Environmental Regulation and Product Mix: Evidence from the Census of Manufactures Open Access
Downloadable ContentDownload PDF
Even though environmental regulation can affect the product mix decisions of manufacturers, the environmental economics literature contains almost no research in this area. My research contributes to the limited literature, and fills the gap in the literature for U.S. manufacturers, by providing empirical evidence of the effect of environmental regulation on the product mix of U.S. plants in the pulp, paper, and paperboard industries. Given that many U.S. environmental policies attempt to alter emissions by altering production processes rather than product mixes, the findings in this research are useful for future environmental policies.I first examine the determinants of environmental performance of plants, where environmental performance is measured using two approaches. The first approach is based on chemical inputs and measures environmental performance by the quantity of pollution-intensive and non-pollution-intensive chemicals consumed. The second approach is based on pollution output and measures environmental performance by air pollution emissions. Using the first approach, I find that more productive plants with more water pollution abatement capital expenditures consume less pollution-intensive chemicals. Using the second approach, I find that plants located in counties designated non-attainment for ground-level ozone (O3) have 53 percent lower emissions of volatile organic compounds (VOCs). Finally, using the two approaches, I develop a method for classifying products as pollution-intensive and non-pollution-intensive. In the next chapter, I examine the effect of the U.S. Environmental Protection Agency's Pulp and Paper Cluster Rule on product mix. The Cluster Rule combines regulatory requirements from the Clean Air Act and Clean Water Act, and calls for affected plants to alter their bleaching process away from chlorine-based bleaching agents. In addition to, or in place of, adopting the cleaner technology, plants may choose to comply with the regulation by reducing output of bleached products or dropping some of these products entirely. Using a difference-in-difference-in-differences approach, I find that plants facing full Cluster Rule regulation are more likely to drop bleached products relative to unbleached products compared to plants facing only partial Cluster Rule regulation. Furthermore, I find evidence that plants facing only partial Cluster Rule regulation alter their product portfolios toward bleached products.Finally, I use ground-level ozone (O3) county non-attainment status as a proxy for the stringency of environmental regulation to test further how environmental regulation affects product mix decisions. Using fixed effects, I find that plants in O3 non-attainment counties are more likely to drop dirty (VOC-emitting) products, less likely to drop clean (non-VOC-emitting) products, less likely to add dirty products, and more likely to add clean products. Using propensity matching methods, I find that plants in O3 non-attainment counties decrease their quantity shipments of dirty products and increase their quantity shipments of clean products.