Topic:

Is Air Pollution Regulation Too Stringent?

Time&Date: 

11:45-13:15, 2020/10/23 (Friday)

Speaker:

Prof. Joseph S. Shapiro (University of California, Berkeley)

Abstract:

This paper describes a new approach to estimating the marginal cost of air pollution regulation, then applies it to assess whether a large set of existing U.S. air pollution regulations are too stringent or lenient. The approach utilizes an important yet underexplored provision of the Clean Air Act requiring new or expanding plants to pay incumbents in the same or neighboring counties to reduce their pollution emissions. These “offset” regulations create hundreds of decentralized, local markets for pollution that differ by pollutant and location. We show how offset transaction prices can be interpreted as measures of the marginal cost of abatement, and we compare them to estimates of the marginal benefit of abatement from leading air quality models. We find that for most regions and pollutants, regulation is too lenient; marginal abatement costs are persistently and substantially below marginal abatement benefits. In at least one market, however, regulation is too stringent—the marginal costs of abatement significantly exceed the marginal benefits of abatement. Marginal abatement costs have increased in real terms by over 6 percent annually. Notably, our revealed preference estimates of marginal abatement costs differ enormously from typical engineering estimates. Theory and evidence suggest that using price rather than existing quantity regulation in these markets could increase social welfare.

Bio:

Joseph S. Shapiro is Associate Professor at the University of California, Berkeley, in Agricultural & Resource Economics and the Department of Economics. He also serves as Associate Editor of the Journal of Political Economy, Co-Editor of the Journal of Public Economics, Research Associate at the National Bureau of Economic Research, and Research Associate at the Energy Institute at Haas. His research agenda focuses on three general questions: (1) How do international trade policy and environmental policy interact? (2) What are the costs, benefits, and incidence of water pollution and other environmental policy? (3) How important are the investments that people make to protect themselves against air pollution and climate change? Shapiro has received an Alfred P. Sloan Research Fellowship and Marshall Scholarship, and funding from the National Science Foundation and the Environmental Protection Agency. He was previously Assistant Professor in the Department of Economics at Yale. Shapiro holds a Ph.D. in economics from MIT, Masters degrees from Oxford and LSE, and a BA from Stanford.