This paper provides evidence that the Clean Water Act implemented through effluent limits responded to local water quality. We choose biological oxygen demand as the pollutant and dissolved oxygen as a water quality indicator. We use a panel of permits for 100 plants in Maryland, Virginia, and Pennsylvania for 1990 to 2004. We estimate that decline in water quality by I mg/L lowers permits by 5 mg/L. This finding demonstrates greater flexibility than might be expected in an effluent standards-based approach. It suggests efficient resource use, with permits relaxed with water quality improvements and tightened with water quality declines.
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