Pollution environmental infrastructure often requires collective investment and may be under-provided. We study whether environmental regulation can alleviate this coordination problem in the context of China's South-to-North Water Transfer Project, which combines stringent water-pollution regulation with large-scale expansion of wastewater treatment plants. Using a spatial difference-in-differences design, we find that the policy reduced industrial water pollution by 22% while generating only modest and temporary output losses. To understand this pattern, we develop and estimate a spatial industry equilibrium model in which wastewater treatment plants are endogenous club goods requiring firms to coordinate on shared fixed costs. The model shows that wastewater treatment infrastructure offsets roughly 45% of the output losses associated with regulation while delivering nearly identical emissions reductions. Counterfactual analysis indicates that regulation accounts for roughly one-third of infrastructure construction and partially restores the efficient provision of pollution-control infrastructure by increasing firms' incentives to participate in shared public infrastructure.