Effects of Air Quality Regulations on Polluting Industries

TLDR

Since 1978, annual designation of county air quality attainment status has been a key regulatory tool, with nonattainment triggering equipment requirements that become stricter as plant size increases. The study examines unintended effects of air quality regulation using plant data from 1963–1992. The authors analyze plant‑level data spanning 1963–1992 to assess regulatory impacts. Regulation favors attainment areas, cutting new polluting industry births in nonattainment zones by 26–45 % and shifting the industrial structure toward smaller, less regulated firms, while grandfathering benefits large pre‑regulation plants but also encourages environmental degradation through small‑scale new plants.

Abstract

This paper examines unintended effects of air quality regulation, using plant data for 1963–92. A key regulatory tool since 1978 is the annual designation of county air quality attainment status. Nonattainment status triggers specific equipment requirements, with the severity and enforcement of regulations rising with plant size. The differential in regulation favors attainment areas, reducing births for polluting industries in nonattainment areas by 26–45 percent. Industries and sectors with bigger plants are affected the most, shifting industrial structure toward less regulated single‐plant firms. Large preregulation plants do benefit from grand‐fathering provisions, but both grandfathering and shifts to small‐scale new plants contribute to environmental degradation.