Leakage from Environmental Regulation: Evidence from Used Vehicle Trade and Smog Check

National Bureau Of Economic Research Inc, Cambridge MA

Investigators

Abstract

This research studies the extent to which environmental regulation moves economic activity and associated pollution from regulated to unregulated regions and leads to scrap of economically valuable assets. The project also creates a public good for research by compiling and making publicly available an unusually large dataset recording smog check tests of individual vehicles from many of the states which operate "smog check" inspection and maintenance programs and which have available records. The potential existence of "leakage" of pollution from regulated to unregulated areas is a widely-bemoaned consequence of having regulation cover some regions and not others. Leakage suggests that regulation is merely relocating pollution rather than reducing economy-wide emissions. This research analyzes leakage in an important and understudied setting, passenger transportation. Passenger vehicles contribute a substantial share of total U.S. pollution emissions but efficient and effective regulation of emissions from passenger transportation has proven difficult. The analysis studies how emissions inspection and maintenance programs - the centerpiece of the Clean Air Act's regulation for transportation - affect both the trade of dirty vehicles from regulated to unregulated counties and vehicle scrap decisions. The analysis also quantifies the extent to which vehicle trade caused by smog check regulations moves emissions to regions where pollution has relatively lower environmental damages. The research design exploits variation in vehicle inspection stringency mandated by the 1990 Clean Air Act Amendments. The project data allow the researchers to track where all used vehicles are traded within the entire United States at different points in time. The results will inform scholars and policymakers about the importance of emissions leakage in the regulation of mobile source air pollutants and the potential consequences of administering regulation at local versus state or federal levels.