The Effect of Environmental Regulation on Plant-Level Product Mix: A Study of EPA's Cluster Rule

51 Pages Posted: 19 Oct 2013

See all articles by Aaron Elrod

Aaron Elrod

Sewanee: The University of the South

Arun S. Malik

George Washington University - Department of Economics

Date Written: October 18, 2013

Abstract

This paper examines the effect of the U.S. Environmental Protection Agency’s Cluster Rule on the product-mix decisions of plants in the pulp, paper, and paperboard industries. The Cluster Rule combines regulatory requirements from the Clean Air Act and Clean Water Act, and calls for affected plants to alter their production process away from chlorine-based bleaching agents. In addition to, or in place of, adopting a cleaner technology, plants may plausibly comply with the regulation by reducing output of bleached products or dropping some of these products entirely. Using a difference-in-difference-in-differences approach, we find evidence that plants facing both air and water Cluster Rule regulation (treatment group) are more likely to drop bleached products relative to unbleached products compared to plants facing only air Cluster Rule regulation (control group). Furthermore, we find evidence that plants in the control group alter their product mixes toward bleached products.

Keywords: environmental regulation, plant-level product mix, Cluster Rule, difference-in-differences, pulp and paper

JEL Classification: L11, L51, L69, Q53

Suggested Citation

Elrod, Aaron and Malik, Arun S., The Effect of Environmental Regulation on Plant-Level Product Mix: A Study of EPA's Cluster Rule (October 18, 2013). Available at SSRN: https://ssrn.com/abstract=2342179 or http://dx.doi.org/10.2139/ssrn.2342179

Aaron Elrod (Contact Author)

Sewanee: The University of the South ( email )

735 University Ave.
Sewanee, TN 37383-1000
United States

Arun S. Malik

George Washington University - Department of Economics ( email )

Monroe Hall, Suite 340
2115 G Street, NW
Washington, DC 20052
United States

HOME PAGE: http://home.gwu.edu/~amalik/

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