
Source: Estimated as explained in the text.
NPC of pollution abatement for small paper mills of different capacities

using alternative abatement methods and for a big paper mill of 115
TPD capacity under different assumptions about the life of abatement
plant and the social rate of discount. The problem then is to estimate
the cost of water pollution abatement per tonne of paper produced at
market price (MTC) by big and small paper mills using the estimates of

103.47.14.238 on Thu, 20 Apr 2023 14:09:35 UTC
Table-3.8
ESTIMATES OF NET PRESENT COST (NPC) OF POLLUTION ABATEMENT
FOR SMALL PAPER MILLS WITH DIFFERENT CAPACITIES USING
ALTERNATIVE METHOD OF ABATEMENT WITH THE LIFE OF
(Rs. lakhs)
Capacity
Social rate of Abatement Method-1

discount
.08 25.77 33.87 41.36 55.62

.10 22.65 29.74 36.31 48.64
.12 20.31 26.63 32.55 43.38
Abatement Method-H
.08 47.29 60.12 73.37 98.78

.10 40.86 51.95 63.39 85.35
.12 36.01 45.79 55.87 75.22
.08 10.989 13.154 15.049 18.960

.10 9.724 11.650 13.355 16.594
.12 8.764 10.580 12.070 15.260
NPC of pollution abatement plants. In order to make the estimates of

MTC, we assume that the productive working days of a paper mill (big
or small) are 300 days in a year. Therefore, given the productive work?
ing days of the mill in a year and per day capacity as x tonnes of paper
say, we have the annual capacity of the mill as 300 x tonnes of paper.
Assuming that MTC is given in constant prices and it is constant through?
out the life of the pollution abatement plant, we can define the NPC of
pollution abatement plant as :
300 x X MTC
NPC
t=\ (1 + r)?
where T and r are respectively defined as life of the abatement plant and

103.47.14.238 on Thu, 20 Apr 2023 14:09:35 UTC
the social rate of discount. Therefore, we can estimate MTC, given x, r,

T and NPC.
Tables 3.9, 3.10 and 3.14 provide estimates of MTC for small and big
paper mills. Given r as 10 per cent, MTC for a small paper mill of 15
TPD capacity is Rs. 63.71 for the abatement method-I while it is Rs. 111.29
Table-3.9
ESTIMATES OF COST OF POLLUTION ABATEMENT PER TONNE OF
PAPER PRODUCED BY SMALL PAPER MILLS WITH DIFFERENT
CAPACITIES GIVEN THE LIFE TIME OF ABATEMENT PLANT
AS 20 YEARS
(Rs. at market prices)
Capacity
Social rate of
discount Abatement Method-I
.08 72.53 63.49 58.14 51.95

.10 74.35 65.03 59.54 53.02
.12 76.41 66.77 61.12 54.26
Abatement Method-II
.08 131.15 111.17 101.74 91.31

.10 132.48 112.29 102.77 92.24
.12 134.19 113.74 104.09 93.43
.08 31.10 24.84 21.35 17.95

.10 32.03 25.62 22.04 18.56
.12 33.09 26.50 22.83 19.25
and Rs. 24.96 respectively for the abatement methods-II and III. Abate?
ment method-Ill has the lowest MTC for it has the lowest construction
and operational cost due to the fact that pollutants are used for agricul?
tural purposes after primary treatment while the abatement method-II
has the highest MTC. Also, the estimates of MTC for big and small paper
mills reveal significant economies of scale. Given again r as 0.10 and the
life of pollution abatement plant (T) as 30 years and the abatement

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Table 3.10
ESTIMATES OF COST OF POLLUTION ABATEMFNT PER TONNE
OF PAPER PRODUCED BY SMALL PAPER MILLS WITH
DIFFERENT CAPACITIES GIVEN THE LIFE TIME OF
(Rs. at market prices)
Capacity (Tonnes 10 15 20 30
per day)
Social rate of discount Abatement Method-1
.08 70.68 61.93 56.72 50.85

.10 72.79 63.71 58.34 52.10
.12 73.79 64.50 59.13 52.54
Abatement Method-ll
.08 129.70 109.92 100.61 90.30

.10 131.30 111.29 101.85 91.42
.12 130.83 110.91 101.50 91.10
.08 30.14 24.05 20.64 17.33

