Centre for Development Economics
Department of Economics, Delhi School of Economics


High Priority Violations and Intra-firm Pollution Substitution


Neha Khanna
Department of Economics, Binghamton University


5th April 2018 (Thursday) at 3:00 PM

Venue : Seminar Room (First Floor)
Department of Economics, Delhi School of Economics

All are cordially invited

We examine the sign and the magnitude of pollution leakage associated with the High Priority Violations Policy (HPVP) under the Clean Air Act (CAA), which caps the quantities of emissions that a polluting facility can generate per period of time or per unit of fuel input. Using 26,484 facility-year observations for 4,651 polluting facilities across all industries in the U.S., we find strong evidence of intra-firm pollution substitution associated with the HPVP. On average, a compliant facility increased its toxic air emissions by about 34% (2,055 lbs.) if it had at least one other sister facility, within the same 6-digit NAICS industry code and belonging to the same parent firm, under violation. The magnitude of such intra-firm pollution substitution was stronger towards compliant facilities with no prior history of high priority violation as well as towards those owned by publicly traded parent companies. We also find that substitution of pollution from a sister facility under violation increases the risk of violation among currently compliant facilities.