Increasing Enforcement to Reduce Pollution

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Research finds decreased pollution after agencies take enforcement actions.

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Do penalties for pollution violations significantly impact pollution compliance in the private sector?  According to Wayne Gray, an economics professor at Clark University, the answer is definitely yes.

In a recent paper co-authored with Jay Shimshack of Tulane University, Gray argues that enforcement and monitoring activities by the government generate substantial deterrence.  He notes that firms that have previously been targeted for alleged violations by the government are substantially less likely to engage in future violations.  For example, he cites a study in which researchers found that steel mills that were subjected to Environmental Protection Agency (EPA) enforcement activity during the prior two years were thirty-two percent more likely to comply with environmental regulations than other mills.

In addition, Gray suggests that enforcement and monitoring can create a general deterrent effect within a particular industry.  He posits that regulatory action aimed at one facility can have a “spillover” effect that increases environmental compliance at other facilities and can influence responses to future regulations.

Gray also notes that enforcement could even lead to over-compliance, or reductions below currently legal levels.  He points to research demonstrating that EPA actions can cause plants whose discharges are generally below legally permitted levels to decrease their pollution even further.  The study also found that non-compliant plants are likely to reduce their discharges well below permitted levels in reaction to sanctions on similar firms.

Gray concludes that regulators could improve environmental compliance by making “incremental investments” in environmental monitoring and enforcement activities, particularly when environmental standards are not unreasonably stringent and enforcement costs are low.