US Environmental Policies, the Environment, and the Economy.

• Author: Shapiro, Joseph S.

US environmental regulations have expanded dramatically since passage of the Clean Air Act, Clean Water Act, and similar laws a half century ago. Today, these policies face growing debate. While they have improved environmental quality, they also impose important costs. Moreover, their benefits and costs can have uneven impacts across racial and income groups.

Economists have long studied the effectiveness, efficiency, and equity of environmental policy, but three obstacles have impeded this research. One is a dearth of data on individual firms and households that could enable analysis of a broad range of policy impacts. Another is the challenge of quantifying the stringency of regulation for different entities and in different years. A third is the complexity of combining data, econometric methods, and economic theory to infer impacts on hard-to-observe outcomes such as consumer and producer surplus and social welfare.

Our joint and independent recent work on how US regulation of air, water, and climate pollution has affected households and firms combines newly available administrative data with insights from research on trade, industrial organization, and public finance to help address these challenges. This summary reviews some of this work.

Administrative Data

Many government agencies routinely collect data to administer policies, and recent expansions in data access allow analysts to use these data for research. The availability of confidential microdata through the US Census Bureau's research data centers is particularly valuable. These data provide large sample sizes and spatial detail, which can enable better research designs than in past research. They also support new linkages across databases and new variables within existing data, expanding the range of feasible research.

For example, research often uses industry-level aggregates, since they are publicly available, and many environmental policies apply to an industry rather than to a firm or establishment. Plants and firms within industries, however, differ in ways that may be important to consider when designing policy or determining the overall welfare effects of existing policies. Our work with Eva Lyubich uses the Census Bureau's plantlevel information on energy and other intermediate goods to assess the importance of heterogeneous firm externalities for environmental policy design within industries. (1) The analysis measures both plant-level [C0.sub.2] emissions and emissions from the plant's unique supply chain. It finds vast heterogeneity in output produced per unit of energy used within even narrowly defined industries. For example, given $1 of energy input, a plant at the 90th percentile of a given industry's distribution of energy productivity produces 580 percent more output than a plant at the 10th percentile of the same industry. Heterogeneity in output per unit of energy input substantially exceeds heterogeneity in other standard productivity measures. As another example, researchers and policymakers have long been concerned about who ultimately bears the burden of Pigouvian taxes, taxes which, like a carbon tax, are levied on households or firms to internalize the cost of pollution emissions and other activities that generate externalities. However, little is known about the ability of fossil fuel-intensive firms and industries to pass these costs through to consumers, as public data provide little information on firm prices or marginal costs. The Census Bureau, however, collects data on plantlevel production quantities and unit prices for a few homogeneous industries. Our work with Sharat Ganapati uses this price data to study how shocks to energy input...