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Regulation-Induced Pollution Substitution

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Abstract

Regulations may cause firms to re-optimize over pollution inputs, leading to unintended consequences. By regulating air emissions in particular counties, the Clean Air Act (CAA) gives firms incentives to substitute: 1) toward polluting other media, like landfills and waterways; and 2) toward pollution from plants in other counties. Using EPA Toxic Release Inventory data, I examine the effect of CAA regulation on these types of substitution. Regulated plants increase water emissions by 105 percent (72 log points). Regulation of an average plant increases air emissions at unregulated plants within the same firm by 13 percent. This leakage offsets 57 percent of emissions reductions by regulated firms.

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  • Matthew Gibson, 2016. "Regulation-Induced Pollution Substitution," Department of Economics Working Papers 2016-04, Department of Economics, Williams College.
    • Handle: RePEc:wil:wileco:2016-04
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    More about this item

    JEL classification:

    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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