Monday, February 11, 2008

Econ 260: Exporting Pollution

In class today, we discussed the case for exporting pollution. One question that naturally emerges from such a discussion is, how much of this is already occurring? Pollution levels in the US are significantly lower today than they used to be, are such reductions due to improved technology or the movement of polluting industries off shore?

Economist Arik Levenson addresses this very question and finds:

Over the past thirty years, while the real value of US manufacturing output has increased by more than 70 percent, the total annual air pollution emitted by US manufacturers declined substantially, by 58 percent for the sum of four common air pollutants.4

One explanation for the clean-up of US manufacturing is that the protesters are correct, and that thanks to freer trade, the US now imports polluting goods it once produced domestically, and concentrates domestic manufacturing on goods less likely to incur environmental regulatory costs. Of course, there is an alternative explanation: thanks to improved technology (cleaner fuels, end-of-pipe abatement, process changes, etc.) US manufacturers may now be able to produce more output using less pollution. Which of these explanations, trade or technology, accounts for the dramatic clean-up of US manufacturing pollution?


What is the bottom line? Increased net imports of polluting goods account for about 70 percent of the composition-related decline in US manufacturing pollution. The composition effect in turn explains about 40 percent of the overall decline in pollution from US manufacturing. Putting these two findings together, international trade can explain at most 28 percent of the clean-up of US manufacturing.

Why should we care?

If the 75% reduction in pollution from US manufacturing resulted from increased international trade, the pundits and protestors might have a case. Environmental improvements might be said to have imposed large, unmeasured environmental costs on the countries from which those goods are imported. And more importantly, the improvements in the US would not be replicable by all countries indefinitely, because the poorest countries in the world will never have even poorer countries from which to import their pollution-intensive goods. The US clean-up would simply have been the result of the US coming out ahead in an environmental zero-sum game, merely shifting pollution to different locations. However, if the US pollution reductions come from technology, nothing suggests those improvements cannot continue indefinitely and be repeated around the world. The analyses here suggest that most the pollution reductions have come from improved technology, that the environmental concerns of antiglobalization protesters have been overblown, and that the pollution reduction achieved by US manufacturing will replicable by other countries in the future

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