.10 31.24 24.96 21.46 17.77
.12 31.70 25.49 21.79 18.34
method-I, MTC is Rs. 72.79 for a mill of 10 TPD capacit

Rs. 52.10 for a mill of 30 TPD capacity. We can compare
of MTC for a small mill with those of a big mill of 115
which we are,studying. The big mill under study uses a sim
of abatement as abatement method-I. Given the values
above, an estimate of MTC for a big mill of 115 TPD is Rs.
fore, our estimates of MTC show that as the capacity o
increases from 10 TPD to 115 TPD, MTC falls from Rs. 72.7
at 1970-71 prices.
Next, we have estimated the net present social cost (NPSC
abatement for big and small paper mills. Tables 3.11 an
estimates of NPSC respectively for small and big paper
and T as 0.10 and 30, the NPSC for pollution abatement pla

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Table-3.11
ESTIMATES OF NET PRESENT SOCIAL COST (NPSC) OF POLLUTION
ABATEMENT FOR SMALL PAPER MILLS OF DIFFERENT
CAPACITIES USING ALTERNATIVE METHODS OF
POLLUTION ABATEMENT GIVEN THE SOCIAL
RATE OF DISCOUNT AS .10
(Rs. lakhs at shadow prices)
Capacity (Tonnes per day) 10 15 20 30
Life of the Abatement Method-I

Project (I)
20 29.027 39.530 48.386 65.449
30 31.262 42.324 51.837 70.446
Abatement Met hod-1 I
20 41.477 53.482 66.013 89.909

30 45.238 58.343 72.023 98.205
20 12.403 15.410 18.121 26.870

30 13.284 16.511 19.398 28.289
paper mill of 10 TPD capacity is Rs. 31.262 lakhs while that of a big
paper mill of 115 TPD capacity is Rs. 106.496 lakhs. We have also made
the estimates of social cost of pollution abatement per tonne of paper
produced (STC) by a paper mill using the same method as described
above for the estimation of MTC. Given again r and T as 0.10 and 30,
and the abatement method-I, STC decreases from 100.46 to 75.46 as the
capacity of a small paper mill increases from 10 TPD to 30 TPD while
an estimate of iSTC for a big paper mill of 115 TPD capacity is Rs. 29.76.
Therefore, there are significant economies of scale in the pollution abate?
ment costs of paper mills even if the costs are estimated at shadow prices.
For both small and big paper mills, the social cost of pollution abate?
ment per tonne of paper produced (STC) are significantly higher than
their counterparts at market prices (MTC) as can be seen from Tables
3.9, 3.10, 3.12 and 3.14.
The estimates of the social cost of pollution abatement may be regarded
as indicating the cost that would have to be incurred by the paper mill/

103.47.14.238 on Thu, 20 Apr 2023 14:09:35 UTC
Table-3.12
ESTIMATES OF SOCIAL COST OF POLLUTION ABATEMENT PER
TONNE OF PAPER PRODUCED (STC) BY SMALL PAPER MILLS
OF DIFFERENT CAPACITIES USING ALTERNATIVE
METHODS OF POLLUTION ABATEMENT GIVEN
THE SOCIAL RATE OF DISCOUNT AS .10
(Rs. at shadow prices)
Capacity (Tonnes 10 15 20 30
per day)
Life of the pro?

ject (I) Abatement Method-1
20 103.24 93.73 86.05 77.59

30 100.46 90.67 83.29 75.46
Abatement Method-II
20 147.52 126.82 117.39 106.59

30 145.37 124.99 115.72 105.90
Abatement Method-HI
20 44.111 36.532 32.217 31.851

30 42.681 35.372 31.167 30.301
Table-3.13
ESTIMATES OF NET PRESENT COST (NPC AND NPSC) OF A
BIG PAPER MILL OF 115 TPD CAPACITY
(Rs. lakhs)
30 40 50
Life Time(T)_
Social rate At market At shadow At market At shadow At market At sltadow
of discount prices prices prices prices prices prices
.08 72.23 148.902 74.08 151.321 74.94 152.440
.10 66.50 106.496 67.47 107.765 67.85 108.261
.12 62.07 83.266 62.60 83.961 62.77 84.178
government to achieve specific environmental standards. For reasons given

earlier, in the absence of government intervention, a private paper mill

103.47.14.238 on Thu, 20 Apr 2023 14:09:35 UTC
Table 3.14
ESTIMATES OF COST OF POLLUTION ABATEMENT (MTC AND
STC) PER TONNE OF PAPER PRODUCED OF A BIG PAPER
MILL OF 115 TPD
Life Time (T) _30_40_ _50_

