Why Do Plants Comply with Environmental Regulations? The Importance of Enforcement Activity, Abatement Costs, and Community PressureEPA Grant Number: R832155
Title: Why Do Plants Comply with Environmental Regulations? The Importance of Enforcement Activity, Abatement Costs, and Community Pressure
Investigators: Gray, Wayne B. , Shadbegian, Ronald J.
Institution: Clark University
EPA Project Officer: Michaud, Jayne
Project Period: February 10, 2005 through February 9, 2008
Project Amount: $329,326
RFA: Corporate Environmental Behavior and the Effectiveness of Government Interventions (2004) RFA Text | Recipients Lists
Research Category: Economics and Decision Sciences
This study examines factors affecting environmental performance (both compliance status and emissions for air, water, and toxic pollutants) in paper mills, oil refineries, steel mills, and electric utilities. We begin with data on each plant, its owning firm and traditional regulatory activity. We then add information on community pressures and political pressures faced by the plant at both the state and local level. We also examine the spatial impacts of regulation on all manufacturing plants in four cities: Los Angeles, Houston, Boston and Columbus. We address four questions: (1) How do corporate environmental culture and government regulatory interventions influence a plant’s environmental performance? (2) Do community and political pressures at the state and local level significantly affect performance? (3) Why do firms and plants differ in their responsiveness to government interventions? (4) Is environmental performance at one plant related to the performance of nearby plants?
The project builds on existing databases created by the researchers. We combine plant-level data (location, technology, capacity) from industry directories, economic data (output, investment, productivity, pollution abatement costs) from Census Bureau databases, and firm-level data from Compustat (employment, sales, profitability). EPA datasets provide information on environmental performance (both emissions and compliance), enforcement activity, and permit trading (for electric utilities). We measure state and local political pressures directly with voting data and indirectly by combining demographic and political data with spatially-explicit estimates of the population affected by air and water pollution from each plant.
In the basic model (estimated separately for each industry) environmental performance is a function of plant capacity, technology and abatement spending. We add firm characteristics and measures of government interventions to test their relative impacts on environmental performance. We then add measures of community and political pressures at the state and local level. We allow plants and firms to differ in their sensitivity to different types of government interventions, and test for correlations in performance across pollution media. Finally, we examine regulatory activity in four U.S. cities and examine its impact on the environmental performance of all polluting plants in those areas, across all manufacturing industries.
The proposed research extends existing knowledge on the determinants of environmental performance: (1) by comparing the impacts of state and local community and political pressures with the impacts of traditional regulatory activity; (2) by explaining differences across plants and firms in their sensitivity to different types of government interventions; and (3) by testing for spatial patterns in the environmental performance of plants, using data for all plants near four cities. The results will assist state and local regulators in selecting the optimal allocation of regulation towards different plants in different situations. They will also help firms in these industries seeking to improve the environmental performance at their plants. The unique plant-level databases created here will be useful for future research projects on related topics.