Making Clean Firms Cleaner: Targeting Environmental Regulation to Maximize Returns
AEA Papers and Proceedings
vol. 111,
May 2021
(pp. 436-39)
Abstract
Many environmental regulations are designed to clean up the dirtiest firms. However, if pollution intensity is negatively correlated with market share, this approach may not be the most cost-effective way to reduce pollution. This paper illustrates the theoretical conditions under which it is more cost effective to incentivize pollution intensity improvements among relatively cleaner firms. I provide a decision rule for regulators designing pollution reduction policy, and I show that the California wholesale electricity sector exhibits investment behavior consistent with the trade-off implied by this rule.Citation
Weber, Paige. 2021. "Making Clean Firms Cleaner: Targeting Environmental Regulation to Maximize Returns." AEA Papers and Proceedings, 111: 436-39. DOI: 10.1257/pandp.20211089Additional Materials
JEL Classification
- Q52 Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
- Q58 Environmental Economics: Government Policy
- L94 Electric Utilities
- L98 Industry Studies: Utilities and Transportation: Government Policy
- Q48 Energy: Government Policy
- D25 Intertemporal Firm Choice: Investment, Capacity, and Financing
- G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity