Skills Lab, Manor Road Building
If plant-level emissions are strategic substitutes for multiplant firms, regulation-induced reductions among regulated plants may be offset by spillovers to plants within the same firm. I test this hypothesis using unique data on plant-level emissions and plants' position within their parentcompany's internal firm network. I find that intrafirm leakage fully offsets emissions reduction at plants targeted by Ozone regulation under the US Clean Air Act. Leakage effects are most pronounced for firms in tradable industries and among technologically similar plants. Turning to the extensive margin of intrafirm leakage, I ask whether environmental regulation leads to relocations into unregulated areas. In line with a simple outsourcing model, low productivity firms exit from regulated areas, while the most productive and geographically mobile firms move to unregulated areas.