Does Plant Ownership Affect The Level Of Pollution Abatement Expenditure

effects on industry-wide or general manufacturing sector productivity, as a direct consequence of suchincreasing FO firm penetration.The principal findings of this particular study are t

Does Plant Ownership Affect The Level Of Pollution

Abatement Expenditure?

Alan Collins Department of Economics, University of Portsmouth, Locksway Road, Milton, Southsea, Hampshire,

PO4 8JF, U.K

Email: alan.collins@port.ac.ukRichard I.D.HarrisDepartment of Economics and FinanceUniversity of Durham, UK

Abstract

This paper considers a number of hypotheses Primarily amongst them is the notion that foreign ownedplants spend more on pollution abatement than domestically owned plants after controlling forproductive efficiency and cognisant of the prevailing regulatory regime The evidence drawn upon inthe first econometric assessment of this contention is plant level data from the UK metal manufacturingindustry In essence, this study directly estimates the influence of ownership and efficiencycharacteristics in firms’ decisions regarding whether to spend or not on pollution control and how much

to spend To explore these themes a two stage econometric exercise was undertaken on a hithertounused source of environmental data, namely the UK Annual Business Inquiry Respondents Database(or ARD) A Heckman-type sample selection model was estimated to examine the probability ofabatement expenditure being made or not and also to explain how much was spent on each of theprincipal means of pollution control The results suggest that older plants were more likely not to incurany expenditure on process or post-production pollution capital expenditure Plants that were non-EUforeign owned were generally more likely to spend on pollution abatement than UK plants Likewise,

in the main, the more efficient firms and the more capital-intensive firms were also more likely tospend on pollution control than UK-owned firms The significance or otherwise of a wide range ofother factors was also explored and reported on

JEL-L JEL-O JEL-D

Keywords

Pollution abatement Efficiency UK manufacturing

Support from the Economic and Social Research Council (reference no R000222602) is gratefullyacknowledged, as is permission from the Office for National Statistics at Newport, South Wales, to usethe Annual Business Inquiry Respondents Database

I Introduction

An extensive body of theoretical studies continues to evolve and shed light on firms’ likely responses toalternative environmental regulatory instruments and regimes1 An interesting recent strand of this workhas begun to examine in particular firms’ technology choice with respect to the linkages between profit

maximisation and the imposition of specific pollution abatement instruments (Kort et al 1991) This is

an important policy focus for regulators and the business community in the context of increasinglyaggressive environmental policy objectives, where the scope for policy substitution has been raised.This relates to the idea that environmental policy objectives may be attained by (i) pure productiveefficiency enhancing means and (ii) direct pollution abatement enhancing means It may be, however,

as in the U.K and elsewhere, that environmental regulatory bodies do not have as yet the human capitalresources to contemplate the environmental potential of the productive efficiency enhancing means Inthe context of the USA Gray and Shadbegian (1995) found a negative relationship between a plant’spollution abatement costs and its total factor productivity Yet, it is reasonable to posit that moreefficient plants may have less need to engage in pollution abatement expenditure (PAE), since, byvirtue of their greater efficiency with regard to the use of resource inputs, they intrinsically generatelower levels of pollution Perhaps contrarily, it is also reasonable to think that efficient plants will beamongst the most keen to seize worthwhile resource input minimizing opportunities when they arise.Clearly, this is likely to be associated with higher levels of some particular types of PAE, such asprocess-based capital expenditure, as opposed to arguably cruder end-of-pipe solutions

Despite the extensive theoretical activity in this area, relatively little econometric work hastaken place that moves us towards injecting more of an empirical dimension in support of thisdeveloping firm-environment literature The non-case study based empirical work that has taken placehas primarily focused on evidence drawn from the USA Such work has usefully exploited the annualPollution Abatement Costs and Expenditures Survey (Barbera and McConnell 1986) Whilst metals

have recently been the subject of macro-scale environment-economy interaction modelling (Guinee et

al 1999), this particular study contributes to the corpus of firm-environment research at the industry

level This work empirically examines the linkages between plant ownership, productive efficiency andthe decision to engage in pollution abatement More specifically, we address the following question

1 See, for example Cornwell and Costanza (1994), Laffont and Tirole (1994, 1996), Damania (1996),

Jung et al (1996), Fredriksson (1998), Goulder et al (1999), Schwabe (1999), Baudry (2000).

