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By Mahelet G Fikru, Missouri University of Science and Technology and Jennifer Brodmann, California State University, Dominguez Hills 

How much pollution a facility engaged in production or resource extraction emits isn’t just based on its location, its industry or the type of work it does. That’s what our team of environmental and financial economists found when we examined how corporate characteristics shape pollution emissions.

Pollution emissions rates also vary with specific characteristics of the company that owns the facility – such as how many patents it holds, how profitable it is and how many employees it has, according to an analysis we have conducted of corporate pollution data.

We found that industrial and mining facilities owned by profitable companies with relatively few patents and fewer employees tend to release higher proportions of their toxic waste into the environment – into the air, into water or onto soil.

By contrast, industrial sites owned by unprofitable companies with higher levels of innovation and more personnel tend to handle higher proportions of their toxic waste in more environmentally responsible ways, such as processing them into nontoxic forms or recycling them, or burning them to generate energy.

Corporations publish their pollution data

A 1986 federal law requires companies that are in certain industries, employ more than 10 people and make, use or process significant amounts of certain toxic or dangerous chemicals to tell the government where those chemicals go after the company is done with them.

That data is collected by the U.S. Environmental Protection Agency in a database called the Toxics Release Inventory. That data includes information about the companies, their facilities and locations, and what they do with their waste chemicals.

The goal is not only to inform the public about which dangerous chemicals are being used in their communities, but also to encourage companies to use cleaner methods and handle their waste in ways that are more environmentally responsible.

Overall, U.S. companies reported releasing to the environment 3.3 billion pounds of toxic chemicals (1.5 billion kg) in 2023, a 21% decrease from 2014. The decline reflects increased waste management, adoption of pollution prevention and cleaner technologies, in addition to the fact that disclosure requirements motivate companies to reduce releases.

The 2023 releases came from over 21,600 industrial facilities in all 50 states and various U.S. territories, including Puerto Rico, the U.S. Virgin Islands, Guam and American Samoa. One-fifth of the facilities reporting toxic releases in 2023 were in Texas, Ohio and California.

What kinds of businesses release toxic pollution?

Metal mining, chemical manufacturing, primary metals, natural gas processing and electric utilities represent the top five polluting industrial sectors in the U.S. Combined, businesses in those sectors accounted for 78% of the toxic chemicals released in 2023.

Research has found that, often, higher levels of toxic chemical releases come from industrial facilities in less populated, economically disadvantaged, rural or minority communities.

But geography and population are not the whole story. Even within the same area, some facilities pollute a lot less than others. Our inquiry into the differences between those facilities has found that corporate characteristics matter a lot – such as operational size, innovative capacity and financial strength.

In our analysis, we combined the data companies reported to the EPA about toxic chemical releases with financial information on those companies and ZIP-code level geographic and demographic data. We found that corporate characteristics like profitability, employment size and number of patents are more strongly connected with toxic chemical releases than a community’s population density, minority-group percentage or household income.

We looked at what percentage of its toxic chemical waste a facility or mine released to the environment versus how much it treated, recycled or incinerated.

The average facility in our sample, which included 1,976 facilities owned by companies for which financial data is available, released about 39% of its toxic chemical waste to the environment, whether to air, water or land – with the remaining 61% of it managed through recycling, treatment or energy recovery either on-site or off-site.

But facilities in different industries have different release rates. For example, about 99% of toxic chemicals from coal mines are released to the environment, compared with 81% for natural gas extraction, recovery and processing; 25% for power-generating electric utilities; and less than 3% for electrical equipment manufacturers.

The role of innovation

One corporate attribute we examined was innovation, which we measured by counting corporations’ patent families, which are groups of patent documents related to the same invention, even if they are filed in different countries. We found that companies with more patent families tend to release less of their toxic waste to the environment.

Specifically, facilities owned by the top 25% of companies, when rated by innovation, released an average of 32.5% of their toxic waste to the environment, which is 8 percentage points lower than the average of facilities owned by the remaining companies in the sample.

We hypothesize that innovation may give firms a competitive advantage that also enables them to adopt cleaner production technologies or invest in more environmentally conscious methods of handling waste containing toxic chemicals, thereby preventing toxic chemicals from being directly released to the environment.

Size and profitability matter, too

We also looked at companies’ size – in terms of number of employees – and their profitability, to see how those connected with pollution rates at the facilities the company owns.

We found that larger companies, those with more than 19,000 employees, own facilities that release an average of 31% of their toxic chemical waste to the environment. By contrast, facilities owned by midsized companies, from 1,000 to 19,000 workers, release 45%, on average. Those owned by smaller companies, with less than 1,000 employees, release an average of 42% of their toxic chemical waste to the environment.

An important note is that those larger companies, which are more likely to have multiple locations, often own facilities that handle larger volumes of chemicals. So even if they release smaller proportions of their toxic waste to the environment, that may still add up to larger quantities.

We also found that industrial facilities owned by profitable firms have higher average rates of releasing toxic chemicals to the environment than those owned by unprofitable companies.

