Why is Pollution from U.S. Manufacturing Declining? The Roles of Environmental Regulation, Productivity, and Trade

Abstract

Between 1990 and 2008, air pollution emissions from U.S. manufacturing fell by 60 percent despite a substantial increase in manufacturing output. We show that these emissions reductions are primarily driven by within-product changes in emissions intensity rather than changes in output or in the composition of products produced. We then develop and estimate a quantitative model linking trade with the environment to better understand the economic forces driving these changes. Our estimates suggest that the implicit pollution tax that manufacturers face doubled between 1990 and 2008. These changes in environmental regulation, rather than changes in productivity and trade, account for most of the emissions reductions.

The Decomposition and Dynamics of Industrial Carbon Dioxide Emissions for 287 Chinese Cities in 1998–2009

“…Based on the above studies, to keep it simple but without loss of generality, we construct the conversion factor which is the inverse ratio of city‐ and sub‐sector‐specific TFP over the provincial‐sector‐specific TFP. Martin () and Shapiro and Walker () also build their empirical analysis on a similar assumption. The apparent advantage here is that we have all the TFP measures needed for calculating those conversion factors coming from ASIFs dataset and China's Urban Statistical Yearbooks…”

“…All else being equal, if the manufacturers in an industry adopt more efficient environmentally friendly production methods and improve management quality, it will induce a negative technique effect, thus reducing energy consumption and CO 2 emissions per unit of economic activity within this industry. Shapiro and Walker () find that the observed decrease in nitrogen oxide emissions (NO x ) in the USA during the period of 1990–2008 is more attributable to falling pollution per unit of output within industries at a more disaggregated level, suggesting the existence of a technique effect in those industries. A study focusing on China by Zhang () finds that the changes in input mix, sector energy intensity, fuel mix and carbon intensity of fuels can offset the increasing trade‐induced carbon emissions in twenty‐six sectors including agriculture, mining, manufacturing and service industries.…”

“…She finds that the inflow of pollution‐intensive industries aggravates environmental damage in China, but openness tends to reduce the environmental costs through stronger regulation as trade‐induced income increases. Shapiro and Walker () recently explained the decline of air pollution in the USA between 1990 and 2008 by utilizing this bottom‐up decomposition approach. Following this decomposition methodology, this paper examines the change in CO 2 emissions in the context of China for a large number of cities and with more disaggregated sub‐sectors in Section .…”

“…Following the recent literature (e.g. Shapiro and Walker, ), we decompose the change in a city's industrial CO 2 emissions into scale, composition and technique effects. Let x kit be the output measure (we use value‐added in this paper) for industry i in city k in year t , e kit be the CO 2 emission intensity per unit of output.…”

Green Transitions and the Prevention of Environmental Disasters: Market-Based vs. Command-and-Control Policies

“…For instance, some international agreements (e.g., the Montreal Protocol on Substances that Deplete the Ozone Layer) fix an exogenous ceiling on specific polluting concentrations. Shapiro and Walker (2015) found that the increasing stringency of US environmental regulation accounted for three quarters of the 60% decrease in pollution emissions (e.g., nitrogen oxides, particulate matter, sulfur dioxide, and volatile organic compounds) from US manufacturing in the period from 1990 to 2008. In general, both price and quantity forms of control can solve allocation problems and there is no a priori criterion to favor one instrument over the other [Weitzman (1974)].…”