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Productivity Spillovers from Pollution Reduction: Reducing Coal Use Increases Crop Yields

Air pollution reduces crop yields by slowing down photosynthesis. We estimate the increase in US corn and soybean yields attributed to the recent dramatic reductions in emissions of nitrogen oxides (NO) from electric power plants. In response to the observed changes in power plant NO emissions over the eight&#8208;year period from 2003&#8211;05 to 2011&#8211;13, we estimate that average corn yields improved by 2.46% and soybean yields by 1.62%. These improvements imply an increase in total surplus of $1.60 billion annually across the two crops. The estimated yield improvements vary substantially across states depending on the change in NO emissions. For corn, they range from 0.32% to 6.87% and for soybeans, they range from 0.21% to 4.30%. The demand for the two crops is quite inelastic, which means that prices decrease by more than production increases in response to this positive productivity shock and the implied rightward shift of the crop supply curve. Due to the low elasticities of supply and demand for U.S. corn and soybeans, we conclude from a welfare analysis that these changes made consumers better off and farmers worse off.