Case Insights: Impacts of U.S. Environmental Regulations on Industry

SKBI Newsletter | December 2025  

Case Insights: Impacts of U.S. Environmental Regulations on Industry

This case explores how different types of environmental regulations in the United States such as Command-and-Control Environmental Regulations (CCER) and Market-Based Environmental Regulations (MBER) and how they influence corporate behaviour, industry performance, and long-term sustainability.

Using data from the Environmental Protection Agency covering the past forty years, the study looks at major laws such as the Clean Air Act and the Clean Water Act, as well as newer policies like the Inflation Reduction Act (IRA). The research finds that while penalty-based regulations such as CCER can make companies comply quickly, they don’t usually lead to long-term changes. In contrast, incentive-based policies such as MBER & IRA encourage firms to invest in greener technologies and adopt more sustainable practices. By examining real cases like Volkswagen’s emissions scandal and BP’s oil spill, the paper shows how different types of regulations shape corporate behaviour. It concludes that the best approach is a multifaceted regulatory approach that balances corporate responsibility, cost-efficiency, and environmental protection.

What this means for policymakers?

What this means for Industry?

Penalty-driven regulations enforce short-term compliance but often fail to secure lasting behavioural changes.

Noncompliance brings immense financial, reputational, and operational risks, as seen in Volkswagen’s emissions scandal and BP’s oil spill.

Market-based frameworks show how subsidies and funding can catalyse innovation, accelerate clean energy transitions, and reduce enforcement burdens.

However, crises can also trigger transformation, with firms investing heavily in green technologies and restructuring governance.

A hybrid strategy—combining deterrent penalties with incentives—may yield both compliance and long-term sustainability.

Proactively adopting sustainable practices reduces regulatory risks and positions firms competitively in a market increasingly shaped by environmental responsibility.

About SKBI:
The Sim Kee Boon Institute for Financial Economics (SKBI) generates financial economic research through multidisciplinary collaborations involving not only the SMU community, but also research talent from around the world as well as industry and public-sector partners. The Institute will focus its efforts on the areas of (1) Market Innovations and FinTech, (2) Sustainability and Green Finance, and (3) Household Finance and Behaviour. To maintain relevance to finance practitioners and policymakers, SKBI also adopts a view on Asian and global economic trends. View SKBI’s research. 

About SKBI Case Insights:
We have just launched SKBI Case Insights, the latest format of applied financial research produced by the institute. Each case draws on data, policy developments, and real-world business examples to unpack complex issues and translate them into practical insights for industry professionals and policymakers alike. From examining corporate responses, to environmental regulations and uncovering lessons in strategy, innovation, and governance, these cases aim to bridge academic research with industry relevance, offering valuable takeaways that inform better decision making in today’s evolving business landscape. View SKBI’s Case Insights.

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