Do Voluntary Pollution Reduction Programs (VPRs) Spur Innovation in Environmental Technology

In the context of the EPA's 33/50 program, we study whether a VPR can prompt firms to develop new environmental technologies that yield future emission reduction benefits. Because pollutant reductions generally require costly reformulations of products and/or production processes, environmental over-compliance induced by a VPR may potentially spur environmental innovation that can reduce these costs. Conversely, a VPR may induce a participating firm to divert resources from environmental research to environmental monitoring and compliance activities that yield short-term benefits in reduced emissions. We find evidence that higher rates of 33/50 program participation are associated with significant reductions in the number of successful environmental patent applications four to six years after the program ended; these results suggest a negative relationship between the 33/50 program and longer-run environmental innovation.

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