Social rate At market At shadow At market At shadow At market At shadow
of discount prices prices prices prices prices prices
.08 17.22 35.51 16.68 34.07 16.44 33.45

.10 18.58 29.76 18.18 29.04 18.03 28.77
.12 19.61 26.31 19.66 26.37 19.57 26.24
has no incentive to incur such a cost. A uniform pollution t

commodity (Baumol and Oates) or per unit of pollutan
Nayak) may help to achieve specific environmental standar
run on standard assumptions, the sizes of cost minimizing/p
ing firms and their pollution abatement plants would tend
the marginal cost of pollution abatement is equal to the tax
of the social cost of pollution abatement per tonne of p
may provide a guide as to the magnitude of the pollution
achieve national minimum environmental standards. Our es
pollution abatement costs for big and small paper mills m
as providing a range within which the appropriate unif
pollution tax should fall.
The cost of pollution abatement forms only a small portio
of paper production. Estimates of the cost of producti
given in Table 2.2 indicate increasing average costs per
while those of costs of pollution abatement indicate falling
A small paper mill typically has the advantage over a l
lower average cost of production and a pollution tax, how
rate, is unlikely to induce a small paper mill to expand sig
order to reap the economies of scale in pollution abatem
characteristics of Indian paper industry, one may choo
following policies for the control of water pollution in pap
1. A tax-subsidy scheme. Levy a tax that is equivalent

marginal cost of pollution abatement on a big paper mi
small paper mills to the extent of difference between the
pollution abatement (with the least cost alternative) of a s
the pollution tax on a big mill. This policy may bring abo

103.47.14.238 on Thu, 20 Apr 2023 14:09:35 UTC
the composition of paper mills in the long run in favour of smaller paper
mills, which may be socially desirable, given the scale diseconomies in
paper production. Linking subsidies for pollution abatement to small paper
mills with the adoption of pollution abatement method with the least
cost alternative (Abatement method III) would help ensure that smaller
mills receiving such subsidies would in fact install pollution abatement
plants.
2. Discriminatory taxes as a practical proposition. Levy taxes according

to social marginal costs of pollution abatement on different mills. Since
our estimates show private costs of pollution abatement to be lower than
the corresponding social costs, paper mills will then have an incentive to
instal pollution abatement plants (rather than paying the tax). Such a
policy may tend to bring about a change in the composition of the industry
in favour of bigger mills because of scale economies in the pollution
abatement, but the tendency would be limited by counteracting scale dis?
economies in paper production.
3. A uniform pollution tax. Levy a uniform pollution tax per tonne of

paper which lies in the range formed by the estimates of pollution abate?
ment costs of big and small paper mills. This may encourage the paper
mills to choose the cost minimizing technologies of water pollution abate?
ment at least in the long run. Again this may lead to changes in the size
composition of the paper industry, but for reasons already indicated any
major change is unlikely.
None of these policies can be regarded as first-best solutions for the
control of water pollution: they are tax-subsidy policies for achieving the
specified environmental standards. In contrast, a first best policy has to
be designed taking into account both the marginal cost of pollution abate?
ment for all polluting industries (paper as well as others) and the marginal
damage to receivers.
4. Conclusion
Water pollution is an external diseconomy created by developmental act?

ivities in the economy. The natural water bodies which are generaters or
receivers of water pollution are public goods so that the benefits from
water pollution abatement cannot be measured from market observed
data. Therefore, governmental environmental programmes to control
water pollution have to be evaluated given the subjectively determined
pollution standards. Until recently, Government of India has not effect?
ively interfered in the market to control environmental pollution. Only
in 1980, it has comeout with a well defined environmental policy.

