The Clean Air Act of 1970 helped standardise pollution limits across the United States. However, individual politicians may still influence industrial emissions in their districts, according to a new multi-institutional study involving researchers at Penn State.

Industrial plants in districts narrowly won by Democrats had about 30% lower emissions on average than plants in districts narrowly won by Republicans, researchers found. The team analysed 37,368 industrial plants and 5,304 U.S. House elections between 1991 and 2016. The study was published in the September print edition of The Review of Financial Studies.

“Firms have a lot more control over their emissions than we think,” said co-author Stefan Lewellen, assistant professor of finance at Penn State’s Smeal College of Business. He said the findings suggest that even the “soft power” exercised by local representatives may significantly influence how much pollution firms produce.

Plants can reduce emissions in several ways, including investing in pollution-control technologies such as wet scrubbers, increasing postproduction treatment and recycling, or reducing production. The researchers found 47% higher investment in abatement technologies in Democratic districts, along with greater use of postproduction treatment and recycling. However, they found no major differences in plant productivity.

The researchers focused much of their analysis on closely contested elections, where voters’ overall environmental preferences would be expected to be relatively similar regardless of which party narrowly won. They found that close Democratic victories were associated with about 34% more inspections and roughly 30% more enforcement actions. Most were informal measures, such as cease-and-desist letters, rather than fines or formal investigations.

Although members of Congress have limited direct control over environmental enforcement, which often occurs at state and local levels, the researchers said representatives may exert influence behind the scenes. For example, politicians could encourage regulators to conduct more inspections or pursue stronger enforcement. Such informal influence is difficult to observe directly, making patterns in inspections, enforcement and emissions important indicators.

The study also found evidence that companies operating plants in multiple congressional districts shifted emissions away from Democratic-represented areas. But this reallocation appeared to carry financial consequences. Increasing a firm’s share of Democratic representatives from zero to one was associated with about a 4% increase in the cost of goods sold and a similar decline in its market-to-book ratio, a measure commonly used in assessing firm value.

The researchers also examined respiratory illness and healthcare costs. In areas with many industrial plants, districts represented by Republicans had a 7% to 8% higher incidence of respiratory illnesses and 7% to 13% higher healthcare costs for respiratory-related hospital visits than those represented by Democrats. They estimated that each Democrat-to-Republican House seat transition was associated with 67 additional hospital visits costing approximately $628,000 annually. Lewellen said the findings suggest that politicians’ preferences, alongside formal laws and regulations, can play an important role in shaping environmental and public health outcomes.

More information: Emilio Bisetti et al, Smokestacks and the Swamp, Review of Financial Studies. DOI: 10.1093/rfs/hhag039

Journal information: Review of Financial Studies Provided by Penn State