The Environmental Bias of Trade Policy

This paper documents a new fact, then analyzes its causes and consequences: in most countries, import tariffs and non-tariff barriers are substantially lower on dirty than on clean industries, where an industry’s “dirtiness” is defined as its carbon dioxide (CO2) emissions per dollar of output. This difference in trade policy creates a global implicit subsidy to CO2 emissions in internationally traded goods and so contributes to climate change. This global implicit subsidy to CO2 emissions totals several hundred billion dollars annually. The greater protection of downstream industries, which are relatively clean, substantially accounts for this pattern. The downstream pattern can be explained by theories where industries lobby for low tariffs on their inputs but final consumers are poorly organized. A quantitative general equilibrium model suggests that if countries applied similar trade policies to clean and dirty goods, global CO2 emissions would decrease and global real income would change littl

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

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

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

Between 1990 and 2008, emissions of the most common air pollutants from U.S. manufacturing fell by 60 percent, even as real U.S. manufacturing output grew substantially. This paper develops a quantitative model to explain how changes in trade, environmental regulation, productivity, and consumer preferences have contributed to these reductions in pollution emissions. We estimate the model’s key parameters using administrative data on plant-level production and pollution decisions. We then combine these estimates with detailed historical data to provide a model-driven decomposition of the causes of the observed pollution changes. Finally, we compare the model-driven decomposition to a statistical decomposition. The model and data suggest three findings. First, the fall in pollution emissions is due to decreasing pollution per unit output within narrowly defined products, rather than to changes in the types of products produced or changes to the total quantity of manufacturing output. Second, the implicit pollution tax that rationalizes firm production and abatement behavior more than doubled between 1990 and 2008. Third, environmental regulation explains 75 percent or more of the observed reduction in pollution emissions from manufacturing

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

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

Consequences of the Clean Water Act and the Demand for Water Quality

Since the 1972 U.S. Clean Water Act, government and industry have invested over $1 trillion to abate water pollution, or$100 per person-year. Over half of U.S. stream and river miles, however, still violate pollution standards. We use the most comprehensive set of files ever compiled on water pollution and its determinants, including 50 million pollution readings from 170,000 monitoring sites, to study water pollution\u27s trends, causes, and welfare consequences. We have three main findings. First, water pollution concentrations have fallen substantially since 1972, though were declining at faster rates before then. Second, the Clean Water Act\u27s grants to municipal wastewater treatment plants caused some of these declines. Third, the grants\u27 estimated effects on housing values are generally smaller than the grants\u27 costs

Defensive Investments and the Demand for Air Quality: Evidence from the NOx Budget Program and Ozone Reductions

Willingness to pay for air quality is a function of health and the costly defensive investments that contribute to health, but there is little research assessing the empirical importance of defensive investments. The setting for this paper is a large US emissions cap and trade market – the NOx Budget Trading Program (NBP) – that has greatly reduced NOx emissions since its initiation in 2003. Using rich quasi-experimental variation, we find that the reductions in NOx emissions decreased the number of summer days with high ozone levels by about 25%. The NBP also led to reductions in expenditures on prescription pharmaceutical expenditures of about 1.9%. Additionally, the summer mortality rate declined by approximately 0.5%, indicating that there were about 2,200 fewer premature deaths per summer, mainly among individuals 75 and older. The monetized value of the reductions in pharmaceutical purchases and mortality rates are each roughly $900 million annually, suggesting that defensive investments are a significant portion of willingness to pay for air quality. Finally, we cautiously conclude that the reductions in ozone are the primary channel for these reductions in defensive investments and mortality rates, which indicates that willingness to pay for ozone reductions is larger than previously understood

The Incidence of Carbon Taxes in U.S. Manufacturing: Lessons from Energy Cost Pass-through

This paper estimates how increases in production costs due to energy inputs affect consumer versus producer surplus (i.e., incidence). In doing so, we develop a general methodology to measure the incidence of changes in input costs that can account for three first-order issues: factor substitution amongst inputs used for production, incomplete pass-through of input costs, and industry competitiveness. We apply this methodology to a set of U.S. manufacturing industries for which we observe plant-level output prices and input costs. We find that about 70 percent of energy price-driven changes in input costs are passed through to consumers. This implies that the share of welfare cost borne by consumers is 25-75 percent smaller (and the share borne by producers is correspondingly larger) than most existing work assumes

Energy Prices, Pass-Through, and Incidence in U.S. Manufacturing

This paper studies how increases in energy input costs for production are split between consumers and producers via changes in product prices (i.e., pass-through). We show that in markets characterized by imperfect competition, marginal cost pass-through, a demand elasticity, and a price-cost markup are sucient to characterize the relative change in welfare between producers and consumers due to a change in input costs. We find that increases in energy prices lead to higher plant-level marginal costs and output prices but lower markups. This suggests that marginal cost pass-through is incomplete, with estimates centered around 0.7. Our confidence intervals reject both zero pass-through and complete pass-through. We find heterogeneous incidence of changes in input prices across industries, with consumers bearing a smaller share of the burden than standards methods suggest