Reusing returning water provides Egypt with an escape out of the detrimental effect of water shortage on economic development. However, the degraded quality of returning water forms a serious environmental hazard which, subsequently, limits its reuse. Several legislative and institutional measures have been taken to enhance the quality of the returning water and conserve the water environment, yet those measures have not met the society’s aspiration for a clean Nile as they focused on describing technical requirements and imposing sanctions with little, or no, regard to firms’ ability to stay competitive in both local and international markets nor to the distribution of the cost burden. This pushed firms to take a negative attitude towards the adoption of the environmental measures.
The deficiency of the current policy is dealt with in this research by introducing positive economic incentives to the three most water-polluting activities; namely municipal, agricultural and industrial activities. The effectiveness of this class of policy tools in mitigating water pollution associated with activities and its win-win feature have been demonstrated. A guideline describing actions required to incorporate those tools into the current environmental policy is proposed.