After controlling for differences in productive efficiency, do domestic or foreign-owned plants spendmore on pollution abatement?

Evidence is drawn from the specific context of the UK metal manufacturing industry over theperiod 1991-1994 Other UK industries over this time period would have presented equally satisfactorysources of evidence to explore the hypotheses we set out, operating as they did under the sameenvironmental regulatory regime Using this evidence, for those plants found to be engaging inpollution abatement, this study also presents the first econometric study to consider what determinestheir actual level of PAE in the four main categories of pollution control These are, namely, processbased capital expenditure, post-production capital expenditure (end-of-pipe solutions), currentexpenditure (using the firm’s own staff), and through payments to others (i.e contracting out somepollution control functions) Yet, as we have already emphasised, plausible reasoning could readily bedevised to articulate both positive and negative influences of productive efficiency on the undertaking

of PAE

This paper extends the firm-environment literature in two key aspects First, we believe ourstudy provides the first non-US econometric study of PAE relevant to a major pollution intensiveindustry This is furnished by exploitation, for the first time by economists, of the environmental datacontained within the Annual Business Inquiry Respondents Database (ARD) of the UK Annual Census

of Production (now known as the Annual Business Inquiry) Second, this study is the first to explicitlyconsider the hypothesis that foreign plant ownership raises the probability that a plant will engage inpollution abatement activity Many studies have investigated or hypothesised how national or culturaldifferences may influence firm profitability, productivity, and levels of research and developmentamongst other things2 Hence, there might also reasonably be expected to feature some environmentalperformance implications arising from such differences For example, given that the stringency ofenvironmental regulatory regimes varies significantly in different countries one might expect there to

be environmental benefits aspects to the positive externalities generally said to arise from the presence

of foreign -owned (FO) plants in a particular host country (Blomstrom and Kokko 1998) Indeed there

is a large body of work3 that has sought to suggest, identify and help explain a wide range of positive

2 See, for example, Dunning (1958, 1977), Vernon (1966, 1979), Kindleberger (1969), Caves (1974), Johnson (1970,1975) Hymer (1976), Buckley (1983)

3 See, for example, Globerman (1979), Krugman (1991ab), Grossman and Helpman (1991), Venables (1994), Edwards (1998), Aghion and Howitt (1998)

effects on industry-wide or general manufacturing sector productivity, as a direct consequence of suchincreasing FO firm penetration.

The principal findings of this particular study are that increasing efficiency levels leads to asmall increase in the probability of making expenditures on pollution abatement investment in theproduction process but very substantially increases the probability of zero expenditure on direct staffand operating costs relating to pollution control It is also found that US-owned plants are more likely

to incur some spending on post-production assets but are significantly less likely to spend on otherforms of pollution control EU-owned plants, however, are more likely to spend on pollution abatementthan UK plants Plants owned by enterprises from Australia, New Zealand, South Africa and Canadahave a higher probability of incurring some expenditure on pollution abatement Furthermore, andprobably reflecting actual or perceived variations in regulatory enforcement effort, plants in lesspopulated areas are far more likely not to engage in any PAEs

The paper is organized in the following way In Section II theoretical issues are consideredrelevant to the linkages between ownership status, efficiency and the regulatory regime in the timeperiod under study, and our main hypotheses are posited Section III presents some backgroundcontextual information relating to the UK metal manufacturing industry over this period Thisdescriptive analysis suggests a number of hypotheses that are tested in the subsequent econometricphase of the study Section IV sketches an outline of the modelling strategy and econometric modelemployed to examine the influence of productive efficiency and ownership status on PAE Section Vpresents the results with brief concluding remarks offered in Section VI

II Ownership, Efficiency and Capital Intensity with Technology-Forcing Environmental

Standards

There are a number of theoretical reasons why one might expect differences between domestically andforeign owned plants with respect to their level of efficiency and accordingly their environmentalperformance These relate to mainstream productive efficiency reasons and more specific resourceproductivity based explanations These are considered in turn

Irrespective of the fact that FO-plants are more likely to be younger, explanations for higher

FO plant productivity (as in Figure 1) relates to a combination of two sources, namely, labourproductivity and superior technology that will tend to be more environmentally benign Labour

productivity in the FO plant may, however, also be higher because more output-per-employee emergesdue to the use of a superior technology The superior technology explanation can embrace more thansimply a swifter rate of engineering or scientific advance in FO firms It may also incorporate “softtechnology” aspects with superior managerial and production organisation practices (e.g Total QualityControl) Thus superior technology enables firms with the same level of capital-per-worker, to producemore output per unit-of-labour (position FO1 in Figure 1) The other extreme is that higher labourproductivity may simply arise because a plant uses more capital-per-worker (position FO2), so whilelabour productivity is higher, capital productivity is lower The evidence (at least for the UK) suggeststhat the superior technology explanation is likely to predominate (see Harris, 1999ab).

