High priority violations and intra-firm pollution substitution

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We examine the sign and the magnitude of pollution leakage associated with the High Priority Violations Policy (HPVP) under the Clean Air Act. Using 46,012 facility-year observations for 7947 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 35–56 percent (3600 to 6000 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, concurrently 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 private parent companies. We also find that substitution of pollution from a sister facility under violation increases the risk of violation among currently compliant facilities.