Abatement Spending Research Articles

Can public debt mitigate environmental debt? Theory and empirical evidence

This paper investigates the relationship between public debt and environmental debt—reflecting CO2 carbon concentration. First, using an endogenous growth model in which pollution abatement spending can be financed by public debt, we show that public debt and environmental debt are complementary in the long run and usually substitutes in the short run. Second, these predictions are empirically confirmed: in particular, a 1% increase in the public debt ratio leads to an increase of 0.74% in cumulative CO2 per capita in the long run. Our findings emphasize the difficulty of defining policies that jointly serve both the economic (fiscal) and the environmental goals, due to the short- and long-run conflicting environmental effects of policies that either reduce or do not constrain public debt.

Choice of environmental policy instruments and welfare in middle-income countries: the case of Cote d'Ivoire

The purpose of this paper is to determine among pollution taxes, rules and combination of rules-taxes instrument, one that allows increasing welfare in MICs that face economic and environmental shocks. To do this, we used a dynamic stochastic general equilibrium (DSGE) model whose parameters are estimated on the Ivoirian economy by the Bayesian method. Results of welfare comparison under three regimes show, on the one hand, that when public abatement spending is effective, welfare under pollution taxes is higher than pure rules if shocks are strong. But when rules are combined with output taxes for public clearance spending (mixed instrument), welfare under this mixed instrument becomes better than pollution taxes regardless of the type of shock. On the other hand, when the government intervention is inefficient, welfare under pollution taxes is almost equivalent to pure rules but remains lower than the mixed instrument.

Choice of environmental policy instruments and welfare in middle-income countries: the case of Cote d'Ivoire

The purpose of this paper is to determine among pollution taxes, rules and combination of rules-taxes instrument, one that allows increasing welfare in MICs that face economic and environmental shocks. To do this, we used a dynamic stochastic general equilibrium (DSGE) model whose parameters are estimated on the Ivoirian economy by the Bayesian method. Results of welfare comparison under three regimes show, on the one hand, that when public abatement spending is effective, welfare under pollution taxes is higher than pure rules if shocks are strong. But when rules are combined with output taxes for public clearance spending (mixed instrument), welfare under this mixed instrument becomes better than pollution taxes regardless of the type of shock. On the other hand, when the government intervention is inefficient, welfare under pollution taxes is almost equivalent to pure rules but remains lower than the mixed instrument.

Optimal fiscal policy with environmental tax and pollution abatement spending in a model with utility-enhancing environmental quality: lessons from Bulgaria

ABSTRACTThis paper characterized optimal fiscal policy in the presence of pollution, and evaluated it relative to the observed one in Bulgaria. To this end, a dynamic general-equilibrium model is calibrated to Bulgarian data. The main findings are: (i) The optimal steady-state income tax rate is zero; (ii) the benevolent Ramsey planner provides 20% higher utility-enhancing environmental quality; (iii) the optimal level of carbon taxes is almost three times higher, and the optimal level of abatement spending is six times higher; (iv) the optimal steady-state consumption tax is twice lower.

Public vs. Private Firms: Energy Efficiency, Toxic Emissions and Abatement Spending

We examine the effect of firm ownership status on three environmentally relevant variables: energy efficiency, toxic emissions and spending on pollution abatement. Prior research has demonstrated that public firms invest less than private firms and suggests this difference is due pressure from investors to strongly favor short over long-term earnings. We extend this logic to other firm behavior, examining whether publicly owned facilities invest in energy efficiency and pollution reduction differently than privately owned facilities. Using data from the US Census of Manufactures from 1980-2009, information on pollution from the EPA Toxic Release Inventory (TRI) and pollution abatement spending from the PACE survey, we find that facilities switching to public ownership are less energy efficient and spend less on pollution abatement than their privately owned counterparts. However, we also find that facilities switching to public ownership have lower toxic emissions than other facilities. We also examine how different sources of external pressures alter these results and find that increased regulatory scrutiny is correlated with increased energy efficiency, toxic emissions and abatement spending. More concentrated institutional ownership in public firms is associated with lower energy efficiency as is a greater brand focus. These latter results are broadly consistent with the idea that publicly owned firms respond to pressures from investors with a reduced focus on environmentally relevant variables. However, since facilities switching to public ownership have lower toxic emissions, this suggests that there are two competing pressures in publicly owned facilities: cost pressures, consistent with lowered energy efficiency, and public perceptions, consistent with lower toxic emissions, particularly since TRI data became available. In this sense, the combination of ownership and transparency of information appears to influence how firms prioritize different stakeholders.