Yet in the face of uniform environmental regulations across plants and a competitive market,variations in PAE should in large part be explained by differences in plant efficiency Contingent ontheir overall stringency, more efficient plants should require less PAE to satisfy any givenenvironmental regulations However, in terms of the dynamics underlying the competitive process,efficient firms may also be the most likely to lead in the adoption of resource minimizing and hencecost-saving production techniques The latter view implies a greater tendency towards voluntaryovercompliance (Arora and Gangopadhyay 1995) by efficient firms with respect to environmentalregulations This effect has been observed in a developing country context For example, Eskeland andHarrison (1997) present evidence that foreign-owned plants in four developing countries weresignificantly less polluting than comparable domestic plants

This overcompliance effect could be inferred from systematically greater PAE in efficientfirms than in inefficient plants Overcompliance has been explained in terms of its possible role as anelement in a non-price competitive strategy (Kirchhoff 2000) In this sense it can be exploited in someconsumer markets as a source of competitive advantage on the grounds of quality differentials Indeedwhen such markets are also characterized by highly asymmetric information between firms andconsumers, there also arises the potential for “greenwash” i.e where firms lie about theirenvironmental performance (Kirchhoff 2000) However, in the context of intermediate goods marketssuch as metal manufacturing, this is a less convincing explanation for overcompliance More likely is

an explanation based on a process of passive evolution linked principally to the notion of a sunk cost orpath dependency argument

Turning to Figure 2, it is likely that each technology choice will be associated with differinglevels of resource productivity (Y/R) Resource productivity can be increased by recovering more ofthe potential residuals discharge from the production process to serve as output In general, Technology

2 in Figure 2 could offer greater resource productivity than Technology 1 based on a number ofprocesses including wholly in-plant recycling of raw materials, the use of generated heat fromproduction as an energy source, and re-use of waste materials as another product line If a technologyforcing environmental regulation was introduced to try to induce a higher level of resourceproductivity, then this could require a shift to a level of technology superior to Technology 1 (Note,Figure 2 also suggests that greater resource productivity is also associated in heavy industry withgreater capital intensity.)

In the context of the metal manufacturing industry over the relevant data time period, theprevailing regulatory instrument across all plants was indeed a technology-forcing standard determined

by reference to an ambiguous and inefficient guiding doctrine – BATNEEC – Best AvailableTechnology Not Entailing Excessive Cost This was formally introduced in UK statute within the 1990Environmental Protection Act On this basis there was greater regulatory pressure to install a capitalstock within newer plants that would be closer in function to the “best available technology” (BATD)level in the domestic market However, under this guiding principle, environmental regulators could beminded to tolerate some level of departure from this BATD standard in older established plants, where itmight generate an excessive “corporate burden” (Pearce and Brisson 1993) By implication thisinvolved the environmental regulators forming an implicit view as to an acceptable rate of return forthe firm The older established domestic firm could thus meet the requirement for greater resourceproductivity whilst retaining most existing capital This could be undertaken by augmenting theexisting capital stock with additional discrete pollution abatement orientated capital Alternatively, thefirm could re-assign existing staff or hire new staff to engage exclusively in pollution abatement relatedtasks This would inevitably reduce labour productivity Whichever option or combination is applied,let this departure from the domestic level of BATD be represented by Technology S in Figure 2

Accordingly, it is likely that FO firms have a systematic tendency to overcomply (Y/RFO2 >Y/RUK-owned) and ‘overspend’ on pollution abatement This can arise from a combination of (i) highermainstream production capital intensity (K/LFO1 > K/LUK-owned) which will generally support greaterresidual recovery in heavy industry, or, (ii) because the transplanted production technology intrinsically

embodies a given higher level of resource productivity This would accord with the notion that FOfirms may have experience of stricter environmental regulation in their home country (say whereBATDomestic < BATForeign) Hence, for this reason they are, at least in the short run, locked into anenvironmentally superior technology Even in the long run such firms would have to make a judgementconcerning the extent to which they would meet expected future levels of stringency of environmentalregulations and set that against any benefits from relaxing resource productivity (reducingovercompliance) Given that one would generally expect environmental regulations to be increasinglystringent over time, then overcompliance, especially by FO firms, seems likely to persist even in thelong run

