Study examines how clean air act affects municipal bond market


Science Business Announcement

Research has studied the effects of climate risk on financial markets, but few studies have addressed the effect of environmental policy on those markets. A new study examined whether federal policy aimed at mitigating local air pollution–specifically, the Clean Air Act–affected the municipal bond market from 2005 to 2019. The study concludes that increases in regulatory stringency or uncertainty over future environmental policy increased the cost of municipal debt used to fund infrastructure and other projects. The findings have implications for policy, including the risk that environmental regulations could jeopardize local governments’ ability to raise capital for critical infrastructure.

The study, by researchers at Carnegie Mellon University (CMU), appears as a National Bureau of Economic Research working paper.

“Our work provides the first empirical evidence that environmental policy affects municipal bond yields, and thus, the cost of raising funds for providing essential local public goods, such as hospitals, schools, and roads,” explains Akshaya Jha, assistant professor of economics and public policy at CMU’s Heinz College, who coauthored the study. Researchers selected the Clean Air Act to study, in part because it is one of the most significant federal interventions into markets in the postwar period. In 2010, annual pollution-control expenditures required to comply with the act were roughly $3 billion, with annual benefits of the act more than $200 billion.

A central part of the Clean Air Act is the National Ambient Air Quality Standards (NAAQS), through which the U.S. Environmental Protection Agency (EPA) sets maximum allowable concentrations of local air pollutants. Establishing the NAAQS is a two-pronged process. First, the EPA announces a proposed rule. Then, after a public comment period, the final NAAQS are announced.

Counties with pollution levels above the final NAAQS in any given year are deemed to be in nonattainment. While the EPA sets the standards, state and local governments are responsible for establishing plans to ensure compliance. Often, compliance mandates that polluting firms in local jurisdictions reduce emissions levels, which can be costly.

Researchers collected secondary market data on municipal bonds from the Electronic Municipal Market Access database. Municipal bonds are issued by local governments, and are typically used to finance projects like schools, roads, and infrastructure. These data comprise secondary market trades in the U.S. municipal bond market, including more than 140 million trades from 2005 to 2019. The study examined only municipal trades that could be linked to a county and focused on regulations targeting ground-level ozone, resulting in more than 81 million trades corresponding to roughly 3,000 counties.

The study concluded that:

Municipal bond yields increased in response to the announcement of the proposed rule but declined after the announcement of the final standard. This suggests that investors require higher returns to be compensated for the uncertainty induced by the announcement of the proposed rule; this uncertainty is resolved with the announcement of the final rule, lowering the returns necessary for investors to hold the bond.

Around annual compliance announcements, yields fell for counties that remained in compliance but increased for newly noncompliant counties. This suggests that investors perceived that municipalities facing nonattainment had a higher default risk.

Yields were substantially higher for bonds from counties just above the relevant ozone standard than for bonds from counties just below the standard. This suggests that increases in regulatory stringency or uncertainty over future environmental policy increased the cost of municipal debt raised.

A growing body of research has documented that climate risk has been priced into financial markets. “Our results for local air pollution regulations suggest that any cost-benefit analysis of new climate policy must consider the impacts on financial markets of both extreme weather events and the costs associated with complying with the new policy,” notes Stephen A. Karolyi, assistant professor of finance and accounting at CMU’s Tepper School of Business, who coauthored the study.

Because municipal bonds are used to finance local public goods, such as schools, infrastructure, and health care facilities, distortions to municipal bond yields might jeopardize local governments’ ability to raise capital, the authors suggest.

“Our findings should be part of a policy debate regarding the tradeoffs inherent in providing local public goods and federal-level environmental regulations,” suggests Nicholas Muller, associate professor of economics, engineering, and public policy at CMU’s Tepper School of Business, the study’s other coauthor.


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Big Al
January 24, 2021 11:07 pm

I thought we spent 200 B to save 3 B.

Peta of Newark
January 24, 2021 11:11 pm

What is ‘climate risk’
Think we can all imagine wonky weather but ‘Risky Climate’ :-/

Am I right to venture that Municipal Bonds are what, in the UK, we might call ‘Gilts’ = Gilt Edged Securities or Golden Money Tickets

“”environmental regulations could jeopardize local governments’ ability to raise capital for critical infrastructure””

This’ll be why New York City nearly drowned under StandySormStuper – first we need to destroy the village in order to save it.

Gilts are Brilliant Things
Fantastical devices where Government can borrow (fairly) long-term money, THEN, (haha) ‘Carefully Manage Inflation’ (via interest rates & money printing) so that when the money needs to be repaid in 15, 20 or 30 years time, it’s only worth a fraction of what was borrowed.

In the UK, the only place where there was any money to borrow was from Pension Funds, but even they were drying up because people had to pay so much tax that they couldn’t afford to buy a pension.

