We develop a framework to estimate the marginal cost of air pollution regulation and apply it to assess policy efficiency. We exploit a provision of the Clean Air Act that requires new plants to pay incumbent facilities to reduce emissions. This “offset” policy creates hundreds of local pollution markets, differing by pollutant and location. Theory and transaction data suggest that offset prices reveal marginal abatement costs. We compare these prices to marginal benefits of pollution reduction estimated using leading air quality models and find that, on average, marginal benefits exceed marginal costs by more than a factor of ten.

Between 1990 and 2008, air pollution emissions from US manufacturing fell by 60 percent despite a substantial increase in manufacturing output. We show that these emissions reductions are primarily driven by within-product changes in emissions intensity rather than changes in output or in the composition of products produced. We then develop and estimate a quantitative model linking trade with the environment to better understand the economic forces driving these changes. Our estimates suggest that the implicit pollution tax that manufacturers face doubled between 1990 and 2008. These changes in environmental regulation, rather than changes in productivity and trade, account for most of the emissions reductions.

The demand for air quality depends on health impacts and defensive investments, but little research assesses the empirical importance of defenses. A rich quasi-experiment suggests that the Nitrogen Oxides (NO x ) Budget Program (NBP), a cap-and-trade market, decreased NO x emissions, ambient ozone concentrations, pharmaceutical expenditures, and mortality rates. The annual reductions in pharmaceutical purchases, a key defensive investment, and mortality are valued at about $800 million and $1.3 billion, respectively, suggesting that defenses are over one-third of willingness-to-pay for reductions in NO x emissions. Further, estimates indicate that the NBP's benefits easily exceed its costs and that NO x reductions have substantial benefits.

This paper combines panel data on monthly mortality rates of US states and daily temperature variables for over a century (1900-2004) to explore the regional evolution of the temperature-mortality relationship and documents two key findings. First, the impact of extreme heat on mortality is notably smaller in states that more frequently experience extreme heat. Second, the difference in the heat-mortality relationship between hot and cold states declined over 1900-2004, though it persisted through 2004. Continuing differences in the mortality consequences of hot days suggests that health motivated adaptation to climate change may be slow and costly around the world.