Grantee Research Project Results
2006 Progress Report: Why Do Plants Comply with Environmental Regulations? The Importance of Enforcement Activity, Abatement Costs, and Community Pressure
EPA Grant Number: R832155Title: 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: Hahn, Intaek
Project Period: February 10, 2005 through February 9, 2008
Project Period Covered by this Report: February 10, 2006 through February 9, 2007
Project Amount: $329,326
RFA: Corporate Environmental Behavior and the Effectiveness of Government Interventions (2004) RFA Text | Recipients Lists
Research Category: Environmental Justice
Objective:
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?
Progress Summary:
The second year of the project has been productive. Three papers supported by the grant were published this year. We also began work on three additional papers, which were presented a total of four times this year at conferences and seminar series. Finally, we continued to prepare datasets for future analyses.
One unanticipated difficulty arose concerning our use of Census data at the Boston Research Data Center. In spring 2006, the Federal Government increased the level of security clearance required for access to the Census data, greatly delaying the approval process for new researchers. When our existing research assistant graduated last spring, we hired a new graduate student research assistant. Unfortunately, it took several months for him to get security clearance. This has delayed preparation of the four-city dataset at Census for spatial analysis. We reallocated our efforts during this delay to work on non-Census parts of the project. We will complete the four-city dataset preparation and analysis during the third year of the grant. The aims of the project have not changed from the original application.
One published paper (“Assessing Multi-Dimensional Performance: Environmental and Economic Outcomes”) examined the determinants of a wide range of performance measures for plants in the oil, paper, and steel industries. We compared productive efficiency with emissions performance, using a stochastic frontier production function model and a seemingly unrelated regression model. Environmental performance included air pollution emissions, water pollution discharges, and toxic releases, all measured relative to the plant’s production level. When the correlations across performance measures are significant, they tend to be positive, suggesting that economic and environmental performance are complements, rather than substitutes.
A second published paper examined the impact of the sulfur allowance trading program on facility emissions, focusing on the distribution of benefits and costs across different socio-economic groups (“Benefits and Costs from Sulfur Dioxide Trading: A Distributional Analysis”). The calculations in this paper rely on the Source-Receptor Matrix, which maps emissions from each utility smokestack to its eventual impact on air quality in all downwind counties. Combined with estimates of the health effects of air pollution, this enables us to assign a dollar value to the benefits of reducing emissions from each plant. Using data for 148 of the dirtiest coal-fired utilities, we find that the benefits from the sulfur trading program greatly exceed the costs of the program for everyone. The benefits were spatially concentrated, with the greatest benefits going to people in the Northeast, North Central, and Southeastern regions. Comparing the relative shares in benefits and costs for different demographic groups, we found that blacks and Hispanics received a higher share of the benefits than they paid of the costs; the poor seemed to receive a slightly lower share of the benefits, but that result may be driven by our assumption (in the absence of data on electricity spending by income group) that the poor purchased the same amount of electricity as the rich.
A third published paper was based on a spatial econometric analysis of the environmental performances of neighboring plants (“The Environmental Performance of Polluting Plants: A Spatial Analysis”) using a three-city dataset (the precursor of the larger, four-city dataset that we will create and analyze in this project). We found a statistically significant, but limited, role for spatial factors in determining environmental performance. This spatial effect held only for measures of environmental compliance, not emission rates. The compliance of nearby plants was positively correlated, but these effects were limited to plants in the same state. The impact of regulatory inspections also had a spatial component, with inspections at nearby plants in the same state raising compliance rates, while no such effect was seen for inspections at nearby plants across state borders. This result reinforces the importance of jurisdictional boundaries when examining environmental regulation in a federalist system.
We completed a new paper (“A Spatial Analysis of the Consequences of the SO2 Trading Program”) on electric utilities, examining differences across plants in the benefits and costs of reductions in their sulfur dioxide emissions. On average, emissions from buyers of allowances have tended to affect more people than emissions from sellers of allowances. We documented this disparity, and saw how the benefits from the sulfur allowance trading program would have been affected by rules that limited trades to plants in the same geographic region or state. We found that such rules would have limited impact, because much of the variation is based on the plant’s stack height, so that considerable differences exist, even for plants in the same state.
We completed major revisions to an existing paper (“Do Firms Shift Production Across States to Avoid Environmental Regulation?”) examining the decision by firms about where to allocate production, based on firms in the paper industry which have plants in several states. We found that firms allocated significantly smaller production shares to states with stricter air pollution regulations. We tested whether this sensitivity to regulation differed across firms based on their compliance behavior, and found that it was concentrated among firms with low compliance rates. This may indicate that firms choosing lower compliance rates do so because they have relatively higher costs of compliance, rather than lower benefits of compliance.
Near the end of the grant year, we began work on a new paper (“Regulatory Regime Changes Under Federalism: Do States Matter More?”) examining the impact of the EPA’s Cluster Rule, designed to reduce the pulp and paper industry’s toxic releases into the air and water. We are examining differences across plants in reductions in their toxic releases and conventional pollutants around the effective date of the Cluster Rule in 2001. We will test whether those reductions are larger or smaller in states that have more stringent regulation, to improve our understanding of the interactions between Federal and State regulatory activity.
Future Activities:
In the third year of the grant we will prepare the dataset for the four-city analysis, first gathering an external dataset of all manufacturing plants in those cities from EPA records, then linking this dataset to the Census plant-level data at the Boston Research Data Center. Once the dataset is in place, we will carry out the spatial analyses proposed in the grant. We will revise the three new papers we started in the second year, based on comments from seminar presentations, and prepare them for publication. We will work on a paper examining the effects that state and local community and political pressures have on environmental performance by plants in the paper, oil, and steel industries. We will also complete another paper with the electric utility data, developing a more formal model of an allowance trading program which accounts for differences in the marginal benefits from abatement, and attempting to quantify the social benefits arising from a more efficient program.
Journal Articles on this Report : 2 Displayed | Download in RIS Format
Other project views: | All 12 publications | 3 publications in selected types | All 2 journal articles |
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Type | Citation | ||
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Gray WB, Shadbegian RJ. The environmental performance of polluting plants:a spatial analysis. Journal of Regional Science 2007;47(1):63-84. |
R832155 (2005) R832155 (2006) R828824 (Final) |
Exit |
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Shadbegian RJ, Gray WB. Assessing multi-dimensional performance: environmental and economic outcomes. Journal of Productivity Analysis 2006;26(3):213-234. |
R832155 (2005) R832155 (2006) R828824 (Final) |
Exit |
Supplemental Keywords:
Stationary sources, pulp and paper, petroleum, steel, utilities, cost benefit, air, water, 2611, 2621, 2911, 3312, 4911,, Economic, Social, & Behavioral Science Research Program, Scientific Discipline, INDUSTRY, Small Businesses, Economics and Business, Corporate Performance, Social Science, environmental performance, community involvement, compliance assistance, legal pnealties, policy making, paper mills, electric utilities, environmental compliance determinants, community relations, corporate evironmental reform, petroleum refining, air & water pollution regulations, enforcement impact, management participation, corporate environmental behaviorProgress and Final Reports:
Original AbstractThe perspectives, information and conclusions conveyed in research project abstracts, progress reports, final reports, journal abstracts and journal publications convey the viewpoints of the principal investigator and may not represent the views and policies of ORD and EPA. Conclusions drawn by the principal investigators have not been reviewed by the Agency.