No matter. Government then mandated that you HAD to buy a pension as soon as you started work. And had to pay in advance (tuition fees) for what is now the perfectly empty promise of a Good Well Paid Job
(as an aside, the muppets then trashed the economy via diesel cars, Brexit, climate change and now Covid, so that there are now No Jobs. Epic. Simply Epic)

Back to Bonds and Gilts and the clowns mentioned here.
A bit late to the party in discovering Cronyism (it’s what trashed Ancient Rome btw)
Cronies being people who make Huge Money feeding off Government Diktat and they can do that because, as everybody knows, Governments (taxpayers actually) have endless amounts of money

It gets better. Much better.
Once the Cronies have got rich, the politicians realise what a comfortable existence they will have in The Crony Sector when they are deselected or sacked.
(Basically what the UK Parliament is, a primary, secondary, finishing-school and University For Money Grubbers)

Thus, existing Cronies (e.g. Michael Gloomburg) can then dictate to Government and create more cronies, more worthless and fake (printed) money, more trashed pensions & economies..

Re-read Paul Ehrlich – without applying a spectacular ‘Hollywood Gloss’, as seen daily in the MSM, movies/films, TV, News etc to what you (magically) think he was/is talking about.
if in doubt, ask any Citizen of Ancient Rome you happen to know – do be aware of Social Distancing Rules tho because there are simply soooo many of them.

If you struggle to find any Ancient Romans, ponder, where did they go?

Its that fairly bright red dot visible in the (UK) evening sky presently

Reply to  Peta of Newark
January 25, 2021 9:06 pm

Not really . UK Gilts are stock exchange quoted government bonds issued by Treasury not municipalities.

January 24, 2021 11:51 pm


Not that I condone violence, but there is logic to the torching of a Covid-19 testing centre. The entire Covid-19 lockdown scam is being perpetrated by a not-fit-for-purpose PCR test that produces false positives and identifies as “Covid-19 Cases” people who have NO Covid-19 illness. Then governments breathlessly report “an increase in Covid-19 Cases” and order another lockdown– when the CDC in July and the WHO in October 2020 correctly published that lockdowns were NOT recommended for Covid-19 because lockdowns do much more harm than good.

In reality, the Covid-19 flu is a relatively mild illness that is only dangerous to the very elderly and infirm; Covid-19 is NOT dangerous to the workforce or schoolchildren – we knew this by mid-March 2020 and I published that conclusion on 21&22March2020. After the first few weeks of March 2020, there was no justification for any further lockdowns or extraordinary measures re Covid-19 – it was a gross over-reaction, “a tempest in a teapot”. Why?

What is causing this perverse worldwide policy of net-harmful Covid-19 lockdowns – is it that governments want to more tightly control their people? Is it their specious linking of Covid-19 to Climate Change? It makes no sense!

One thing appears certain: Lockdown policies no longer have anything to do with the containment of the Covid-19 flu.

Regards, Allan

Caitlin Ashworth Published January 25, 2021

Violence broke out in the Netherlands and a Covid-19 testing centre was burnt down after a nationwide curfew was imposed over the weekend to help slow the spread of the coronavirus. In Eindhoven and Amsterdam, riot police deployed water cannons to disperse the crowds of anti-lockdown protesters.

The Netherlands has been under a tough lockdown since mid-December, leading to clashes between anti-lockdown protesters and police. Just last week, police in Amsterdam used the water cannon on hundreds of protesters. Local officials say the riot police had been called to break up the crowd because people weren’t abiding by social distancing measures.

On Saturday, a new 9pm to 4:30am curfew was imposed, tightening the already tough restrictions. As the curfew went into effect that night, rioters set fire to a portable coronavirus testing facility by a harbour in Urk, a fishing town around 80 kilometres northeast of Amsterdam. That night and early the next morning, 3,600 people in the Netherlands were fined for breaching the new curfew. Police say 25 people were arrested for breaching the curfew and violence.

Local officials say the riots in Urk were a “slap in the face, especially for the local health authority staff who do all they can at the test centre to help people from Urk.”

January 25, 2021 1:37 am

USA Covid-19 death stats are hugely overstated. To ~1Dec2020, only about 40,000 USA deaths can be properly attributed to Covid-19, not 244,000.
Covid-19 was a false crisis – just another flu, not a pandemic.

