Environmental Regulations and the Cleanup of Manufacturing: Plant-Level Evidence

For much of the industrialized world, pollution from manufacturing has been falling despite increased output. We examine how air quality standards---a common environmental regulation---have contributed to this cleanup of manufacturing. We develop a general equilibrium model to show how air quality standards can lead to a cleanup by causing reductions in plant emission intensity, relative changes in plant output, and plant entry and exit. We provide quasi-experimental evidence from Canada to highlight the magnitude of these responses. Our results suggest that air quality standards explain just under 40% of the cleanup of manufacturing.

Automated summary

The study shows that air quality standards play an important role in promoting the cleanliness of manufacturing, by reducing emission intensity, adjusting output, and plant entry and exit. Quasi-experimental evidence from Canada supports this conclusion, demonstrating the magnitude of these responses.