Environmental regulations and the cleanup of manufacturing: Plant-level evidence

Abstract

—For much of the industrialized world, pollution from manufacturing has been falling despite increased output. We examine how air quality standards—a common environmental regulation—have contributed to this cleanup of manufacturing. We develop a general equilibrium model to show how air quality standards can lead to a cleanup by causing reductions in plant emission intensity, relative changes in plant output, and plant entry and exit. We provide quasi-experimental evidence from Canada to highlight the magnitude of these responses. Our results suggest that air quality standards explain just under 40% of the cleanup of manufacturing.