Written today by a friend (edited):
If you want to understand how Covid-19 deaths in the USA were grossly inflated, view this interview a former Minnesota State Senator, physician Scott Jensen, M.D..
1. A pandemic is created by how you count the deaths. The video explains how the deaths were inflated and how a relatively mild flu became a “pandemic”.
2. Follow the money – once hospitals reached 161 admissions they then received a bonus sum of $77,000 per admission. Some health organizations received as much as 2 billion dollars.
3. Critical timeline – on February 17th , Fauci announces “it is a bad flu”. Eleven days later, Gates announces it is the biggest pandemic of a lifetime and provides more money to the WHO.
4. Watch how the media spread the false fear; then listen to this interview with Dr Jensen and learn how flu death stats were corrupted.
5. An emergency report by a Lieutenant-Colonel David Redman (Canadian Army, retired), could have brought Covid-19 under control in Canada but his Emergency Response Plan was ignored by provincial governments. He said, “We had all the data we needed in mid-March” and he was correct. [Allan: I called it correctly on 21&22March2020]
6. If it wasn’t for corrupt governments, we would not have experienced the carnage of the needless Covid-19 lockdown.

Once again, I told you so,  months ago – published end-November 2020:

In Alberta we have a population of ~4 million, and ~500 have died from the Covid-19 flu according to provincial government stats. Average age of Covid-attributed deaths was ~82, and only about 3% of those had no co-morbidities – not to be cruel, but these old folks were running out of road – and the lockdown ensured that they died alone- – horrible! 

Post Script:
USA Covid-19 death stats are hugely overstated. Take Alberta Covid-19 deaths for our 4 million people and scale up to the total USA population – and only about 30,000 40,000 USA deaths can be attributed to Covid-19 – far less than the 244,000 Covid-deaths quoted in bogus USA stats. But then, USA deaths attributed to Covid-19 include motorcycle crashes, heart attacks, cancers, drive-by-shootings, parachuting “bounces”, etc.


January 25, 2021 9:15 pm

Ridiculous. Covid deaths could be much higher as like ‘official’ flu death stats requires a positive Covid test. Not all people who die outside hospital would be tested.
The most common causes of death in over 65s still happening , about 2 mill per year in US

  • -Heart disease
  • Cancer
  • Chronic lower respiratory disease

Covid still only comes in at 3rd.
2000 plus per day of over 65s dies from CV Disease.

Reply to  Duker
January 25, 2021 10:36 pm

I’m guessing you don’t do numbers much Duker. You just shoot from the hip, right? “Emotional Math 100”.

Watch the above video interview with Dr Jensen.

January 26, 2021 12:36 pm

Dr Jensen, the Minnesota State Senator who is a general physician and no virus expert….yeah right
2.5 mill people per year die in US , mostly ‘because they are old’ and their existing conditions catch up with them. For no one to be dying of old age any more would have to be a lot more people dying from covid than the 10K per week. You do the numbers for 2 mill who die from natural causes every year that would mean you are looking at 40k deaths per week from covid – averaged over a whole year , with a peak period over winter maybe twice or more of that.
Wheres the 80k per week dying of covid for January ?
Remember calls to authority as a basis without you doing <i>simple maths</i> means you dont understand numbers

Reply to  Duker
January 27, 2021 8:20 pm

I’m a lot better at mathematical analysis than you.

I called the Covid-19 lockdown correctly back on 21&22March2020. Now the CDC (in July 2020) and the WHO (in October 2020) published the same conclusions that I wrote in March 2020:
Total lockdowns for Covid-19 do much more harm than good!

As it becomes increasingly clear that the Covid-19 “pandemic” was similar in total fatalities to a bad winter flu season like 2017-2018 and less dangerous than the Hong Kong flu of 1968-69, rational voices have suggested that the full lock-down of the economy made “the cure worse than the disease”. While this was a tough call based on limited data, that was the conclusion I published early in the lockdown on 21March 2020:
Isolate people over sixty-five and those with poor immune systems and return to business-as-usual for people under sixty-five.
This will allow “herd immunity” to develop much sooner and older people will thus be more protected AND THE ECONOMY WON’T CRASH.
This full-lockdown scenario is especially hurting service sector businesses and their minimum-wage employees – young people are telling me they are “financially under the bus”. The young are being destroyed to protect us over-65’s. A far better solution is to get them back to work and let us oldies keep our distance, and get “herd immunity” established ASAP – in months not years. Then we will all be safe again.

Ron Long
January 25, 2021 2:19 am

Since the “EPA” stopped being the Environmental Protection Agency, and became the Environmental Political Agency, the assessment of running afoul of their intentions has gone up dramatically. I have been in many corporate meetings, held before final approval of a project is given, where the theme was “risk analysis, fatal flaws, and critical paths”. With the EPA now solidly a political agency utilizing environmental flavor-of-the-month themes, the risk analysis suggests the cost of something goes up. Here we see a report saying the same thing, this report focused on Municipal Bonds. Biden et al will drive this risk up and the cost goes with it.

Tim Gorman
January 25, 2021 5:29 am

Government intervention in society and the economy ALWAYS causes problems and raises costs. We actually need studies to document this?

