Regulation and pollution havens

One concern about environmental regulation is that "dirty" industries will simply move to less-regulated countries (so-called pollution havens). For example, metal smelting could move from the United States to China. If so, the United States would be cleaning up at the expense of China getting dirtier. Now if China were willing to put up with the pollution for faster economic growth, we might view the situation as win-win... assuming the Chinese decision-makers represent the interests of their people, more or less. But even under that rosy scenario, it's not necessarily win-win if some of the pollution has global impacts, such as greenhouse gas emissions. Then the United States still suffers from China's emissions.

If the pollution haven effect is empirically important, it should be the case that much of the reduction in pollution in, say, the United States, is the consequence of a shift in the composition of U.S. output away from dirty industries toward clean ones, with the dirty products now being produced abroad and imported. Contrary to this hypothesis, however, the evidence suggests that the lion's share of pollution reduction in the United States has occurred within industries, through changes in technique, as is shown quite elegantly in a new paper by Arik Levinson. (Access to the paper is by subscription, but you can view the abstract here.) As Levinson writes in his conclusion:

This simple exercise demonstrates a remarkable change over the past two decades. Air pollution emitted by US manufacturers has fallen by two-thirds, and that cleanup has almost entirely come from reductions in emissions intensity of each of the more than 400 industries that comprise the manufacturing sector rather than from shifts in the shares of those industries in overall manufacturing output – from technique rather than composition...

... the finding runs counter to perceptions about the effects of environmental cleanup in US manufacturing. While I don’t assess the cause of that cleanup here, one natural speculation would be that it has resulted from environmental regulations. If so, those regulations have not worked by reducing the share of polluting industries in the US manufacturing sector – driving those industries overseas or reducing consumption of those industries’ products. Instead, they have worked by reducing the emissions intensities on an industry-by-industry basis. That finding should be welcomed by anybody concerned that US regulations might appear to be succeeding, but only by reducing the menu of products available to American consumers or by shifting pollution from the US to other countries. The results here directly refute that concern.

In other words, while there are good reasons to be deeply concerned about pollution in China (and elsewhere), for the sake of both the Chinese and ourselves, concern that domestic environmental regulation is being nullified by global trade is probably misplaced. Which is good news.