Facilities owned by companies with positive net income, according to their income statements obtained from PitchBook, a company that collects data on corporations, released an average of 40% of their toxic-chemical-containing wastes to the environment. Facilities owned by companies with negative net income released an average of 31% of their toxic chemical waste to the environment. To us, that indicates that financially strong companies are not necessarily more environmentally responsible. That may be evidence that profitable firms make money in part by contaminating the environment rather than paying for pollution prevention or cleanup.

Our analysis shows that geography and demographics alone do not fully account for industries’ and facilities’ differing levels of pollution. Corporate characteristics are also key factors in how toxic waste is handled and disposed of.

About the Authors:

Mahelet G Fikru, Professor of Economics, Missouri University of Science and Technology and Jennifer Brodmann, Associate Professor of Accounting, Finance and Economics, California State University, Dominguez Hills

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By Antonio Navas, University of Sheffield 

What makes some countries rich and others poor? Is there any action a country can take to improve living standards for its citizens? Economists have wondered about this for centuries. If the answer to the second question is yes, then the impact on people’s lives could be staggering.

This year’s Sveriges Riksbank Prize in Economic Sciences (commonly known as the Nobel prize for economics) has gone to three researchers who have provided answers to these questions: Philippe Aghion, Peter Howitt and Joel Mokyr.

For most of human history, economic stagnation has been the norm – modern economic growth is very recent from a historical point of view. This year’s winners have been honoured for their contributions towards explaining how to achieve sustained economic growth.

At the beginning of the 1980s, theories around economic growth were largely dominated by the works of American economist Robert Solow. An important conclusion emerged: in the long-run, per-capita income growth is determined by technological progress.

Solow’s framework, however, did not explain how technology accumulates over time, nor the role of institutions and policies in boosting it. As such, the theory can neither explain why countries grow differently for sustained periods nor what kind of policies could help a country improve its long-run growth performance.

It’s possible to argue that technological innovation comes from the work of scientists, who are motivated less by money than the rest of society might be. As such, there would be little that countries could do to intervene – technological innovations would be the result of the scientists’ own interests and motivations.

But that thinking changed with the emergence of endogenous growth theory, which aims to explain which forces drive innovation. This includes the works of Paul Romer, Nobel prizewinner in 2018, as well as this year’s winners Aghion and Howitt.

These three authors advocate for theories in which technological progress ultimately derives from firms trying to create new products (Romer) or improve the quality of existing products (Aghion and Howitt). For firms to try to break new ground, they need to have the right incentives.

Creative destruction

While Romer recognises the importance of intellectual property rights to reward firms financially for creating new products, the framework of Aghion and Howitt outlines the importance of something known as “creative destruction”.

This is where innovation results from a battle between firms trying to get the best-quality products to meet consumer needs. In their framework, a new innovation means the displacement of an existing one.

In their basic model, protecting intellectual property is important in order to reward firms for innovating. But at the same time, innovations do not come from leaders but from new entrants to the industry. Incumbents do not have the same incentive to innovate because it will not improve their position in the sector. Consequently, too much protection generates barriers to entry and may slow growth.

But what is less explored in their work is the idea that each innovation brings winners (consumers and innovative firms) and losers (firms and workers under the old, displaced technology). These tensions could shape a country’s destiny in terms of growth – as other works have pointed out, the owners of the old technology may try to block innovation.

This is where Mokyr complements these works perfectly by providing a historical context. Mokyr’s work focuses on the origins of the Industrial Revolution and also the history of technological progress from ancient times until today.

Mokyr noted that while scientific discoveries were behind technological progress, a scientific discovery was not a guarantee of technological advances.

It was only when the modern world started to apply the knowledge discovered by scientists to problems that would improve people’s lives that humans saw sustained growth. In Mokyr’s book The Gifts of Athena, he argues that the Enlightenment was behind the change in scientists’ motivations.

In Mokyr’s works, for growth to be sustained it is vital that knowledge flows and accumulates. This was the spirit embedded in the Industrial Revolution and it’s what fostered the creation of the institution I am working in – the University of Sheffield, which enjoyed financial support from the steel industry in the 19th century.

Mokyr’s later works emphasise the key role of a culture of knowledge in order for growth to improve living standards. As such, openness to new ideas becomes crucial.

Similarly, Aghion and Howitt’s framework has become a standard tool in economics. It has been used to explore many important questions for human wellbeing: the relationship between competition and innovation, unemployment and growth, growth and income inequality, and globalisation, among many other topics.

Analysis using their framework still has an impact on our lives today. It is present in policy debates around big data, artificial intelligence and green innovation. And Mokyr’s analysis of how knowledge accumulates poses a central question around what countries can do to encourage an innovation ecosystem and improve the lives of their citizens.

But this year’s prize is also a warning about the consequences of damaging the engines of growth. Scientists collaborating with firms to advance living standards is the ultimate elixir for growth. Undermining science, globalisation and competition might not be the right recipe.

About the Author:

Antonio Navas, Senior Lecturer in Economics, University of Sheffield

This article is republished from The Conversation under a Creative Commons license. Read the original article.