Exploring the locus of profitable pollution reduction

In this paper, we explore the locus of profitable pollution reduction. We propose that managers underestimate the full value of some means of pollution reduction and so under-exploit these means. Based on evidence from previous studies, we argue that waste prevention often provides unexpected innovation offsets, and that onsite waste treatment often provides unexpected cost. We use statistical methods to test the direction and significance of the relationship between the various means of pollution reduction and profitability. We find strong evidence that waste prevention leads to financial gain, but we find no evidence that firms profit from reducing pollution by other means. Indeed, we find evidence that the benefits of waste prevention alone are responsible for the observed association between lower emissions and profitability.