Daniel Xu from Duke University will present "The Geographical Leakage of Environmental Regulation: Evidence from the Clean Air Act"

Abstract: How large is geographic leakage resulting from place-based environmental policy? We study this question in the context of the landmark US Clean Air Act Amendments. Our paper makes three primary contributions. First, using modern event-study techniques and confidential US Census data, we revisit seminal results characterizing the effects of this environmental regulation on directly regulated plants and industries. Second, we extend prior research by quantifying leakage to unregulated regions and identifying multi-unit firm networks as a key conduit for this leakage. Third, we integrate these findings into an industry spatial equilibrium model that captures both within-firm and cross-location leakage. The model quantifies the economic cost of the regulation, evaluates the contribution of multi-unit firms to regional leakage, and highlights the role of the Clean Air Act in redistributing industrial production across the US. Our analysis reveals that approximately 40% of the geographic leakage we observe is driven by within-firm reallocation, highlighting the critical role of multi-unit firms in shifting economic activity across regions.