Does the Effect of Environmental Regulation Extend Outside Regulated Areas?: Empirical Analysis of the Japanese Automobile NOx/PM Law

Abstract

The Automobile NOx/PM Law was introduced to mitigate air pollution in Japanese metropolitan areas in 2001. There was a risk that implementation may result in many old heavy-emitting vehicles shifting outside the areas where the regulation prohibited their usage. By comparing secondary vehicle market prices before and after implementation, this paper examines whether prices changed as a result of outflow due to the regulation. The estimation showed that the regulation did not lower the prices to a statistically significant extent, However, we found an increase in the export of used trucks. These facts indicate that the spread of low-emission vehicles in other countries may be discouraged by stronger Japanese environmental regulations. This is a pollution haven hypothesis. The paper concludes that more attention needs to be paid to the secondary market when authorities plan the introduction of environmental regulations on goods such as automobiles.