A new school of environmental economics?

Not entirely by chance did I come across this interesting discourse in economics about gas emissions. Shapiro and Walker (2018) have disaggregated CO, NO₂, PM10, PM2.5, SO₂, NO_x, VOCs, and CO emission in the US from 1990-2008 by industry, location, facility, and product. They find that during that time period, emission reductions are driven not by technological change or trade, but by more stringent regulations. The cost of complying with these regulations in 2008 amounted to an implicit pollution tax equal to ~1.1% of total production cost–double the value in the year 1990. (cont.)

Not entirely by chance did I come across this interesting discourse in economics about gas emissions. Shapiro and Walker (2018) have disaggregated CO, NO₂, PM10, PM2.5, SO₂, NO_x, VOCs, and CO emission in the US from 1990-2008 by industry, location, facility, and product. They find that during that time period, emission reductions are driven not by technological change or trade, but by more stringent regulations. The cost of complying with these regulations in 2008 amounted to an implicit pollution tax equal to ~1.1% of total production cost–double the value in the year 1990.

Other works in this discourse include Keiser and Shapiro (2019), Isen, Rossin-Slater, and Walker (2017), Deschênes, Greenstone, and Shapiro (2017), Shapiro (2016), and Fabra and Reguant (2014). (1) Keiser and Shapiro (2019) finds that cost of clean water legislation amounts to ~0.8% of GDP per year, but that these legislations have effectively improved water quality in the US. They also criticize the lack of research on water pollution in the economics literature. (2) Isen, Rossin-Slater, and Walker (2017) determine through a quasi-experiment (regression discontinuity) that lower levels of air pollution in the early childhood improve labor market performance in adults. (3) Deschênes, Greenstone, and Shapiro (2017) uses an instrumental variable design. Some counties have no power plants which emit NO_X–and hence exhibit no NO_X pollution in summer. They find that reducing NO_X emissions by one million tons per year will save about $0.5 billion in medication expenditures, and prevent 3,100 premature summertime deaths (which economists value at $2.1 billion…). (4) Fabra and Reguant (2014) finds that power companies fully pass through the cost associated cap-and-trade programs to consumers via electricity prices in the absence of proper market design. All of these works are impressive and change the way we think about pollution. Shapiro and Walker (2018) represents the most extensive work in this discourse, definitely a path-breaking paper.

Deschênes, Olivier, Michael Greenstone, and Joseph S. Shapiro. 2017. “Defensive Investments and the Demand for Air Quality: Evidence from the NOx Budget Program.” American Economic Review 107 (10): 2958–89. https://doi.org/10.1257/aer.20131002.

Fabra, Natalia, and Mar Reguant. 2014. “Pass-Through of Emissions Costs in Electricity Markets.” American Economic Review 104 (9): 2872–99. https://doi.org/10.1257/aer.104.9.2872.

Isen, Adam, Maya Rossin-Slater, and W. Reed Walker. 2017. “Every Breath You Take—Every Dollar You’ll Make: The Long-Term Consequences of the Clean Air Act of 1970.” Journal of Political Economy 125 (3): 848–902. https://doi.org/10.1086/691465.

Keiser, David A., and Joseph S. Shapiro. 2019. “US Water Pollution Regulation over the Past Half Century: Burning Waters to Crystal Springs?” Journal of Economic Perspectives 33 (4): 51–75. https://doi.org/10.1257/jep.33.4.51.

Shapiro, Joseph S. 2016. “Trade Costs, CO2 , and the Environment.” American Economic Journal: Economic Policy 8 (4): 220–54. https://doi.org/10.1257/pol.20150168.

Shapiro, Joseph S., and Reed Walker. 2018. “Why Is Pollution from US Manufacturing Declining? The Roles of Environmental Regulation, Productivity, and Trade.” American Economic Review 108 (12): 3814–54. https://doi.org/10.1257/aer.20151272.