Essays on the economics of environmental regulation

Environmental regulations targeting producers are in place around much of the world. Yet, there is limited evidence of how firms are affected by these policies. This thesis provides new empirical and theoretical evidence on the effects of environmental regulation on producers. The first two chapters of this thesis explore a trend underway in much of the industrialized world: pollution from manufacturing has been falling despite increased output. In the first chapter, we develop a theoretical model to show the channels through which regulation can contribute to an industry’s “clean-up”. This model highlights the role that fixed costs producers must pay to adopt cleaner production processes play in dictating these channels. We show that if these fixed costs are relatively low, the adoption of cleaner processes will be the primary regulatory channel of an industry’s clean-up. However, if these fixed costs are relatively high, then plant exit and reductions in output from regulated plants will be the primary channels. The second chapter provides the first estimates of the regulatory channels of the manufacturing clean-up. We estimate the share of the Canadian manufacturing clean-up explained by the adoption of cleaner production processes, the reallocation of output across producers, and producer entry and exit. To do this, we examine a major revision to Canadian environmental policy using a novel, confidential dataset containing information on the production decisions and pollution emissions of Canadian manufacturing plants. We find regulation explains, at most, 61% of the Canadian clean-up, but the underlying channels differ strikingly across pollutants. A concern in debates over environmental regulation is a potential loss of international competitiveness among domestic producers. Despite its pervasiveness in policy discussions, evidence of these losses remains scarce. The third chapter of this thesis provides the first plant-level estimates of the effect of air pollution regulation on exporting. We study the effects of the Canada-Wide Standards for Particulate Matter and Ozone on the decision to export and export volumes of Canadian manufacturing facilities. We find evidence that environmental regulation caused relatively low-productivity exporters to leave the export market, and reduced the amount surviving exporters sold abroad.Arts, Faculty ofVancouver School of EconomicsGraduat