New research has found that environmental regulation may be the reason U.S. factories are polluting less.

US Factories' Pollution

Source: Pixabay

A new study published by London Sschool of Economics analyzes U.S. factories’ pollution levels and whether environmental regulations have had a positive impact on manufacturers’ environmental impact. The study takes into account data from 1990 to 2008, and it found that during this time, “emissions of the most common air pollutants from U.S. manufacturing fell by about two-thirds, even as real output from U.S. manufacturing grew substantially.” (Figure 1) Joseph S. Shapiro and Reed Walker, who conducted the story, identified three reasons for this decrease in emissions: trade, productivity growth, and regulations. In their research, they explored each possibility.

Figure 1: Trends in manufacturing pollution and output over time Source: LSE


The first hypothesis this study explored was whether trade was the reason for factories’ decrease in pollution. Researchers discovered that “changes in the scale of manufacturing or changes to the composition of goods produced, cannot explain most of the trends in pollution emissions from U.S. manufacturing.” Their data analysis highlights the fact that even as trade affects the type and amount of products being manufactured within the U.S., it doesn’t affect the method in which those products are produced. The report explained that “the types of products U.S. manufacturers are producing were just as dirty in 2008 as they were in 1990,” so the amount of harmful emissions being emitted should have remained the same. Since emission levels have dropped significantly, trade cannot be the reason for manufacturers’ decrease in pollution.

Productivity Growth

Another hypothesis for factories’ pollution reduction was productivity growth. To test whether an increase in productivity would lead to a decrease in pollution, the researchers compared the “inferred pollution tax against the NOx Budget Trading Program.” This program is a cap-and-trade system for manufacturing plants and electricity generation units that was instated in 2003. According to the EPA, the program “was designed to reduce NOx emissions.” Once the researchers examined the inferred pollution tax against this program, they found that even though productivity increased steadily in the late 20th century, the inferred pollution tax remained relatively stagnant until the Nox Budget Trading Program was instated. After 2003, this tax increased significantly. This result proved that productivity growth didn’t lead to a decrease in NOx emissions. This data can be observed in Figure 2.

Figure 2: Nox pollution tax changes as a function of NOx budget trading program status Source: LSE


The final hypothesis these professors tested was environmental regulations being the cause for manufacturers’ decrease in harmful emissions. They noted that the pollution tax in the U.S. doubled between 1990 and 2008. Based on Figure 1 and 2’s results, researchers concluded that the environmental laws implemented between 1990 and 2008 “account for much of the…decrease in pollution emissions from U.S. manufacturing.”

While the researchers agree that productivity and trade have some effect on harmful emission levels, “the study finds that increases in the stringency of environmental regulation account for the large majority of the decrease in pollution emissions from U.S. manufacturing.” Through their research, Shapiro and Walker have concluded that enforced environmental policies have positive, long-lasting effects on pollution emissions.