This paper measures and examines the 1987 cross sectional variation in toxic releases from the U.S. chemical industry. The analysis is based on a unique plant level data set of over 2,100 plants, combining EPA toxic release data with Census Bureau data on economic activity. The main results are that intra-industry variation in toxic releases are as great as, or greater, than inter-industry variation, and that plant, firm, and regulatory characteristics are important factors in explaining observed variation in toxic releases. Even after controlling for primary product and plant characteristics, there are some firms that generate significantly lower toxic waste due to managerial ability and/or technology differences.
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Estimating the Distribution of Plant-Level Manufacturing Energy Efficiency with Stochastic Frontier Regression
March 2007
Working Paper Number:
CES-07-07
A feature commonly used to distinguish between parametric/statistical models and engineering models is that engineering models explicitly represent best practice technologies while the parametric/statistical models are typically based on average practice. Measures of energy intensity based on average practice are less useful in the corporate management of energy or for public policy goal setting. In the context of company or plant level energy management, it is more useful to have a measure of energy intensity capable of representing where a company or plant lies within a distribution of performance. In other words, is the performance close (or far) from the industry best practice? This paper presents a parametric/statistical approach that can be used to measure best practice, thereby providing a measure of the difference, or 'efficiency gap' at a plant, company or overall industry level. The approach requires plant level data and applies a stochastic frontier regression analysis to energy use. Stochastic frontier regression analysis separates the energy intensity into three components, systematic effects, inefficiency, and statistical (random) error. The stochastic frontier can be viewed as a sub-vector input distance function. One advantage of this approach is that physical product mix can be included in the distance function, avoiding the problem of aggregating output to define a single energy/output ratio to measure energy intensity. The paper outlines the methods and gives an example of the analysis conducted for a non-public micro-dataset of wet corn refining plants.
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Relative Effectiveness of Energy Efficiency Programs versus Market Based Climate Policies in the Chemical Industry
April 2018
Working Paper Number:
CES-18-16
This paper addresses the relative effectiveness of market vs program based climate policies. We compute the carbon price resulting in an equivalent reduction in energy from programs that eliminate the efficiency gap. A reduced-form stochastic frontier energy demand analysis of plant level electricity and fuel data, from energy-intensive chemical sectors, jointly estimates the distribution of energy efficiency and underlying price elasticities. The analysis controls for plant level price endogeneity and heterogeneity to obtain a decomposition of efficiency into persistent (PE) and time-varying (TVE) components. Total inefficiency is relatively small and price elasticities are relatively high. If all plants performed at the 90th percentile of their efficiency distribution, the reduction in energy is between 4% and 13%. A modest carbon price of between $9.48/ton and $14.01/ton CO2 would achieve reductions in energy use equivalent to all manufacturing plants making improvements to close the efficiency gap.
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Plant Vintage, Technology, and Environmental Regulation
September 2001
Working Paper Number:
CES-01-08
Does the impact of environmental regulation differ by plant vintage and technology? We answer this question using annual Census Bureau information on 116 pulp and paper mills' vintage, technology, productivity, and pollution abatement operating costs for 1979-1990. We find a significant negative relationship between pollution abatement costs and productivity levels. This is due almost entirely to integrated mills (those incorporating a pulping process), where a one standard deviation increase in abatement costs is predicted to reduce productivity by 5.4 percent. Older plants appear to have lower productivity but are less sensitive to abatement costs, perhaps due to 'grandfathering' of regulations. Mills which undergo renovations are also less sensitive to abatement costs, although these vintage and renovation results are not generally significant. We find similar results using a log-linear version of a three input Cobb-Douglas production function in which we include our technology, vintage, and renovation variables. Sample calculations of the impact of pollution abatement on productivity show the importance of allowing for differences based on plant technology. In a model incorporating technology interactions we estimate that total pollution abatement costs reduce productivity levels by an average of 4.7 percent across all the plants. The comparable estimate without technology interactions is 3.3 percent, approximately 30% lower.
