Does Water Scarcity Affect Environmental Performance? Evidence from Manufacturing Facilities in Texas

It is well known that manufacturing operations can affect the environment, buthardly any research explores whether the natural environment shapes manufacturingoperations. Specifically, we investigate whether water scarcity, which results from environ-mental conditions, influences manufacturingfirms to lower their toxic releases to theenvironment. We created a data set that spans 2000-2016 and includes details on the toxicemissions of 3,092 manufacturing facilities in Texas. Additionally, our data set includesmeasures of the water scarcity experienced by these facilities. Our econometric analysisshows that manufacturing facilities reduce their toxic releases into the environment whenthey have experienced drought conditions in the previous year. We examine facilities thatrelease toxics to water as well as facilities with no toxic releases to water. Wefind that thereduction in total releases (to all media) is driven mainly by those facilities that releasetoxic chemicals to water. Further investigation at a more granular level indicates that waterscarcity compels manufacturing facilities to lower their toxic releases into media other thanwater (i.e., land or air). The impact of water scarcity on toxic releases to water is morenuanced. A full-sample analysis fails to link water scarcity to lower toxic releases to water,but a further breakdown shows that manufacturing facilities in counties with a higherincidence of drought do lower their toxic releases to water. We alsofind that facilities thatreleasetoxicstowaterundertakemoretechnicalandinputmodifications to theirmanufacturing processes when they face water scarcity.