Does Mandatory Greenhouse Gas Reporting Lead to Pollution Shifting within the Firm?

Abstract

This paper studies whether firms shift some pollution from regulated reporting facilities to their non-reporting facilities after the US Greenhouse Gas Reporting Program (GHGRP). Using remotely sensed satellite data, I find that, after the disclosure mandate, PM 2.5 concentration dropped by 6% in areas with a large number of reporting facilities, but also increased by a similar level in areas with predominantly non-reporting facilities owned by GHGRP-exposed firms. My findings remain robust after considering other major PM sources, such as wildfires and vehicle emissions. In cross-sectional analyses, I document that the increase in pollution is more pronounced in counties with weaker regulatory constraints on pollution shifting and low socioeconomic communities. Finally, I provide some evidence for the broad societal impact of pollution shifting. Overall, pollution shifting increases local employment in the affected polluting sectors but does not deteriorate the death rate from respiratory diseases. This paper provides the first large-scale evidence of the effect of GHGRP on firms' polluting activities.

Keywords: Mandatory Carbon Disclosure, Air Pollution, Emission Leakage, Real Effects, Avoidance Strategy

JEL Classification: K32, L51, M14, M48, Q53, Q56