Environmental regulations, industrial R&D, and reduction in toxic emissions: the interplay of the public and private sectors to achieve sustainable manufacturing production

This paper provides theory and evidence about how the public sector’s environmental regulation stimulates the private sector’s investment in research to develop new technologies that reduce toxic releases and waste and achieve more sustainable manufacturing production. The paper studies the two decades from 1992 to 2012 and introduces the empirical and conceptual distinction between anticipatory and post-regulation R&D. The paper uses original surveys of US manufacturing firms in 1992 and 2001 with a Tobit model of R&D and a Probit selection model to estimate emissions-reducing anticipatory and post-regulation R&D for NAICS 3-digit manufacturing subsectors. IV regression estimates the R&D’s effect on emissions reduction and finds that an increase in post-regulation R&D intensity of 0.1% causes about a 6% reduction in toxic releases and about a 10% reduction in toxic waste.