Thus, the arguments presented here suggest that factors such as foreign-ownership, intensity, efficiency, and the age of the plant are likely to be important in determining PAE4 Moreexplicitly, distilled from the above discussion, premised largely on the overcompliance explanation, themain hypotheses that are tested in the subsequent econometric phase are:

capital-(i) FO plants engage in greater PAE than domestically owned firms

(ii) More capital intensive plants engage in greater PAE

(iii) More efficient firms engage in greater PAE

(iv) Older plants engage in greater end-of-pipe (capital augmenting) PAE

In addressing a uniform technology-forcing standard, PAE decisions can also reasonably be viewed as asequential decision process First, firms decide whether they need to spend or not on pollution control.They also need to decide what level and what type of pollution abatement expenditures they wish tomake Given that certain types of pollution abatement expenditures are intrinsically more expensivethan others, then it seems reasonable to suppose that the level and type of expenditure decision could

be considered jointly To test whether different forms of pollution abatement expenditure arecomplements or substitutes to each other would require the estimation of a simultaneous model.However, we do not have the econometric tools to estimate a simultaneous Heckman model (see belowfor details), and furthermore we lack prior information that would allow us to impose some structure onsuch a model (i.e., which variables should enter which equation in the 2-stage Heckman approach inorder to identify the system) Thus, as a first attempt we have resorted in the econometric phase to

4 Another potential influence is the location of the plant - this is discussed in section 4 when the model for estimation is presented

estimating a reduced-form version of such a structural system Yet to inform such model development it

is first necessary to broadly appreciate the significance and scale of the focus of this study – the UKmetal manufacturing industry

III UK Metal Manufacturing Industry 1991-4: Background

Metal manufacture and use is vital to the social and economic prosperity of the entire globe, and mostnations participate to some degree in its manufacture (Roberts 1996) In the UK the metalmanufacturing industry comprises a presence in both iron and steel (ferrous metal) and non-ferrousmetal manufacture Of the former, this includes manufacture of basic products such as steel tubes andsteel wire as well as drawing, cold rolling and forming of steel to be used in the manufacture of otherproducts In terms of non-ferrous metals this primarily comprises the manufacture of aluminium andaluminium alloys, copper, brass and other copper alloys There are also some plants manufacturingsome other non-ferrous metals and their alloys The source, nature and method of assembly of the metalindustry panel data available from the ARD used in this and the next section are described in theAppendix

By way of critical assessment of the data it should be noted that it was collected as part of the UK government's Annual Business Inquiry that forms the basis of the 'official' statistics used to measure output and costs in each industry The government use a stratified sampling procedure to ensure that thedata collected achieve good coverage of each industry, and since employment information is

available for each plant (whether included in the annual inquiry or not) it is possible to weight the data

to obtain nationally representative figures As such, the data we use is likely to be both accurate (interms of point estimates of pollution expenditures) and contain sufficient coverage of the industry to make its use statistically robust when testing the types of hypotheses suggested in the previous section

Metal manufacturing has long been a significant source of environmental pollution

(Braennvall et al 1999) It poses considerable health risks to both workers (Comba et al 1992, De et

al 1995, Maynard et al 1997, Moulin et al 1998), and the public (Baxter et al 1996, Guinee et al.

1999) Its role in diminishing the quality of the physical environment has also been the subject of muchscrutiny (Tremmel 1992, Dudka and Adriano 1997, Guinee et al 1999) In contrast with most other

industrial sectors the waste residuals produced in metal manufacturing are largely non-dissipative (i.e.not immediately or gradually dispersed into air, water or soil in the course of their normal use) (Kneese

et al 1970) The residuals comprise bulky solids (e.g slag), much particulate matter, gaseous