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The Extent and Nature of Establishment Level Diversification in Sixteen U.S. Manufacturing Industries
August 1990
Working Paper Number:
CES-90-08
This paper examines the heterogeneity of establishments in sixteen manufacturing industries. Basic statistical measures are used to decompose product diversification at the establishment level into industry, firm, and establishment effects. The industry effect is the weakest; nearly all the observed heterogeneity is establishment specific. Product diversification at the establishment level is idiosyncratic to the firm. Establishments within a firm exhibit a significant degree of homogeneity, although the grouping of products differ across firms. With few exceptions, economies of scope and scale in production appear to play a minor role in the establishment's mix of outputs.
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Measuring Plant Level Energy Efficiency and Technical Change in the U.S. Metal-Based Durable Manufacturing Sector Using Stochastic Frontier Analysis
January 2016
Working Paper Number:
CES-16-52
This study analyzes the electric and thermal energy efficiency for five different metal-based durable manufacturing industries in the United States from 1987-2012 at the 3 digit North American Industry Classification System (NAICS) level. Using confidential plant-level data on energy use and production from the quinquennial U.S. Economic Census, a stochastic frontier regression analysis (SFA) is applied in six repeated cross sections for each five year census. The SFA controls for energy prices and climate-driven energy demand (heating degree days - HDD - and cooling degree days - CDD) due to differences in plant level locations, as well as 6-digit NAICS industry effects. A Malmquist index is used to decompose aggregate plant technical change in energy use into indices of efficiency and frontier (best practice) change. Own energy price elasticities range from -.7 to -1.0, with electricity tending to have slightly higher elasticity than fuel. Mean efficiency estimates (100 percent equals best practice level) range from a low of 32 percent (thermal 334 - Computer and Electronic Products) to a high of 86 percent (electricity 332 - Fabricated Metal Products). Electric efficiency is consistently better than thermal efficiency for all NAICS. There is no clear pattern to the decomposition of aggregate technical Thermal change. In some years efficiency improvement dominates; in other years aggregate technical change is driven by improvement in best practice.
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Public Disclosure of Private Information as a Tool for Regulating Environmental Emissions: Firm-Level Responses by Petroleum Refineries to the Toxics Release Inventory
October 2005
Working Paper Number:
CES-05-13
I investigate whether, as is commonly believed -- and if so how -- firm disclosure of so-called "toxic" releases, required since 1987 by the federal "Toxics Release Inventory ("TRI"), has brought about the reductions in toxic releases that have occurred since that time. Existing literature, consisting principally of event studies of stock market returns, suggest that dirty firms experience abnormal negative returns. Using a micro-level data set that links TRI releases to plant level Census data for petroleum refineries, I study plant-level behavior, exploiting state variation in toxics regulations, and exploring the relationship between TRI releases and concomitant regulation of non-toxic pollutants. I find that, although TRI induced public disclosure may have contributed to the decline in reported toxic releases, that alone has not been the cause of those reductions: the evidence is strong that changes in toxic emission intensity are a byproduct of more traditional command and control regulation of emissions of non-toxic pollutants. I find that (1) since 1987, refineries have become substantially cleaner in terms of over-all toxic releases; (2) the clean-up has not occurred through substitution away from TRI listed substances as inputs or alteration in the mix of outputs; and (3) refineries in states with more stringent supplemental regulation of toxics (e.g. with specific state-wide goals for toxic reductions) have significantly lower toxic emission intensity levels than refineries in other states. I find also that (4) TRI air releases are highly correlated with levels of criteria air pollution; (5) both toxic pollution levels and intensity fall with increases in pollution abatement (operating and maintenance) expenditures for non-toxic air pollution; and (6) TRI air releases are affected by being in more stringent regulatory regions for the criteria air pollutants. Finally, I link my data-set with CRSP data to re-evaluate the effect of TRI reporting on company stock market valuation, correcting for a methodological shortcoming (stemming from the fact that all reporting firms face a common event window) of prior event studies of the impact of the TRI. Correcting for that shortcoming, I find that (7) the evidence of negative abnormal returns around TRI reporting dates for petroleum companies is not significant. My findings suggest that the most probable mechanism through which TRI reporting may induce firms to clean up is local and state governmental use of TRI disclosures. They suggest also not only that the perceived effectiveness of TRI regulation has been overstated, but perhaps more importantly that the benefits of command and control regulation of non-toxic pollutants have been underestimated.
