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Environmental Regulation, Abatement, and Productivity: A Frontier Analysis
September 2013
Working Paper Number:
CES-13-51
This research studies the link between environmental regulation and plant level productivity in two U.S. manufacturing industries: pulp and paper mills and oil refineries using Data Envelopment Analysis (DEA) models. Data on abatement spending, emissions and abated emissions are used in different DEA models to study plant productivity outcomes when accounting for abatement spending or emissions regulations. Results indicate that pulp and paper mills and oil refineries in the U.S. suffered decreases in productivity due to pollution abatement activities from 1974 to 2000. These losses in productivity are substantial but have been slowly trending downwards even when the regulations have tended to become more stringent and emission of pollutants has declined suggesting that the best practice has shifted over time. Results also show that the reported abatement expenditures are not able to explain all the losses arising out of regulation suggesting that these abatement expenditures are consistently under-reported.
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Do EPA Regulations Affect Labor Demand? Evidence From the Pulp and Paper Industry
August 2013
Working Paper Number:
CES-13-39
The popular belief is that environmental regulation must reduce employment, since suchregulations are expected to increase production costs, which would raise prices and thus reducedemand for output, at least in a competitive market. Although this effect might seem obvious, a careful microeconomic analysis shows that it is not guaranteed. Even if environmental regulation reduces output in the regulated industry, abating pollution could require additional labor (e.g. to monitor the abatement capital and meet EPA reporting requirements). It is also possible for pollution abatement technologies to be labor enhancing. In this paper we analyze how a particular EPA regulation, the so-called 'Cluster Rule' (CR) imposed on the pulp and paper industry in 2001, affected employment in that sector. Using establishment level data from the Census of Manufacturers and Annual Survey of Manufacturers at the U.S. Census Bureau from 1992-2007 we find evidence of small employment declines (on the order of 3%-7%), which are sometimes statistically significant, at a subset of the plants covered by the CR.
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ENVIRONMENTAL REGULATION AND INDUSTRY EMPLOYMENT: A REASSESSMENT
July 2013
Working Paper Number:
CES-13-36
This paper examines the impact of environmental regulation on industry employment, using a structural model based on data from the Census Bureau's Pollution Abatement Costs and Expenditures Survey. This model was developed in an earlier paper (Morgenstern, Pizer, and Shih (2002) - MPS). We extend MPS by examining additional industries and additional years. We find widely varying estimates across industries, including many implausibly large positive employment effects. We explore several possible explanations for these results, without reaching a satisfactory conclusion. Our results call into question the frequent use of the average impacts estimated by MPS as a basis for calculating the quantitative impacts of new environmental regulations on employment.
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DO HOUSING PRICES REFLECT ENVIRONMENTAL HEALTH RISKS? EVIDENCE FROM MORE THAN 1600 TOXIC PLANT OPENINGS AND CLOSINGS
April 2013
Working Paper Number:
CES-13-14
A ubiquitous and largely unquestioned assumption in studies of housing markets is that there is perfect information about local amenities. This paper measures the housing market and health impacts of 1,600 openings and closings of industrial plants that emit toxic pollutants. We find that housing values within one mile decrease by 1.5 percent when plants open, and increase by 1.5 percent when plants close. This implies an aggregate loss in housing values per plant of about $1.5 million. While the housing value impacts are concentrated within ' mile, we find statistically significant infant health impacts up to one mile away.
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Measuring The Impact Of The Toxics Release Inventory: Evidence From Manufacturing Plant Births
March 2013
Working Paper Number:
CES-13-07
The Toxics Release Inventory was the first major initiative to take a disclosurebased approach to environmental regulation and has served as the model for several other disclosure-based environmental policies. Yet the magnitude of its direct impacts on industrial manufacturing outcomes has not been established. I use Census Bureau micro-data to estimate the impacts of the Toxics Release Inventory on the opening of new manufacturing plants. I find that on average, counties that were found to be among the dirtiest in the country, in terms of toxic emissions, experienced a decrease in 'dirty' plant births and an even larger increase in 'clean' plant births. Furthermore, the magnitude of this shift is closely related to per capita income in the affected coun- ties - the effect is strongest in high-income communities and is reversed in low-income communities. I discuss the implications for information-based environmental policies.
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Do Environmental Regulations Disproportionately Affect Small Businesses? Evidence from the Pollution Abatement Costs and Expenditures Survey
September 2012
Working Paper Number:
CES-12-25R
It remains an open question whether the impact of environmental regulations differs by the size of the business. Such differences might be expected because of statutory, enforcement, and/or compliance asymmetries. Here, we consider the net effect of these three asymmetries, by estimating the relationship between plant size and pollution abatement expenditures, using establishment-level data on U.S. manufacturers from the Census Bureau's Pollution Abatement Costs and Expenditures (PACE) surveys of 1974-1982, 1984-1986, 1988-1994, 1999, and 2005, combined with data from the Annual Survey of Manufactures and Census of Manufactures. We model establishments' PAOC intensity - that is, their pollution abatement operating costs per unit of economic activity - as a function of establishment size, industry, and year. Our results show that PAOC intensity increases with establishment size. We also find that larger firms spend more per unit of output than do smaller firms.