emissions from energy conversion, and much liquid waste resulting from cleaning or “pickling” themetal during fabrication to reduce oxide scales when the metal has contact with air The principalpickling agent for steel is sulphuric acid, but other acids such as hydrochloric, nitric and hydrofluoricare also used Slag may be re-used in road construction aggregates and in concrete manufacture Asubstantial volume of the particulates produced in the foundries as “flue dust” can be recovered “bywet scrubbing” and other precipitation processes due to their relatively high metal contents Otherparticulates such as soot from coke and coal burning (used in reheating furnaces and rolling mills) canalso be captured by various forms of carbon filters and scrubbers Most of the liquid waste acids can beneutralized with lime but recovery has been considered problematic (Marquardt and Nagel 1992) Thatsaid, from the liquid wastes in most plants it has been possible to generate commercial grade ferrouschloride solution for use in flocculation processes in water treatment plants These processes also apply

in some non-ferrous metal manufacture (copper and brass mills) but in addition with regard to copper,lead and zinc, some very concentrated and highly toxic sulphur dioxide fumes are also generated Some

of this sulphur may now, however, be recovered as commercial grade sulphuric acid

Thus, it can be seen that environmental pollution is a major ‘output’ of the metals industries.Before considering PAE in this section and by way of context, it is instructive to look at the pattern ofPAE across the UK manufacturing sector as a whole In this way any distinctive features of metalmanufacturing can be drawn out As a consequence of the heavy pollution potential of this industryconsidered above, the declared expenditure per plant on managing waste residuals is relatively high,only exceeded on average by three other sectors (see Figure 3) In the manufacturing sector as a whole,

of those plants that spend on pollution control, payments to others to manage and dispose of their wastedominates over this time period as the prime means of dealing with waste residuals (Figure 4).Recasting this picture in terms of plant ownership categories, UK manufacturing plants seem to lagbehind in PAE with regard to all means of pollution control except payments to others (Figure 5).Turning now to the metal industry specifically (Figure 6), over the period 1991-4 average annualspending by plant on current staff for pollution control seems to have risen significantly from just over

£10,000 to approaching £35,000 (although there is some evidence to suggest this may have been offset

by a decline in process-based capital expenditure) Nevertheless, the figures for this and the othermeans of pollution control (such as process capital expenditure) still seem remarkably small given thescale and nature of the production processes being undertaken The small magnitudes of these declaredlevels of PAE (in the context of this pollution intensive industry) lend some weight to the view thatpollution control is inextricably bound up with the mainstream production process In essence then it ispossible to view plant efficiency, in addition to regulatory stringency, as a key driver of the level ofPAE

Viewing this pattern of expenditure by plant ownership category (see Figure 7) shows someinteresting deviations from the national picture Of those plants that do spend, those plants from theCommonwealth block (Australia, Canada and South Africa) tend to dominate in terms of overall PAE.These are countries where strong vertical relations amongst firms can be expected since they arecountries where much of the metal ore deposits are extracted Hence, there may be some PAE spilloverarising from linkages with the metalliferous ore extraction industry In contrast to the widermanufacturing sector, of those plants that do spend, UK plants no longer lag behind all other ownershipgroups in that US owned plants declare less PAE The rest of Europe still dominates the UK in overallterm in PAE with the specific and surprising exception of process based capital expenditure, where the

UK even exceeds average European expenditure This descriptive analysis does not, however, takeaccount of plant variations in productive efficiency, and perhaps underplays the fact that there are alarge number of firms that do not spend directly on PAE at all over the period 1991-4

wit = (ln EFF, ln GVA, ln AGE, ln KL, EU, US, AUS)it

where5 EFF is a measure of plant level technical efficiency;

GVA is real gross-value-added;

5 Variables are formally defined in Table 1

AGE is the age of the plant;

KL is the capital-to-labour ratio;

EU, US, AUS are dummy variables coded 1 if the plant is owned by an EU, US orAustralasian/Canadian/South African enterprise; and

DEN is population density of the Local Authority District in which the plant is located.The DEN variable proxies for variations in regulatory stringency and the perceived extent of pollutionhazard Strictly speaking, this departs from the approach used by Gray and Shadbegian (1998) in theUSA (though they too have previously considered the use of population density for this purpose in thatgeographical context) This departure relates to different institutional environmental regulatoryframeworks Within the USA, the federal Environmental Protection Agency (EPA) takes the lead role

in environmental regulation, however, state agencies are also strongly involved in the setting andenforcement of environmental standards Accordingly, differences by state have been found inenvironmental regulatory stringency By using electorally based proxies as a measure of regulatorystringency, Gray and Shadbegian (1998) examined (in one industry) how this impacts on firms’investment decisions In the specific context of the United Kingdom, however, sub-federal agencies donot have as heavy a role Accordingly, such electoral proxies are not really valid in this particularnational context This is not to say, however, that the UK Environment Agency does not over time andspatially, vary in its level of regulatory stringency It may, for example, concentrate its enforcementefforts in more heavily populated areas, where they may quite reasonably perceive the risks ofenvironmental pollution on public health to be higher than in less populated areas

