Does industry self-regulation reduce pollution? Responsible Care in the chemical industry

Self-regulation programs, in which industry associations set membership codes beyond government regulations, are prevalent despite scarce evidence on their effectiveness. We examine Responsible Care (RC) in the US chemical manufacturing sub-sector, whose membership codes include pollution prevention, using our author-constructed panel database of 3,278 plants owned by 1,759 firms between 1988 and 2001. We apply two sets of instrumental variables to address a plant’s parent firm’s self-selection into the program, using: (i) the characteristics of other plants belonging to the same firm in our multi-plant sample; and (ii) firm participation in the industry association before the establishment of RC and industry-level RC participation in our full sample. We find that on average, plants owned by RC participating firms raise their toxicity-weighted pollution by 15.9% relative to statistically-equivalent plants owned by non-RC participating firms. This estimated increase is large relative to the yearly 4% reduction in pollution among all plants in our sample between 1988 and 2001. Moreover, RC raises plant-level pollution intensity by 15.1%. These results caution against reliance on self-regulation programs modeled on the pre-2002 RC program that did not require third party certification and in those sectors that lack independent third party certification.