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Applications (Applied Micro) Seminars

Is Air Pollution Regulation Too Stringent?

Joseph Shapiro (Berkeley)


Monday 18 May 2020 16:00 - 17:30

ONLINE

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About this event

This paper describes a new approach to measuring the costs of environmental regulation, which we use to study the efficiency of the U.S. Clean Air Act. We exploit regulations that force new or expanding plants to pay incumbents in the same or neighboring counties to reduce their pollution emissions. These “offset” regulations create hundreds of decentralized local markets for pollution. We use transaction-level data on numerous bilateral pollution offset contracts over the last 30 years to compare these marginal compliance costs against leading estimates of the marginal benefits of pollution reductions. While economic efficiency requires equating the marginal compliance costs and the marginal social benefits of pollution reductions, we find substantial heterogeneity in benefit-cost ratios that we analyze in detail. Regulation has rapidly become more stringent, as mean marginal compliance costs increase in real terms by 5 to 6 percent annually. Guided by these estimates, we carefully discuss policy reforms that could increase social welfare.

This series is part of the CEP's Labour Markets programme.