The variables in the second-stage model that determine the amount spent (if PAE>0)comprise:

xit = (ln GVA, EU, US, AUS)it + t + 4-digit SIC industry dummies [2]

where t is a time trend

In essence, by this approach, it is assumed that various plant level characteristics determinewhether it is in the interests of the plant to actually spend anything on pollution abatement If theanswer is 'yes' then the scale of output (and thus presumably pollution), ownership, time and industry

effects determine the volume of spending The dependent variables comprise zit = 1 if the plant spent

anything on pollution control in time t; and yit is real expenditure on pollution abatement by plant i in time t

The approach used is based on the standard Heckman (1979) sample selection model wherethe selection mechanism comprises:

where Φ is the density function and the regression model comprises:

yit = β′xit + εit observed only if zit = 1, and (uit, εit) ~ bivariate normal [0, 0, 1, σε, ρ] [4]

Thus we wish to estimate the following model that is based on an efficient and unbiased estimator of β

when yit is observed only when zit = 1, i.e.,

E[yit | zit = 1] = β′xit + ρσελ(γ ′wit) [5]

where ρ is the correlation between (u, ε), and λ(γ ′wit) = −φ(γ ′wit)/[1−Φ(γ ′wit)] is the inverse Millsratio which is obtained from estimating the selection model7 (where φ is the probability densityfunction associated with the first stage of the Heckman model, i.e equation [3])

The variable names, definitions, and basic descriptive statistics are set out in Table 1 In this study, the measure of plant level technical efficiency (or more accurately technical inefficiency) is measured via a stochastic frontier production function that allows each plant to have different levels of efficiency in different years Full details are presented in Harris (1999b) Regarding the relevance of our approach, we are clearly using existing (and econometrically appropriate) methods in order to test specific hypotheses not usually tested because of lack of data To devise new methods for testing, whileclearly an advance, is beyond the scope of the present paper

6 Actually expenditure was deflated by the 4-digit producer price index for the industry to which the plant belonged

7 Note, the impact of sample selection is therefore obtained via the two estimated coefficients ρσε Typically, this is reported in most studies (and in most econometrics packages) via a single term, usually denoted as λ (=ρσε) This is also reported below, as well as the separate terms that comprise it

V Results

The results discussed below are based on an exploratory econometric analysis of the ARD data and assuch its is important to be aware of the limitations of the models estimated Ideally one would wish toconsider the determinants of the different types of PAE simultaneously Given limited informationabout the fuller structural relationships and the fact that the econometric tools to estimate the fullstructural model are currently unavailable, this study has resorted to estimating reduced-form models It

is suggested in this study, however, that this first cut approach is not inconsistent with a profitmaximising model where firms maximize profit subject to producing goods and ‘bads’ (environmental

pollution) (see, for example, Kneese et al 1970, Hernandez-Sancho et al 2000).

The results presented in Table 2 enable us to make some comments concerning PAE and inrespect of the four types of pollution control undertaken First, the results suggest that by increasingefficiency levels by one standard deviation – see Table 2b (and the results referring to spend/not spend)for details – this would increase the probability of incurring expenditure on assets used in theproduction process to minimise residuals by over 3 per cent and decrease the probability of spendinganything on payments to others by 4.8 per cent (Table 2d) Further, it would also decrease theprobability of spending on direct staff, material and operating costs relating to pollution control by 6.8per cent (Table 2c) These results are generally supportive of the characterization of efficient firms asbeing among the most keen to introduce resource input minimizing techniques, but (because they aremore efficient) they are less in need of undertaking current expenditures on pollution abatement

With respect to the results on whether to spend or not spend in Table 2, increasing productionincreases the probability of spending on all forms of pollution abatement For example, a standarddeviation increase in real GVA increases the probability of incurring expenditure on payment to othersrelating to pollution control by over 3 per cent As to how much is spent (cf the second block of results

in Table 2), the elasticity of pollution control spending with respect to the amount produced rangesfrom 0.8 to 0.97, implying that as output increases the amount spent on pollution abatement increases

in a similar proportion It is also possible to observe that older plants are more likely to spend nothing

on pollution abatement A standard deviation increase in the age of plants increases the probability ofincurring no process or post-production capital expenditure by approximately 6-8 per cent depending

on PAE type

In accordance with the simple model set out earlier, those plants with greater capital-intensityare more likely to spend on pollution control By illustration, a standard deviation increase in the K/Lratio decreases the probability of incurring no production process capital expenditure by nearly 7 percent.

