Unintended Environmental Consequences of Investment Stimulus Policy

We study the unintended environmental consequences of “bonus depreciation,” one of the largest investment tax incentives in US history. To do so, we pair emissions data from the EPA’s Toxic Release Inventory and National Emissions Inventory with quasi-experimental policy variation in the extent to which establishments benefited from the policy. Differences-in-differences estimates show bonus depreciation increased annual emissions by 30%. To quantify aggregate damages associated with the policy, we integrate our estimates into a pollution transport model. We estimate overall environmental damages at between $17 and 39 billion per year, which represents between 56 and 125% of the policy’s annual fiscal cost. Damages differ by race and were 75% higher for African Americans compared to the national average. We document that the magnitude of the aggregate damages we estimate is due primarily to bonus depreciation’s unintentional targeting of the most emissions-intensive industries. We show that alternative policies can stimulate the same amount of investment at a fraction of the environmental costs.

Speaker: Eric Ohrn, Grinnell College

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