Working Paper: NBER ID: w21763
Authors: Ann Harrison; Benjamin Hyman; Leslie Martin; Shanthi Nataraj
Abstract: There are two commonly accepted views about command-and-control (CAC) environmental regulation. First, CAC delivers environmental outcomes at very high cost. Second, in a developing country with weak regulatory institutions, CACs may not even yield environmental benefits: regulators can force firms to install pollution abatement equipment, but cannot ensure that they use it. We examine India's experience and find evidence that CAC policies achieved substantial environmental benefits at a relatively low cost. Constructing an establishment-level panel from 1998 to 2009, we find that the CAC regulations imposed by India's Supreme Court on 17 cities improved air quality with little effect on establishment productivity. We document a strong effect of deterred entry of high-polluting industries into regulated cities; however little effect on the overall level of manufacturing output, employment, or productivity in those cities. We also find sustained reductions in within-establishment coal use, with no evidence of leakage into other fuels. To benchmark our results, we use variation in coal prices to compare the CAC policies to price incentives. We show that CAC regulations were primarily effective at reducing coal consumption of large urban polluters, while a coal tax is likely to have a broader impact across all establishment types. Our estimated coal price elasticity suggests that a 15-30% excise tax would be needed to generate reductions in coal consumption equivalent to those produced by these CAC policies.
Keywords: Environmental Regulation; India; Air Quality; Command-and-Control; Price Incentives
JEL Codes: O14; O33; O44; Q4; Q52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| SCAP policies (G28) | air quality improvements (Q53) |
| SCAP policies (G28) | reduction in coal consumption (Q35) |
| SCAP policies (G28) | productivity costs (D24) |
| SCAP policies (G28) | effectiveness compared to price incentives (J33) |