Perhaps indicative of greater stringency and enforcement of environmental regulations nearer

or in urban settlements, plants located in less populated areas are more likely not to spend on pollutioncontrol These results show that a standard deviation increase in the population density increases theprobability of incurring no expenditure on direct staff, material and operating costs relating to pollutioncontrol in the metal industry by some 3.8 per cent

Turning now to the effects of plant ownership status, the results show (ceteris paribus.) no

statistically significant effect for EU-owned plant ownership with respect to spending on pollution

abatement (vis a vis UK-owned plants) This is despite the seemingly stronger profile given to the issue

of environmental quality in the politico-legal framework of continental Europe For example, Krol andSteil (1997) noted that in relation to some German non-ferrous metal plants, they had to address at theFederal level alone 233 laws, 549 directives and 498 administrative regulations with environmentallyrelevant rules In addition, there were at the time 330 EU regulations and several thousands of state andmunicipal regulations Alternatively, this result may be indicative of success in increasingharmonization of important aspects of EU environmental policy given that the UK is a member of the

EU bloc Plants owned by enterprises from Australia, New Zealand, South Africa and Canada have ahigher probability of incurring some expenditure on pollution abatement In particular, they are over 12per cent more likely to spend on assets for post-production pollution control and waste management,when compared to UK-owned plants, and between 14 and 27 per cent more likely to spend onpayments to others and expenditure on direct staff, material and operating costs, respectively

Against a backdrop of a regulatory regime driven by adherence to the BATNEEC principle,this evidence is suggestive of systematically greater incidences of voluntary overcompliance beingmore likely in Commonwealth FO-plants than UK-owned plants, but show rather mixed results for the

US with respect to PAE type Whilst US-owned plants are 11.8 per cent more likely to incur some

spending on post-production assets, they are, ceteris paribus, significantly less likely to spend on other

forms of control (e.g., nearly 30 per cent less likely to make payments to others) This seems to

characterize US plants as being more likely to favour “techno-fix” and in-house solutions whenaddressing environmental problems.

For those plants that have positive PAE spending, EU plants spend 95%-106% more than UKowned plants on post-production expenditure and payments to others, respectively, but between 20 and77% less than UK-owned plants on process capital expenditure and direct expenditure, respectively It

is not entirely clear why this should be so, though it may simply reflect an historical regulatoryemphasis given to these types of pollution abatement methods in the UK Commonwealth plants havesome 95-100% higher expenditure than UK-owned plants with respect to current expenditure As withthe results for the probability of spending anything, US-owned plants are likely to spend more on post-production pollution capital expenditure but less on other forms of pollution abatement Hence, anyarguments concerning plant ownership and pollution control really needs to take into account the nature

of the PAE Otherwise one would risk masking distinctive patterns, with respect to different emphasises

by ownership category, on particular approaches to pollution control

There are some major differences across plants in different sectors of the metal industry Forexample, in terms of whether any expenditure takes place, copper, brass and brass alloy production isassociated with particularly high probabilities of incurring any PAE when compared to the referencegroup (iron and steel manufacturing) In large part, this can be related to the need to control the moretoxic fumes (such as high concentration sulphur dioxide) associated with this sub-sector of the metalindustry Non-ferrous metals also generally have a higher probability of PAE (and to a lesser extentsteel tubes and aluminium and alloys) In contrast, steel wire and other drawing, cold rolling and coldforming of steel often have lower probabilities of incurring expenditure vis a vis the iron and steelreference group

Finally, in terms of how much is spent, the time dummy is negative in most cases, implyingthat plants were finding other ways to meet pollution control targets other than through paying for suchcontrol, and probably also linked to the impact of the 1991-93 recession which was particularly severe

VI Concluding Remarks and Summary

This paper has explored the determinants of the amount directly spent in metal manufacturing plants

on pollution control In particular, the influence of ownership and efficiency characteristics were