Dupont_and_Renzetti_2001 - Environmental and Resource...

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Environmental and Resource Economics 18: 411–432, 2001. © 2001 Kluwer Academic Publishers. Printed in the Netherlands. 411 The Role of Water in Manufacturing DIANE P. DUPONT and STEVEN RENZETTI Department of Economics, Brock University, 500 Glenridge Avenue, St. Catharines, Ontario, Canada L2S 3A1. E-mail: [email protected] Accepted 17 September 2000 Abstract. Water’s role in manufacturing technologies has received limited attention. A KLEM model of the sector’s technology is extended to include two facets of water use: intake and recirculation. Three annual cross-sectional surveys on plant-level water use are pooled and combined with census data to estimate this extended model for the Canadian manufacturing sector over the period 1981– 1991. While Canada’s water allocation regulations influence private water withdrawals, statistical tests support representing water intake as a variable input. Water intake is found to be a substitute for water recirculation, energy, labour and capital. The relationship between water intake and recir- culation is stronger when water intake is process-related rather than related to cooling and steam production. Technological change has been biased in the direction of increased water intake and decreased water recirculation. Key words: cost function, demand, manufacturing, recirculation, water JEL classification: Q25, L60 1. Introduction Industrial water use refers to water use by manufacturing firms, mines and thermal electric generating facilities. During the period 1980–2000, global industrial water intake has doubled. While industrial water use remained at approximately 23% of total recorded withdrawals some analysts believe that its share will increase early in the next century (Biswas 1997). Reasons for growing industrial water intake include spreading industrialisation, increasing demands for electricity and government policies that continue to understate the cost of water use (Dinar and Subramanian 1997). Unfortunately, despite the significance of industrial water use, relatively little is known regarding the role water plays in these applications (Renzetti, 2000). Given the diversity of technologies across mining, power gener- ation and manufacturing, this paper restricts its attention to water use in the manufacturing sector. This paper is concerned with several questions related to water use in the manufacturing sector. First, what is the most appropriate way to model water in manufacturing processes? Should it be seen as a variable or quasi-fixed input? Second, to what extent is manufacturing water use sensitive to economic factors
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412 DIANE P. DUPONT AND STEVEN RENZETTI such as input prices and the level of output? Third, what is the relationship between water and non-water inputs in manufacturing processes? Fourth, to what extent are manufacturing firms able to substitute increased water recirculation for water intake? Fifth, how has technological change affected manufacturing water use?
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Dupont_and_Renzetti_2001 - Environmental and Resource...

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