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The Dynamics of House Price Capitalization and Locational Sorting: Evidence from Air Quality Changes
September 2012
Working Paper Number:
CES-12-22
Despite extensive use of housing data to reveal valuation of non-market goods, the process of house price capitalization remains vague. Using the restricted access American Housing Survey, a high-frequency panel of prices, turnover, and occupant characteristics, this paper examines the time path of capitalization and preference-based sorting in response to air quality changes caused by differential regulatory pressure from the 1990 Clean Air Act Amendments. The results demonstrate that owner-occupied units capitalize changes immediately, whereas rent capitalization lags. The delayed but sharp rent capitalization temporally coincides with evidence of sorting, suggesting a strong link between location choices and price dynamics.
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The Transitional Costs of Sectoral Reallocation: Evidence from the Clean Air Act and the Workforce
January 2012
Working Paper Number:
CES-12-02
New environmental regulations lead to a rearrangement of production away from polluting industries, and workers in those industries are adversely affected. This paper uses linked worker-firm data in the United States to estimate the transitional costs associated with reallocating workers from newly regulated industries to other sectors of the economy. The focus on workers rather than industries as the unit of analysis allows me to examine previously unobserved economic outcomes such as non-employment and long run earnings losses from job transitions, both of which are critical to understanding the reallocative costs associated with these policies. Using panel variation induced by the 1990 Clean Air Act Amendments (CAAA), I find that the reallocative costs of environmental policy are significant. Workers in newly regulated plants experienced, in aggregate, more than $9 billion inforegone earnings for the years after the change in policy. Most of these costs are driven by non-employment and lower earnings in future employment, while earnings of workers who remain with their firm change little. Relative to the estimated benefits of the 1990 CAAA, these one-time transitional costs are small. However, the estimated costs far exceed the workforce compensation policies designed to mitigate some of these earnings losses.
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How Does Size Matter? Investigating the Relationships Among Plant Size, Industrial Structure, and Manufacturing Productivity
March 2011
Working Paper Number:
CES-11-08
Industrial concentration and market power have been studied extensively at the national scale, in fields ranging from economics and industrial organization to regional science and economic development. At the regional scale, however, industrial structure and firm size relationships have received little attention outside of non-generalizable case studies, primarily because accurate measurements require difficult-to-obtain plant- or firm-level information. Readily available secondary data sources on establishment size distributions (such as County Business Patterns or the Census of Manufactures) cannot be linked to performance information for particular establishments or firms. Yet region-specific industrial structure may be a crucial determinant of firm performance and thus regional economic fortunes as well (Chinitz 1961; Christopherson and Clark 2007). This paper examines how industrial concentration and agglomeration economies impact plant performance, focusing on the influence of establishment size in mediating these effects. The Longitudinal Research Database of the U.S. Census Bureau is accessed to construct production functions for three manufacturing industries nationwide. These production functions, specified at the establishment level, incorporate characteristics of establishments, industries, and regions, including spatially-differentiated measures of agglomeration economies. Establishment size is evaluated both as an absolute metric and relative to other regional industry plants, as theory suggests that absolute size may be most pertinent to agglomeration benefits but relative size more relevant to industrial structure (Caves and Barton 1990; Bothner 2005). The research builds on earlier work by the author that establishes a direct link between regional industry concentration and the productivity of manufacturing establishments.
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The Effects of Environmental Regulation on the Competiveness of U.S. Manufacturing
January 2011
Working Paper Number:
CES-11-03
Whether and to what extent environmental regulations influence the competitiveness of firms remains a hotly debated issue. Using detailed production data from tens of thousands of U.S. manufacturing plants drawn from Annual Survey of Manufactures, we estimate the effects of environmental regulations'captured by the Clean Air Act Amendments' division of counties into pollutant-specific nonattainment and attainment categories'on manufacturing plants' total factor productivity (TFP) levels. We find that among surviving polluting plants, a nonattainment designation is associated with a roughly 2.6 percent decline in TFP. The regulations governing ozone have particularly discernable effects on productivity, though effects are also seen among particulates and sulfur dioxide emitters. Carbon monoxide nonattainment, on the other hand, appears to increase measured TFP, though this appears to be concentrated among refineries. When we apply corrections for two likely sources of positive bias in these estimates (price mismeasurement and sample selection on survival), we estimate that the total TFP loss for polluting plants in nonattaining counties is 4.8 percent. This corresponds to an annual lost output in the manufacturing sector of roughly $14.7 billion in 1987 dollars ($24.4 billion in 2009 dollars). These costs have important implications for both the intensity and location of firm expansions.
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