Are Green Polluters Clean? Evidence From the Clean Industry Program of Mexico

In Mexico, voluntary environmental incentive programs such as the Clean Industry certificates are hugely complementary to the traditional command-and-control regulations. Due to the limited resources of the regulatory agency, enrollment in voluntary programs offers the incentive of public recognition by the government. Prior evidence on the Clean Industry program incentive is mixed. Scholars find that previously fined plants enroll in the program to avoid regulatory scrutiny for the duration of validity of the certificate. This is the first comprehensive study utilizing close to two decades of information on the adoption or renewal of voluntary certificates. I then match plant-level toxic pollution reported and formal regulatory actions against each plant.In this paper, I analyze the participation decisions of over 3,000 major toxic water polluters in Mexico from 2004 to 2018. Mandatory reporting of major toxic polluters to the Environment Secretariat began in the year 2004. I find that about a quarter of these plants adopted or renewed Clean Industry certificates. I find that plants with prior fines or violations detected, or inspections are less likely to adopt or renew their certificates. This result is contrary to past studies on recent fines leading to the adoption of voluntary incentive programs. However, an increase in inspections on others in the same municipality leads to increased adoption of these certificates. I speculate that the costs of renewing the certificate might be substantially higher for the individual plant in contrast to the inspection burden from the regulatory agencies. Next, I estimate a panel data model of toxic pollution discharges, instrumenting for potentially endogenous participation decisions in the Clean Industry program. I find that controlling for plant-fixed effects, Clean Industry polluters do not improve their environmental performance by reducing their toxic discharges over time. This result could be explained by historically larger manufacturing plants that also pollute more into the environment. The initial investments in pollution control might not be followed up with further improvements and the upfront benefits of public recognition as environmental stewards outweigh the longer-term costs of annual reductions in pollution