Working Paper: NBER ID: w18392
Authors: Michael Greenstone; John A. List; Chad Syverson
Abstract: The economic costs of environmental regulations have been widely debated since the U.S. began to restrict pollution emissions more than four decades ago. Using detailed production data from nearly 1.2 million plant observations drawn from the 1972-1993 Annual Survey of Manufactures, we estimate the effects of air quality regulations on manufacturing plants' total factor productivity (TFP) levels. We find that among surviving polluting plants, stricter air quality regulations are associated with a roughly 2.6 percent decline in TFP. The regulations governing ozone have particularly large negative effects on productivity, though effects are also evident among particulates and sulfur dioxide emitters. Carbon monoxide regulations, on the other hand, appear to increase measured TFP, especially among refineries. The application of corrections for the confounding of price increases and output declines and sample selection on survival produce a 4.8 percent estimated decline in TFP for polluting plants in regulated areas. This corresponds to an annual economic cost from the regulation of manufacturing plants of roughly $21 billion, about 8.8 percent of manufacturing sector profits in this period.
Keywords: Environmental Regulation; Manufacturing Productivity; Air Quality Standards
JEL Codes: D2; K3; L5; L6; Q5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Stricter air quality regulations (Q52) | Decline in total factor productivity (TFP) (O49) |
| Confounding factors (price increases and output declines) (E31) | Decline in total factor productivity (TFP) (O49) |
| Compliance-related inputs (H26) | Reduction in effective labor and capital inputs (J24) |
| Carbon monoxide regulations (L98) | Increase in measured TFP (O49) |
| Ozone regulations (L98) | Decline in total factor productivity (TFP) (O49) |