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Assessing Multi-Dimensional Performance: Environmental and Economic Outcomes
May 2005
Working Paper Number:
CES-05-03
This study examines the determinants of environmental and economic performance for plants in three traditional smoke-stack industries: pulp and paper, oil, and steel. We combine data from Census Bureau and EPA databases and Compustat on the economic performance, regulatory activity and environmental performance on air and water pollution emissions and toxic releases. We find that plants with higher labor productivity tend to have lower emissions. Regulatory enforcement actions (but not inspections) are associated with lower emissions, and state-level political support for environmental issues is associated with lower water pollution and toxic releases. There is little evidence that plants owned by larger firms perform better, nor do older plants perform worse.
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Estimating the Hidden Costs of Environmental Regulation
May 2002
Working Paper Number:
CES-02-10
This paper examines whether accounting systems identify all the costs of environmental regulation. We estimate the relation between the 'visible' cost of regulatory compliance, i.e., costs that are correctly classified in firms' accounting systems, and 'hidden' costs i.e., costs that are embedded in other accounts. We use plant-level data from 55 steel mills to estimate hidden costs, and we follow up with structured interviews of corporate-level managers and plant-level accountants. Empirical results show that a $1 increase in the visible cost of environmental regulation is associated with an increase in total cost (at the margin) of $10-11, of which $9-10 are hidden in other accounts. The findings suggest that inappropriate identification and accumulation of the costs of environmental compliance are likely to lead to distorted costs in firms subject to environmental regulation.
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The Impact of Heterogeneous NOx Regulations on Distributed Electricity Generation in U.S. Manufacturing
April 2015
Working Paper Number:
CES-15-12
The US EPA's command-and-control NOx policies of the early 1990s are associated with a 3.1 percentage point reduction in the likelihood of manufacturing plants vertically integrating the electricity generation process. During the same period California adopted a cap-and-trade program for NOx emissions that resulted in no significant impact on distributed electricity generation in manufacturing. These results suggest that traditional command-and-control approaches to air pollution may exacerbate other market failures such as the energy efficiency gap, because distributed generation is generally recognized as a more energy efficient means of producing electricity
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When Do Firms Shift Production Across States to Avoid Environmental Regulation?
December 2001
Working Paper Number:
CES-01-18
This paper examines whether a firm's allocation of production across its plants responds to the environmental regulation faced by those plants, as measured by differences in stringency across states. We also test whether sensitivity to regulation differs based on differences across firms in compliance behavior and/or differences across states in industry importance and concentration. We use Census data for the paper and oil industries to measure the share of each state in each firm's production during the 1967-1992 period. We use several measures of state environmental stringency and test for interactions between regulatory stringency and three factors: the firm's overall compliance rate, a Herfindahl index of industry concentration in the state, and the industry's share in the state economy. We find significant results for the paper industry: firms allocate smaller production shares to states with stricter regulations. This impact is concentrated among firms with low compliance rates, suggesting that low compliance rates are due to high compliance costs, not low compliance benefits. The interactions between stringency and industry characteristics are less often significant, but suggest that the paper industry is more affected by regulation where it is larger or more concentrated. Our results are weaker for the oil industry, reflecting either less opportunity to shift production across states or a greater impact of environmental regulation on paper mills.
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