Unintended costs of clean air: evidence from South Africa's environmental regulation and household consumption

Abstract

This paper estimates the household welfare effects of South Africa's 2013 Minimum Emission Standards, which tightened limits on major industrial air pollutants. Using the National Income Dynamics Study panel from 2008 to 2017, we exploit the national timing of the reform and cross provincial differences in pre-reform industrial concentration and baseline sulphur dioxide exposure. In a difference-in-differences (DID) design with treatment intensity, households in more exposed provinces experience significantly lower consumption after 2013. Our preferred specifications imply an average reduction of about 4 to 5 percent per year, with larger losses in more industrialised provinces. An instrumental variable strategy based on historical mining locations and wind direction yields larger magnitudes, suggesting that baseline estimates may be attenuated. Mechanism results indicate that both employment losses and earnings reductions contribute to the consumption decline, but these labour market channels account for less than half of the total effect. The burden is concentrated among middle-income households and households linked to pollution intensive industries, while the poorest households in historically high pollution provinces appear less adversely affected. The findings highlight that stricter air quality regulation can generate sizable and uneven welfare costs, underscoring the value of complementary policies that ease labour market adjustment while preserving environmental gains.