Economists at the University of Chicago and MIT published a study, which reports an annual cost of $21 billion for manufacturing companies, due to enlarged environmental regulations. Although cleaner air and improvements in U.S public health are now clearly noticeable, for the period 1972-1993 these regulations have reduced industrial productivity and profits with 4.8% and 9% respectively.
These numbers are reported in the paper published by Michael Greenstone, the 3M Professor of Environmental Economics at MIT; John List, the Homer J. Livingston Professor of Economics at the University of Chicago; and Chad Syverson, professor at the University of Chicago Booth School of Business, National Bureau of Economic Research, entitled “The Effects of Environmental Regulations on the Competitiveness of U.S. Manufacturing.”
The authors emphasize that they are not against the new regulations, however they urge for transparency when it comes to effects on production cost.
In summary, the paper looks into the impact that The Clean Air Act of 1970 had on the so-called total factor productivity (TFP) of manufacturing plants. The Act allows governmental intervention for polluting companies. The Environmental Protection Agency (EPA) can impose installations of pollution controlling technologies, however, according to the leading author, the equipment is “neither necessary nor useful for producing the plant’s commercial output.”
Furthermore, each year EPA categorizes counties as “attainment” or “nonattainment” according to standards for air quality. These include ozone levels, total suspended particulates, sulfur dioxide and carbon monoxide. If a manufacturing plant is located in a “nonattainment” county, then these are strictly controlled.
The study is based on data by the U.S Census Bureau of company costs and profits. Results indicate that largest drops in TFP are related to high levels of emitted ozone. The regulations have their strongest impact on the organic chemical industry, reporting 17% drop in productivity with an annual loss of $9.2 billion in 2010. According to the findings, some companies, especially these in the ready-mixed concrete industry, have dealt with the regulations by increasing their prices.
The authors of the publication suggest that their method can be also applied in a wider range of contexts, assessing the impact of costs of regulations within other sectors. They state that similar studies should be conducted in areas associated with health and safety regulations, as well as work and labour conditions.