Correlated Pollutants, Avoidance, and Local Environmental Policy: Analyzing California’s Ocean-Going Vessel Fuel Rule

Since fossil fuel combustion is the primary contributor to both local air pollution and greenhouse gases (GHGs) a policy targeting either of these pollutants will impact the other, which will have welfare implications unless the correlated pollutants are priced appropriately. Empirical work on this topic tends to analyze GHG policies targeting stationary sources and finds that changes in the correlated pollutant leads to large co-benefits. In contrast, we study a local air pollution policy targeting mobile sources and uncover a mechanism, avoidance, that can increase GHGs. We analyze Emissions Control Areas (ECAs) off the west coast of the US, which target particulate pollution in coastal areas by requiring ocean-going vessels to use more expensive low sulfur fuel close to the coast. Our analysis relies on detailed data on the locations of all regulated vessels that we pair with location specific estimates of marginal damages of local air pollution. We exploit policy changes, policy boundaries, and an exempt group of vessels to estimate plausibly causal impacts of the ECA on distance, speed, fuel consumption, and local pollution damages at the route level. Combined these estimates provide the first empirical study that quantifies the behavioral changes, environmental impacts, and welfare implications of an ECA.