Walter Williams (rip) and Thomas Sowell have documented this over and over again. Does no one listen? Black saw decreasing poverty and increasing wealth after WWII up until the 60’s when the Democrats decided they needed government “help”. Black society has gone to hell in a handbasket since. It’s like Reagan said, the most feared words in America today are – We are from the government and we are here to help.

Reply to  Tim Gorman
January 25, 2021 8:57 pm

So the Federal Highway program after WW2 – based on the then new german autobahn system- caused problems ? Which private operators would have done this, like private railroads?. ‘Socialist France’ had them built and operated by private companies. US Healthcare being private gives higher costs and generally lower health outputs for the country as a whole than single payer socialist systems
Like anything ‘the results may vary’ with private and government programs.

Tim Gorman
Reply to  Duker
January 26, 2021 6:17 am

The interstate highway system prompted a move away from railroad shipping to shipping by truck, vastly decreasing the fuel efficiency of shipping over long distances. And you think this was a “good* thing?

BTW, there wee already interstate US highways in place long before the interstates. Ever hear of Route 66?

Just how do you come to the conclusion that US healthcare has lower health outputs than single payer socialist systems? The US health care system doesn’t use QALI metrics to ration care like all the single payer socialist systems I know of do. In the US you don’t have to wait months (sometimes years) to get elective surgeries like knee replacements nor do you have to wait weeks or months to get a diagnostic scan like and MRI or CT scan. My Kidney cancer was found, diagnosed with an MRI, and removed in six week period last year. Had I been under a single payer, socialist system it likely would never have been found because most people under such a system never get routine tests able to detect such a condition. So much for better health outputs!

I’ll repeat Reagan’s words – We are from the government and are here to help – the scariest words you can possibly hear!

Reply to  Tim Gorman
January 26, 2021 12:46 pm

I had an MRI scan 2 days ago, it was a routine test for an ongoing condition , but not severe. Its my 3rd under the single payer system in my country , didnt cost me anything, except the $6.50 for parking. My medication costs me $5 per 3 months when its filled at pharmacy, the doctors script is $10 online for a repeat.
How much was your treatment in co payments inspite of the insurance you have.
You dont know anything about other western countries that use this system, and my country isnt even up with places like France, Britain or Germany.
The idea that people with serious conditions dont get treated is absurd and not based ony personal knowledge or even research on your part

Tim Gorman
Reply to  Duker
January 26, 2021 2:09 pm

The tests and surgery cost me NOTHING! Insurance paid for it all.

The only thing that cost me was for the Tylenol for pain at home.

You don’t seem to know anything about *OUR* system in the US except what the propaganda the socialists put out.

I know that since Obamacare was instituted our rural areas have lost hospital after hospital. Those living in my old home town now have to travel 100miles or more to get to an acute care/surgery center. Anything the government gets their hands on winds up ruined sooner or later.

My situation was *NOT* because of an ongoing condition. My primary care doctor saw something in my annual physical and referred me to a kidney doctor. It was SIX WEEKS from start to finish. Would it happen that quick in YOUR system? Not based on what I have read about European health care systems!

I never said people with serious conditions don’t get treated under socialist, single payer systems. You are reading what you want to see, not what I wrote. I said that things simply don’t happen as quickly as they do here. We initially found that out when my wife was diagnosed with breast cancer and we started researching results by country. The US leads all other countries in survival rate of breast cancer. Part of the reason is the quickness of the treatment – especially important in the case of cancer.

I also pointed out that many single payer, socialist system use QALI as a metric for whether treatment is given or not. If you are old under these systems you don’t get a pacemaker – in the US you do. Why did you not address that issue?

Reply to  Tim Gorman
January 26, 2021 12:51 pm

Its bizarre to call the old route 66 anything like the interstate highways of today. Perhaps you dont about the autobahn concept of restricted access multi lane divided highways. The Federal government had to do it as States werent going to do it. And it was the rich liberal states who paid for it as dirt poor Arkansas and Mississippi and others couldnt afford it for the size of the highways they needed.

Tim Gorman
Reply to  Duker
January 26, 2021 2:17 pm

I didn’t say the interstates and Route 66 were the same. I said we had interstate highways before the national security interstate system was put in place. US Highway 24 was built in 1926, way before the Eisenhower conceived of the national security interstate highway system.

You didn’t even bother to address the issue of the demise of the railroad system and the loss of efficiency that caused. Why not? It’s also a contributing factor as to why we don’t have high speed rail in the US, especially west of the Mississippi where there are vast distances between major population centers, e.g. Kansas City and Denver or St. Louis and Oklahoma City.

I’ll say it again. Government *always* F’s it up. Every single time.

January 25, 2021 10:09 am

Municipal bond yields increased in response to the announcement of the proposed rule but declined after the announcement of the final standard.

Buy on the rumour, sell on the news

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