A panel study of water recirculation in manufacturing plants

Abstract

Manufacturing plants routinely recirculate water to meet their process and cooling needs. This ability and willingness to recirculate water distinguishes manufacturing plants from most households and agricultural producers. The motivation for this research is to investigate the factors influencing manufacturing plants’ water recirculation decisions. The paper analyses a unique, balanced panel dataset of 2725 manufacturing plants that responded to the 1986, 1991 and 1996 Industrial Water Use Surveys. Investigation of the raw data shows that manufacturing plants routinely start and stop recirculation activities. Building on previous analysis based on only the 1996 dataset, a statistical model is developed to explain observed variations in the volume of water recirculated and water recirculation intensity (recirculation relative to intake) across the three time periods. Specifically, this paper applies a Heckman two-stage estimation procedure that jointly considers two facets of firms’ recirculation behaviour: first, the discrete decision of whether to recirculate and, second, the decision of how much to recirculate. Potential endogeneity of internal input costs is addressed through instrumental variables. Explanatory variables include the scale of operations, water-use costs and dummy variables that account for plants’ location and technology. Results indicate that water use costs, the scale of operations and the need to treat water prior to its use are important determinants of water recirculation decisions. This paper concludes by considering the policy implications of the empirical findings.