In this paper, a mathematical model is developed for evaluating the responses of a representative plant to price policies regarding water consumption and waste residuals generation in the Pulp and Paper industry. An optimization activity analysis approach has been taken so that the plant selects among the available technological alternatives to produce given amounts of pulp and paper, those for which total cost of operation is minimized at a given set of prices. Four types of alternatives were considered: recycling, process modification, recovery and waste treatment. The economic impact of an increasing cost of water and taxes on effluent discharges was evaluated by a systematic variation of prices within the model* In general, demand functions can be thought of as loci of points, where each point represents the "most desirable" and affordable quantities at the given set of prices; from the point of view of cost minimization, the optimzationa approach provides the plant with the most desirable sequence of alternatives and corresponding levels of operation so that the construction of demand schedules becomes a matter of relating the quantities involved to the given prices. The following are some of the basic results which relate to points In the demand functions obtained: It was found that the cost of an effluent-free mill (close to 9% recycling) was approximately $14.4 in addition to the actual cost per ton pf production. Except for the concentrated brine stream that accounts for less than 1% of the mill's effluent and requires proper dilution prior to disposal, the effluent free stage is characterized by zero waste loads discharge and was obtained as a response Pf the plant to specific water price and/or tax policies on wasteloads. From the point of view of water consumption, a cost of 68.8 cents/1 gal, and no taxes on wasteloads was enough to justify adequate tertiary treatment for total recirculation (except for losses). Total water intake of 45, gal/ton was reduced by 47% when the price of water reached the value of 6.5 cents/1 gal. Reductions in wasteloads of 99% for BOD, 97.6% for SS and 92.6% for color were obtained when both BOD and SS were charged 6.7p/lbs. The corresponding increase in cost of production was $4./ton of finished product.