Working Paper: NBER ID: w13472
Authors: James Bushnell; Carla Peterman; Catherine Wolfram
Abstract: This paper considers the efficiency of various types of environmental regulations when they are applied locally to pollutants whose damages extend outside the jurisdiction of the local regulator. We draw on examples from state- and city-level efforts to address climate change by enacting policies to reduce greenhouse gases. While previous work has noted the possibility for leakage, whereby the polluting sources move outside the jurisdiction of the regulation in order to escape it, we note an additional problem when policies are targeted downstream at consumers of goods whose production creates pollution. Specifically, we show how consumer-based policies can be circumvented by a simple reshuffling of who is buying from whom. We argue that the leakage and reshuffling problems are most pronounced with more flexible or market-based regulations. We conclude that localities may have the most effect on global pollutants when they enact efficiency standards or targeted subsidies.
Keywords: No keywords provided
JEL Codes: Q48; Q54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| local regulations (R48) | leakage (F32) |
| leakage (F32) | relocation of firms (R30) |
| local regulations (R48) | reshuffling (C78) |
| reshuffling (C78) | maintenance of pollution levels (Q53) |
| local regulations (R48) | increased imports from unregulated regions (F69) |
| local regulations (R48) | actual reductions in greenhouse gas emissions (Q54) |
| market-based approaches (D47) | unintended consequences (D62) |
| local jurisdictions (H73) | impact on global pollutants (F64) |
| efficiency standards or targeted subsidies (H21) | impact on global pollutants (F64) |