The Impact of Environmental Constraints on Productivity Improvement in Integrated Paper Plants

This paper utilizes a flexible measure of productivity that includes environmental performance. We characterize the loss of potential productive output due to environmental constraints, decomposing losses into those resulting from the commitment of capital to pollution abatement and those losses that arise from other sources. We also assess the potential for improvements that increase productivity and reduce pollution. Results from the paper industry show a “win-win” potential for inputs and pollution to be simultaneously reduced by 2% to 8%, without reducing productivity. We also find that environmental constraints reduce production by 9%, a quarter of which results from pollution abatement capital constraints.