Effects of Air Quality Regulations on Polluting Industries

Abstract

This paper examines unintended effects of air quality regulation, using plant data for 1963-92. A key regulatory tool since 1978 is the annual designation of county air quality attainment status. Nonattainment status triggers specific equipment requirements, with the severity and enforcement of regulations rising with plant size. The differential in regulation favors attainment areas, reducing births for polluting industries in nonattainment areas by 26-45 percent. Industries and sectors with bigger plants are affected the most, shifting industrial structure toward less regulated single-plant firms. Large preregulation plants do benefit from grandfathering provisions, but both grandfathering and shifts to small-scale new plants contribute to environmental degradation.

JEL Classification: L59, Q28