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The paper and pulp industry in India contributes significant environ?

mental pollution which requires additional resources to abate it. The
choice between big and small paper mills has implications for environ?
mental pollution. Available technology provides various options for water
pollution abatement including process changes in paper production,
quality changes and end of the pipetreatment methods. Estimates of costs
of water pollution abatement for big and small paper mills show that the
comparative capital and operation costs per tonne of paper for the small
paper mill is more than double that for the big mill. Various methods
for the end of pipe treatment of effluents differ with respect to labour,
land and capital requirements. The available estimates of cost of water
pollution abatement for paper mills in India exhibit returns to scale, the
less being the cost per tonne per year, the bigger the mill for a given
abatement method.
Water pollution abatement plants of big and small paper mills use
significant amount of land which may be otherwise used in agriculture.
The estimates of opportunity cost of land used in the industry may be
made as social returns on land in agriculture. In this study, these estimates
are made using farm accounts data for Punjab state. At 1970-71 market
prices, the returns per hectare of land for a tractor operated farm is esti?
mated as Rs. 944.93 while the estimate for a bullock operated farm is
Rs. 835.81. However, the social returns on land (returns at shadow prices
of capital labour, fertilizers and power and fuel) is estimated as Rs. 823.23
for a tractor operated farm while it is Rs. 851.44 for a bullock operated
farm. Given these estimates, the opportunity cost of a hectare of land
used in the industry is Rs. 944.93 at 1970-71 market prices while it is only
Rs. 851.44 at shadow prices.
Out of the three water pollution abatement methods that we have
described, abatement Method-Ill which uses treated pollutants for agri?
cultural uses has the lowest abatement cost per tonne of paper produced
while the method-II has the highest cost. Also, the estimates of cost of
abatement at market prices reveal significant returns to scale. Estimates
showr that as the capacity of a mill increases from 10 tonnes per day to
115 tonnes per day, the cost of pollution abatement per tonne of paper
produced reduces from Rs. 72.79 to Rs. 18.58 at 1970-71 prices.
Pollution abatement costs for big and small paper mills at shadow prices
are significantly higher than those at market prices. For a small paper
mill of 15 tonnes per day capacity, the abatement cost per tonne of paper
produced is Rs. 63.71 at market prices while it is Rs. 90. 67 at shadow
prices, given the abatement Method-I and the social rate of discount as
10 percent. In the case of a big paper mill of 115 tonnes per day capacity,
the abatement cost per tonne of paper is Rs. 18.58 at market prices while
it is Rs. 29.76 at shadow prices. The estimates of pollution abatement

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costs of paper mills at shadow prices also reveal returns to scale.

Our estimates of pollution abatement costs may provide an estimate
of a range for pollution taxes. An appropriate Pigouvian taxe may fall
in this range.
REFERENCES
Baumol, W. J. and O. E. Oates (1975), The theory of environmental policy: Ext

public outlays and the quality of life. Prentice-Hall, INC., Englewood Cli
Jersey.
Dasgupta, Ajit, K. and D. W. Pearce, Cost benefit analysis'. Theory and practice (1972),
Macmillan.
Dasgupta, P., Sen, A. K. and S. A. Marglin: Guide lines for project evaluation (1972),
New York: U. N.
Delhi Productivity Council, Souvenir, International Seminar on Management of
environmental problems in the Pulp and Paper industry (February, 1982).
Farm Accounts in Punjab, 1979-80, Publication No. 353, Economic and Statistical
Organisation, Punjab.
Government of India, Department of Science and Technology, (1980), Report of the
Committee for recommending legislative measures and administrative machinery
for ensuring environmental protection (1980).
Indian Standards Institution, IS: 2490 (Part-I). 1974, Tolerance limits for industrial
effluents discharged into inland surface waters, Pqrt-I: General limits.
Indian Standards Institution, IS: 2490 (Part-IV)-1974, Tolerance limits for industrial
effluents discharged into inland surface waters, Part-IV: Straw board industry.
Kesarwani, S. K., S. N. Sinnarkar and S. G. Bhat, (1982), Management of environmental
problems in the pulp and paper industry: A bibliographical review of Indian litera?
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Murty, M. N. (1983a), Efficiency and distributional equity and optimal structure of prices
for public electricity supply in India. Working paper No. E/86/83, Institute of
Economic Growth, University Enclave, Delhi-7.
Murty, M. N. (19836), Economic evaluation of water pollution abatement: A review of
methods, Working paper No. E/87/83 Institute of Economic Growth, University
Enclave, Delhi-7.
Murty, M. N. and P. B. Nayak (1982), Externality abatement technologies, Pigouvian
taxes and property rights, Indian Economic Review, Vol. XVII, No. 1
Ramanathan, N. L. (ed.),(1982), Pulp and paper industry in India?Progress, problems
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