New Schulich Study Examines the Hidden Social Costs of Environmental Compliance
TORONTO, ON – Friday, November 7, 2025 – New research from York University’s Schulich School of Business reveals that while environmental violations lead US power firms to adopt meaningful pollution-reduction measures, the resulting compliance costs are often passed on to consumers – raising important questions about social equity and environmental justice.
The research is part of a new study titled “Environmental Violations in the Power Sector: Accountability and Community Welfare”. The study is published in the Journal of Business Ethics and is co-authored by Pouyan Foroughi, Assistant Professor of Finance at Schulich, Lilian Ng, Scotiabank Chair in International Finance at Schulich, and Hosein Hamisheh Bahar, a former Schulich doctoral student and a Finance Fellow at Harvard Law School.
The study analyzes two decades of data on US power plants and their operational and financial responses to environmental enforcement actions by the Environmental Protection Agency (EPA). The research finds that following violations, affected firms take substantial steps to curb emissions – including reducing electricity generation, improving fuel quality, lowering coal use, and investing in pollution control technologies.
However, these improvements come at a cost. The authors found that while firms’ production costs and capital expenditures increase significantly, their profits remain stable – suggesting that utilities offset much of the financial burden by raising electricity prices. This shift in costs disproportionately affects low-income households, amplifying the ethical dilemma of how to balance environmental responsibility with social fairness.
“Our findings show that firms respond to environmental violations in a substantive way – not just symbolically – by making real operational and technological changes,” says Professor Foroughi. “But these improvements come with financial trade-offs that can unintentionally hurt the very communities that environmental regulation is meant to protect.”
“The ethical challenge lies in ensuring that the costs of cleaner production are not borne disproportionately by vulnerable populations,” adds Professor Ng. “A truly just transition requires regulatory safeguards that promote environmental accountability while protecting community welfare.”
The study underscores a broader policy dilemma: how to enforce corporate environmental responsibility without deepening social inequities. The authors argue that stronger oversight of rate-setting practices and better-targeted public subsidies could help ensure that the path to sustainability is also equitable.