Fiscal decentralization and environmental pollution: Evidence from Chinese panel data

China's environmental pollution casts a shadow on its economic success. Concerning fiscal decentralization, China introduced the rule-based tax assignment system in 1994. To avoid the structural change in underlying fiscal regimes, we use the provincial panel data during the period 1995–2010. We find that fiscal decentralization has no significant effect on environmental pollution as it is measured per capita emission of wastewater, waste gas or solid waste in system GMM (Generalized method of moments) estimation. Our results are robust when we use different measures of fiscal decentralization. We further find that fiscal decentralization has a significant, positive effect on pollution abatement spending and pollutant discharge fees, which indicates possible mechanisms for fiscal decentralization to help protect the environment.

"Public Vs. Private Firms: Energy Efficiency, Toxic Emissions And Abatement Spending"

In this paper, we examine the effect of ownership status on three environmentally relevant variables: energy efficiency, toxic emissions and spending on pollution abatement. Prior research has demonstrated that public firms invest less than private firms and suggests this difference in investment behavior is due to ‘short-termism’ - pressure from capital markets to strongly favor short over long term earnings. We extend this logic to other firm behavior, examining whether publicly owned plants invest in energy efficiency and pollution reduction differently than privately owned plants. Using data from the US Census of Manufactures from 1980-2009, linked with information on pollution from the EPA Toxic Release Inventory (TRI) and pollution abatement spending from the PACE survey, we find some evidence that publicly owned plants are less energy efficient, release more toxic emissions and spend less on pollution abatement than their privately owned counterparts. We also examine how different sources of external pressures alter these results and find that increased regulatory scrutiny is correlated with increased energy efficiency, toxic emissions and abatement spending. More concentrated institutional ownership in public firms is associated with lower energy efficiency as is a greater brand focus. These latter results are broadly consistent with the idea that publicly owned firms respond to pressures from capital markets with a reduced focus on environmentally relevant variables.

Does activism matter? The case of environmental policy in the US states

Purpose – The purpose of this paper is to examine the role of activism in determining the identity of the “green” median voter and the influence of the green voter on environmental regulatory stringency in the US states. Design/methodology/approach – Regulatory stringency is measured using output weighted abatement spending and an industry concentration adjusted index of state environmental compliance costs for the period 1989-1994. Activism measures include environmental initiatives, median support for pollution standards and voter ideology. Fixed-effects panel methodology is used in empirical estimation. Findings – The authors find that activism increases stringency in regulating overall as well as media-specific pollution. The results particularly highlight the nuances of different approaches to activism and their varied impact across pollution media. Research limitations/implications – A drawback of the empirical estimation is the lack of continuous historical abatement spending data. A longer panel with alternative stringency measure(s) would add explanatory power to activism, especially since some activism measures capture slow-changing institutional factors. Social implications – The study identifies the conditions under which activism can have the most impact on a society's environmental outcomes since pollution varies in damages, hence abatement costs, across pollution media. Originality/value – The paper adds to the existing literature by incorporating three alternative measures of environmental activism to systematically investigate its impact on environmental stringency within a fixed-effects regression design. It also promotes a deeper understanding of the efficacy of the activism process by deconstructing policy stringency across pollution media to show that activism and its impacts are more nuanced than previously studied.

Environmental Regulation, Abatement, and Productivity: A Frontier Analysis

This research studies the link between environmental regulation and plant level productivity in two U.S. manufacturing industries: pulp and paper mills and oil refineries using Data Envelopment Analysis (DEA) models. Data on abatement spending, emissions and abated emissions are used in different DEA models to study plant productivity outcomes when accounting for abatement spending or emissions regulations. Results indicate that pulp and paper mills and oil refineries in the U.S. suffered decreases in productivity due to pollution abatement activities from 1974 to 2000. These losses in productivity are substantial but have been slowly trending downwards even when the regulations have tended to become more stringent and emission of pollutants has declined suggesting that the best practice has shifted over time. Results also show that the reported abatement expenditures are not able to explain all the losses arising out of regulation suggesting that these abatement expenditures are consistently under-reported.

Environmental policies, public abatement spending and the timing of emission reductions

Four environmental policy options for the reduction of pollution emissions, i.e. taxes, emission standards, auctioned permits and freely allocated permits, are analyzed in a real option model. The amount of emissions is determined by solving the firm's profit maximization problem under each policy instrument. The regulator solves an optimal stopping problem in order to find the critical threshold for policy adoptions taking into account revenues from taxes and auctioned permits and government abatement spending. We find that standards are preferred to freely allocated permits if the output demand is elastic. Taxes and auctioned permits are equivalent in terms of their adoption lag and social welfare; however, through simulations, we show that these are less preferred than emission standards and freely allocated permits.

