There is a growing body of literature analyzing performances of various regulatory instruments in attaining both economic and environmental goals. In many of these studies, the instruments are compared among themselves according to static and dynamic efficiency, information costs, monitoring and enforcement costs, and distributional and ethical considerations. These discussions have, no doubt, played an important role in the formulation, and the proper use, of environmental regulations in the U.S. Yet, it is hard to obtain concrete and generalizable results about the features of the regulatory tools under different industry structures.

This paper compares technology-based and performance standards, and taxation in the U.S. Pulp, Paper, and Paperboard Industry with regard to reducing and/or eliminating Five Day Biochemical Oxygen Demand (BOD₅) and Adsorbable Organic Halides(AOX) releases, and the potential of inducing technological innovations for pollution control and prevention. It examines the industry specific factors effecting the performance of these regulatory tools, such as oligopolistic market structure, production and wastewater treatment techniques, and interaction of regulations of different pollutants and media, under the simulated cases of multiple stage nonlinear optimization model.

The U.S. Pulp, Paper, and Paperboard industry is an excellent case for this study for several reasons. First, the industry is a good example of imperfect competition. The industry has had an increasing concentration ratio over the years and the percentage of value of shipments accounted for by the 20 largest companies is higher than 75 percent for each pulp, paper, and paperboard mill category. Moreover, 75 percent of approximately 200 companies meet the definition of small in terms of number of workers and facilities according to U.S. Environmental Protection Agency (EPA) documents. Second, the difference between U.S. and Scandinavian countries in terms of creating environmentally friendly products and technologies stimulates interest for further research on the roles of environmental regulation in inducing technical change. Third, the industry is a good example for pollution prevention efforts in addition to pollution control efforts in the U.S. EPA.

The paper contributes to: 1) the formulation of industry specific environmental regulation, 2) the comparison of a type of command and control instrument (i.e. the performance standards), and an economic incentive systems (i.e tax), and 3) the discussions on the effectiveness of the policy prescriptions under imperfect competition. It provides more complete and detail understanding of the effectiveness and employment of the policy tools, since it is an industry specific study capturing the idiosyncratic characteristics of the industry and the composite nature of the regulations on different products and techniques.