AEA Papers and Proceedings
ISSN 2574-0768 (Print) | ISSN 2574-0776 (Online)
Making Clean Firms Cleaner: Targeting Environmental Regulation to Maximize Returns
AEA Papers and Proceedings
vol. 111,
May 2021
(pp. 436–39)
Abstract
Many environmental regulations are designed to clean up the dirtiest firms. However, if pollution intensity is negatively correlated with market share, this approach may not be the most cost-effective way to reduce pollution. This paper illustrates the theoretical conditions under which it is more cost effective to incentivize pollution intensity improvements among relatively cleaner firms. I provide a decision rule for regulators designing pollution reduction policy, and I show that the California wholesale electricity sector exhibits investment behavior consistent with the trade-off implied by this rule.Citation
Weber, Paige. 2021. "Making Clean Firms Cleaner: Targeting Environmental Regulation to Maximize Returns." AEA Papers and Proceedings, 111: 436–39. DOI: 10.1257/pandp.20211089Additional Materials
JEL Classification
- Q52 Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
- Q58 Environmental Economics: Government Policy
- L94 Electric Utilities
- L98 Industry Studies: Utilities and Transportation: Government Policy
- Q48 Energy: Government Policy
- D25 Intertemporal Firm Choice: Investment, Capacity, and Financing
- G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity