Is Air Pollution Regulation Too Lenient? Evidence from US Offset Markets

Joseph Shapiro and Reed Walker

Working Papers from U.S. Census Bureau, Center for Economic Studies

Abstract: This paper describes a framework to estimate the marginal cost of air pollution regulation, then applies it to assess whether a large set of existing U.S. air pollution regulations have marginal benefits exceeding their marginal costs. The approach utilizes an important yet under-explored provision of the Clean Air Act requiring new or expanding plants to pay incumbents in the same or neighboring counties to reduce their pollution emissions. These "offset" regulations create several hundred decentralized, local markets for pollution that differ by pollutant and location. Economic theory and empirical tests suggest these market prices reveal information about the marginal cost of abatement for new or expanding firms. We compare estimates of the marginal benefit of abatement from leading air quality models to offset prices. We find that, for most regions and pollutants, the marginal benefits of pollution abatement exceed mean offset prices more than ten-fold. In at least one market, however, estimated marginal benefits are below offset prices.

JEL-codes: H23 Q52 Q53 R11 (search for similar items in EconPapers)
Pages: 79 pages
Date: 2023-06
New Economics Papers: this item is included in nep-ene, nep-env and nep-res
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Downloads: (external link)
https://www2.census.gov/library/working-papers/2023/adrm/ces/CES-WP-23-27R.pdf Revised version, 2024 (application/pdf)
https://www2.census.gov/library/working-papers/2023/adrm/ces/CES-WP-23-27.pdf First version, 2023 (application/pdf)

Related works:
Working Paper: Is Air Pollution Regulation Too Lenient? Evidence from US Offset Markets (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:cen:wpaper:23-27

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