Air pollution abatement costs under the Clean Air Act: evidence from the PACE survey
Introduction
The Clean Air Act (CAA) strictly prohibits the Environmental Protection Agency (EPA) from considering potential costs—in conjunction with benefits—when setting the national ambient air quality standards (NAAQS) that all areas of the country are required to meet.1 Nonetheless, compliance costs are of significant interest,2 and a compelling case has been made (e.g., [1]) for allowing cost-benefit analyses to be conducted here, as is required for other types of regulation. This paper examines some of the costs to manufacturing plants of the CAA (and its amendments) from 1979 to 1988, using establishment-level data on environmental expenditures from the Census Bureau's Pollution Abatement Costs and Expenditures (PACE) survey. The effects of air quality regulation, in terms of higher operating costs and additional capital expenditure for air pollution abatement (APA), are identified by using the variation in regulatory stringency, between counties that are in non-attainment versus attainment of federal air quality standards, for establishments that are and are not heavy emitters of the targeted pollutants. The analyses also control for location-specific effects as well as various establishment characteristics thought to be important determinants of plant-level environmental expenditures.
If no significant effects are found here, a number of possibilities might be implied. First, it might suggest that these regulations are not enforced or that it is relatively inexpensive to comply with them. This would counter mounting evidence of significant impacts of the CAA on manufacturing industries (e.g., [4], [12], [15], [17]). Second, it could mean that the most noteworthy regulatory expenses are the ones that are not explicitly covered by the PACE survey. For example, no attempt is made to capture items such as taxes, fines, permits, pollution offsets, and the like, let alone lost or sacrificed output. Furthermore, arguably the most affected segment of the population—plants under construction—is not canvassed by the survey at all. Finally, it has been suggested that the PACE survey fails to measure all that it was designed to measure (e.g., [5], [11], [16]). In particular, respondents may face difficulty in separating out their firms’ environmental costs from normal production costs and/or deciding on the relevant baseline with which to compare their expenditures. Given the frequent use of the published PACE data in proxies for regulatory stringency, knowing whether the underlying PACE responses actually correlate with precise measures of environmental regulation is of great significance. The analyses in this paper can be viewed as a test of whether these various claims can be refuted.
Results, based on some 90,000 observations, suggest that establishments subject to CAA regulation during this period generally did have higher APA capital expenditures and operating costs. Estimates imply hundreds of thousands of dollars of additional annual costs for the abatement of a specific pollutant for the average affected plant in this sample. In general, however, this reflects just a minority of the additional abatement costs incurred by such facilities. Analyses also show that establishment characteristics, such as plant size, can have an impact on the intensity of CAA-related regulation and enforcement. In the end, while many of the results suggest significant regulatory enforcement and compliance costs associated with county non-attainment status—corroborating the findings of a number of recent studies and validating the PACE data to a certain extent—there is also evidence that the PACE survey may indeed have limitations that prevent the full costs of regulation from being captured.
The paper proceeds as follows. In Section 2, I offer some background discussion, including an overview of air quality regulation in the United States, a review of the recent literature, and the motivation for this current study. This is followed by Section 3, which describes data sources and empirical specifications. Section 4 contains my empirical results, and Section 5 offers some concluding remarks.
Section snippets
Background
In accordance with the CAA of 1970, the US EPA has set NAAQS for six pollutants that all areas of the country are required to meet. These so-called “criteria” air pollutants are: tropospheric ozone (O3), total suspended particulates (TSP), carbon monoxide (CO), sulfur dioxide (SO2), nitrogen dioxide (NO2), and lead (Pb). The standards set for each of these pollutants are science-based criteria designed to protect human health with “an adequate margin of safety” and essentially amount to maximum
Data and empirical specification
Conducted annually since 1973, the PACE survey's primary purpose through the years has been to collect timely information from manufacturing establishments on capital expenditures and operating costs associated with pollution abatement efforts. Data from the survey are tabulated and published by the Census Bureau, by industry, state, type of cost, type of pollutant, and combinations thereof [24]. The PACE survey was discontinued in the last decade (1995–1998, 2000–2004), but there is renewed
Results
Table 3 contains (partial) regression results on APA capital expenditures and APA operating costs, for the model specified in Eq. (1). The first and third columns contain estimates from probit models for having non-zero expenditures, where values reflect the change in probability for discrete changes in the dummy variables and infinitesimal changes in the continuous variables (at the variable means). The second and fourth columns contain estimates from Tobit models on real expenditures. The
Conclusion
This paper has examined some of the costs to manufacturing plants of the CAA and its amendments. Results from the baseline specification suggest that facilities subjected to stringent CAA-related regulation—namely, high emitters of one of five criteria air pollutants in a county designated as being in non-attainment of the NAAQS for that pollutant—generally had higher APA expenditures than otherwise similar high emitters located in NAAQS attainment counties. It is these additional costs that
Acknowledgments
The author has benefited from the helpful comments and suggestions of two anonymous referees, an editor of this journal, as well as numerous seminar and conference participants at the Center for Economic Studies, Research Triangle Institute, Southern Methodist University, the NBER Summer Institute, and the 50th International Atlantic Economic Conference. The opinions and conclusions expressed herein are those of the author and do not necessarily represent the views of the Bureau of the Census.
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