Abatement, Care, and Compliance by Firms in Financial Distress

We examine precautionary behavior, specifically compliance with environmental regulations, pollution abatement, and care spending, by firms facing two sources of insolvency risk. If poor profit or a realized environmental liability triggers insolvency, then the firm forgoes a profitable future. The behavioral implications of the survival motive vary across firms. Firms for whom the principal insolvency risk is liability-related liability choose supra-optimal precaution, even though these firms would have otherwise chosen suboptimal precaution. For other firms, whose primary insolvency risk is profit-related, the survival motive reinforces incentives for suboptimal precaution arising from the familiar judgment-proof effect. We characterize how insolvency risks affect not only these ex ante precautionary decisions, but also the incentive for a firm to conceal adverse events linked to these choices, such as an accident or a regulatory violation. An understanding of these incentives, and their potential implications for environmental quality, is particularly important during recessionary periods when firms struggle to survive the downturn.

On coordinating environmental policy and technology policy

Environmental and technology policies are generally administered by different government agencies and there seems to be little apparent coordination between the two bodies. This paper examines the consequences of independent actions by environmental and technology policy agencies on the behavior of a private monopolist. The current production technology generates pollution. The monopolist invests in R&D to possibly invent a new pollution-free technology. The government tries to control pollution externalities by imposing a per unit tax and it also provides a research subsidy. We find that pollution taxes are effective in reducing emissions only under certain circumstances. These taxes can, under certain circumstances, boost research spending. Existing tax levels seem to be a crucial determinant of the effectiveness of further tax increases. Higher research subsidies, on the other hand, unambiguously boost research spending and output (and consequently, emissions). Empirical evidence from OECD countries supports the complementarity between public and private research. However, our results do not show a statistically significant relation between government R&D outlays and pollution abatement spending, suggesting that in practice environmental and technology policies seem to not be coordinated. Policy implications are discussed.

What Determines Environmental Performance at Paper Mills? The Roles of Abatement Spending, Regulation, and Efficiency

Abstract This paper examines the determinants of environmental performance at paper mills, measured by air pollution emissions per unit of output. We consider differences across plants in air pollution abatement expenditures, local regulatory stringency, and productive efficiency. Emissions are significantly lower in plants with a larger air pollution abatement capital stock: a 10 percent increase in abatement capital stock appears to reduce emissions by 6.9 percent. This translates into a sizable social return: one dollar of abatement capital stock is estimated to provide an annual social return of about 75 cents in pollution reduction benefits. Local regulatory stringency and productive efficiency also matter: plants in non-attainment counties have 43 percent lower emissions and plants with 10 percent higher productivity have 2.5 percent lower emissions. For pollution abatement operating costs we find (puzzlingly) positive, but always insignificant, coefficients.

The Market Valuation of Environmental Capital Expenditures by Pulp and Paper Companies

The objective of this study is to examine the market valuation of environmental capital expenditure investment related to pollution abatement in the pulp and paper industry. The total environmental capital expenditure of $8.7 billion by our sample firms during 1989–2000 supports the focus on this industry. In order to be capitalized, an asset should be associated with future economic benefits. The existing environmental literature suggests that investors condition their evaluation of the future economic benefits arising from environmental capital expenditure on an assessment of the firms' environmental performance. This literature predicts the emergence of two environmental stereotypes: low-polluting firms that overcomply with existing environmental regulations, and high-polluting firms that just meet minimal environmental requirements. Our valuation evidence indicates that there are incremental economic benefits associated with environmental capital expenditure investment by low-polluting firms but not high-polluting firms. We also find that investors use environmental performance information to assess unbooked environmental liabilities, which we interpret to represent the future abatement spending obligations of high-polluting firms in the pulp and paper industry. We estimate average unbooked liabilities of $560 million for high-polluting firms, or 16.6 percent of market capitalization.

Optimal Environmental Charges/Taxes: Easy to Estimate and Surplus-Yielding

The estimation of the optimal charges/taxes on environmental disruption and the financing of the spending on the abatement of environmental disruption are important practical problems. This paper shows that, for most cases where some abatement is desirable, both the estimation and the financing problems may be easily solved. It is desirable to charge disruption (at least) at the marginal cost of abatement (which is easier to estimate than the marginal damage of disruption) and such a charge will normally yield total revenue in excess of the amount of abatement spending.

Optimal Environmental Charges/Taxes: Easy to Estimate and Surplus-yielding

The estimation of the optimal charges/taxes on environmental disruption and the financing of the spending on the abatement of environmental disruption are important practical problems. This paper shows that, for most cases where some abatement is desirable, both the estimation and the financing problems may be easily solved. It is desirable to charge disruption (at least) at the marginal cost of abatement (which is easier to estimate than the marginal damage of disruption) and such a charge will normally yield total revenue in excess of the amount of abatement spending.