EVALUATING THE IMPACT OF ENVIRONMENTAL POLICY ON THE TREND BEHAVIOR OF US EMISSIONS OF NITROGEN OXIDES AND VOLATILE ORGANIC COMPOUNDS

The nature of this paper is a practical application of a proper time‐series methodology to evaluate policy impacts when there is uncertainty about the data being difference‐stationary (DS) or trend‐stationary (TS). We use this methodology to examine the trend behavior of two air pollutants, nitrogen oxides (NO_X) and volatile organic compounds (VOC). In particular, we concentrate on answering two questions. First, were there breaks in the trends of NO_X and VOC emissions around the same time environmental policies such as the Clean Air Act Amendments (CAAA) of 1970 were passed? And second, accounting for possible breaks are the US emissions of NO_X and VOC TS or DS? Our empirical results show a clear evidence of a trend shift in NO_X and VOC emissions at the time the CAAA of 1970 were passed, implying that this policy has been effective in reducing air pollution emissions, as well as additional breaks that correspond to other events and environmental policies before and after 1970. The unit root tests indicate that NO_X are DS irrespective of the number of breaks in the trend whereas results for VOC emissions depend on the number of breaks assumed.