The CAA Flashcards
Air pollution is an externality
Has effects on third parties that occur outside of market mechanisms
Air pollution is unlikely to be dealt with via the Coase Theorem
- It’s difficult for people to own the air
- Air pollution is caused by and has effects on a huge number of people
→ Negotiation is virtually impossible
the Clean Air Act
- main legislation that the U.S. uses to regulate air pollution
-Covers almost all reg. done by the federal government - first passed in 1963 & amended in the 1970, 1977, and 1990
1970 Amendment
— Gave the gov. sweeping enforcement powers
—Established the Environmental Protection Agency (the EPA) = A federal agency dedicated to enforcement of environm. regulation
1977 & 1990 Amendments
— Broadened the scope to cover additional air pollutants
— Caused a shift from “command-and-control” to market-based approaches (cap-and-trade systems)
1990 Amendments
Updated frequently since 1990
— Obama’s Clean Power Plan to regulate carbon emissions
— But delayed by Trump and whittled down by the Supreme Court
CAA main components
- Regulation of “criteria” air pollutants
- Banning of leaded gasoline
- Emissions standards for automobiles
- Regulation of “hazardous” air pollutants
County-Level command-and-control regulations
— Sets air quality standards defining the max. allowable level
— Classifies counties as in attainment or nonattainment
— Forces nonattainment counties to reduce pollution
— Asks state gov. to develop a plan. Also can impose penalties
Regional cap-and-trade systems
— Large-scale c&t systems that cover ec. activity in nearby states
I Meant to deal with the fact that air pollution can drift across borders
— Distribute fixed # of emissions permits; allow firms to trade
— Sulfur dioxide system enacted in 1990 to combat acid rain
— Nitrogen oxide system enacted in 2003
Externality theory
Optimal level of pollution reduction where SMB of ↓ by one unit = SMC
⇒ Should recover SMB and SMC curves; see where they intersect but, in practice, is extremely difficult to recover social marginal curves
Chay and Greenstone (2003)
— Pollution moved similarly in pre-period ⇒ setting allows a DiD
— DiD: CAA caused a 20 mg ↓ in pollution in nonatt. rel. to att. counties
— Other research finds that other CAA components also ↓ pollution
Short Run Health Effects
CAA affected infant health only via its effects on pollution
→ 10% decline in particulates ⇒ 5% decline in infant mortality
Isen, Rossin-Slater, and Walker (2017)
Use the same DiD as C&G (2003) but focus on different outcomes
— Identify people born in non/attainment counties just before/after 1971
— Assess whether being exposed to less pollution as a child causes people to
do better as adults
— 10% ↓ in childhood exposure to particulates ⇒ 1% ↑ in adult earnings and lower likelihood of being disabled
Barreca, Neidell, and Sanders (2017)
Examine long-run effects of regulating sulfur dioxide (1990 amendments)
— DiD: Compare long-run health if lived near/far power plants before/after
— Regulation caused people to live longer
— Reduced annual mortality rates for adults by 5%
Effects of air pollution on worker productivity (Graff-Zivin and Neidell (2012))
Examine the effect of spikes in air pollution on piece-rate ag. workers
— Piece-rate agricultural workers get paid by # fruits/vegetables they pick
— When pollution is at upper end of normal range, workers:
— Work for 20 minutes less in a day
— Pick 0.12 fewer s.d. worth of fruits and vegetables
Effects of air pollution on childhood development
– High levels of lead in children’s blood affect brain development
– Econ papers find that high lead levels cause worse academic achievement, increased behavioral problems in school, and increased criminal activity in adulthood
– CAA banned leaded gas starting in 1995 , since then, there has been a ↓ in children’s lead levels
Evaluating the CAA by comparing benefits w/ costs
Done by attaching monetary value on the benefits by either focusing on just the mortality benefits of the CAA or calculating the effect of the CAA on housing prices
– both of these options are limited by a lower bound for the total benefits
Researchers can monetize mortality benefits in two steps
- Estimate the effect of a regulation on avoided deaths - Multiply the estimate by the value of a life / year of life
- Housing prices
housing prices
After controlling for the characteristics of a house, the price captures willingness to pay to live in the area where the house is located
→ If people care about clean air, should be willing to pay more for it
effects on housing prices underestimate total benefits
most people can’t either observe air quality or Understand the harms of air pollution
Chay and Greenstone (2003b)
Use 1971 non/attainment DiD to calculate effects on housing prices
→ ↓ in pollution in nonattainment counties worth $45 billion in home values
the cost of environmental regulation is
The monetized value of the reallocation of resources from the production of goods and services to pollution abatement activities”
Includes costs of plants spending money to reduce pollution; worthwhile projects that are not undertaken; less worthwhile projects that are undertaken; monitoring, and enforcement
three categories of costs
- Effects on impacted workers
- Declines in profits
- Increases in the prices of consumer goods
Greenstone (2002)
Uses the 1971 DiD to study effects on manufacturing activity
— Compare manufacturing in non/attainment counties before/after 1971
→ ↑ regulation ⇒ ↓ manufac. From 1972-1987, nonattainment counties lost 590,000 jobs, $37 billion in capital stock, $75 billion in output
Walker (2013)
— Obtains longitudinal employment data from the U.S. Census Bureau
— Studies regulations on manufacturing plants due to 1990 CAA amendment
— DiD comparing workers at plants that were/were not affected
→ By 2000, affected workers had lost a total of $5.4 billion in earnings
⇒ Environmental regulation can have significant costs & may be concentrated in particular areas or types of workers
Loss in workers wages occurred due to
- Long spells in unemployment
- Lower salaries in the new jobs
Costs of CAA
– Effects on affected workers: $5.4 billion during 1990-2000 (Walker 2013)
– Effects on consumer prices: unknown
– Effects on firm profits: unknown
Benefits of CAA
– Mortality benefits: $134 billion/year (Barreca et al. 2017)
– Other benefits: unknown
Currie & Walker CAA benefits
the CAA reduced pollution, and this improved health, productivity, earnings, and child development. The CAA also increased home values
Currie & Walker CAA costs
the CAA reduced manufacturing in non-attainment counties. It also reduced employment and earnings for impacted workers. Finally, it may have had effects
on profits and consumer prices, but we have little evidence on this. In addition, since the
early 1980s (and until the Coronavirus Crisis), inflation has been low and profits have
risen dramatically. Thus, it is unlikely that the effects on these outcomes are large
CAA distributional consequences - benefits
On the benefit side, low-income households are generally exposed to more pollution. Also, they are generally in worse health. This means that a given unit of pollution likely is more harmful for them than for high-income households. As a result of these facts, a reduction in overall pollution has disproportionate benefits for low-income households. First, it causes a relatively larger reduction in their exposure to pollution. Second, this compounds with their greater health benefits per unit of pollution reduction.
CAA distributional consequences - costs
low-income households may suffer more when consumer prices rise.
They also may be more likely to have jobs that are lost due to the regulation, such as manufacturing jobs. Finally, they may be less able to switch jobs or to migrate to other areas if they become unemployed. Thus, they may bear more of the costs of regulation.
