Abt Associates is supporting the Environmental Protection Agency (EPA) Office of Water in analyzing the costs and benefits of an effluent guideline to be implemented for the Metal Products and Machinery (MP&M) Industry (formerly, Machinery Manufacturing, Remanufacturing and Repair Industries). This effort will culminate in preparation of economic and regulatory impact analysis reports to support promulgation of the combined MP&M Phase 1 and Phase 2 regulation. The economic impact analysis involves estimating the economic and financial effects of an effluent guideline to be applicable to an very broad segment of the domestic manufacturing industry. The economic benefits analysis involves estimating the expected human health, ecological, and economic productivity benefits stemming from reduced pollutant discharges. The human health benefit analysis includes two broad categories of expected benefits:

• (1) Reduced cancer cases caused by consumption of chemically contaminated fish tissues and ingestion of chemically contaminated water; and (2) Changed exposure to pollutants relative to non-cancer effect thresholds.

The ecological benefits analysis includes:

• Assessing the effect of reduced pollutant discharges on distribution of aquatic species, and
• Valuing recreational fishing and non-fishing benefits resulting from the improved aquatic habitats.

We are assessing how changes in water quality from the MP&M regulation will affect consumer valuation of water resources for recreational uses for a case study state (Ohio). Our analysis is the first effort to apply Random Utility Modeling (RUM) to analyzing a specific policy scenario. The MP&M project uses a combination of water quality modeling and travel cost models in a RUM framework. This framework involves the following steps to evaluate the regulation's expected benefits:

• (1) Use pollutant discharge and ambient concentration data in conjunction with a water quality model to estimate MP&M facility discharges. These estimates let us characterize baseline and post-compliance water quality at the recreation sites included in the RUM analysis. (2) Model (1) recreation trip demand as a function of water quality variables that are likely to be affected by the regulation and (2) other, regulation-independent variables. (3) Using the estimated coefficients of the indirect utility function and estimated post-compliance water quality information, calculate an increase in consumer surplus for an individual from the potential change in water quality resulting from the proposed regulation. (4) Aggregate the estimated seasonal per-capita welfare change to the state level.

For the economic productivity analysis, we estimate savings in sewage sludge use or disposal costs resulting from reduced contamination of effluent discharged by MP&M facilities to sewage treatment systems.