Two birds, one stone? Local pollution regulation and greenhouse gas emissions

Highlights: • Greenhouse gases may be complements or substitutes with local pollutants. • We empirically estimate this relationship in the US non-energy sector. • We use new data from the US Greenhouse Gas Reporting Program. • We find that increased local pollutant regulation does not change GHG emissions. -- Abstract: In most countries, environmental regulation focuses on local pollution, which causes damages near the emission source, while regulation on global pollutants such as greenhouse gases (GHGs) has been slow. Theoretically, local and global pollutants can either be substitutes or complements in production. A firm's response to local pollution regulation can lead greenhouse gas emissions to decrease if the firm switches energy source from oil to natural gas, or to increase if it reduces the temperature of a natural gas-fired boiler, which causes NOx emissions to fall but CO₂ emissions to rise. Consequently, local pollution regulation may either intensify or reduce global warming concerns. We exploit new data on US GHG emissions and variation in local pollution regulation across US counties to estimate this relationship. We find no evidence that more stringent local pollution regulation changes GHG emissions from the non-energy sectors. The lack of a statistically detectable effect cannot be explained by a decrease in production or by firms switching production to less regulated countries, and it is true on aggregate as well as for individual polluting industries, though in some instances the coefficients are not precisely estimated. Therefore, local pollution regulation is unlikely to suffice to address global warming.