Check out my newest publication in the Climate Policy Journal!
A persistent concern in the literature on climate policy is that the emissions abatement, which is achieved via environmental regulation, has potentially adverse affects on firms’ economic performance. I investigate this issue in the context of the European Union Emissions Trading Scheme (EU ETS) and the German manufacturing sector. My investigation uses confidential data from an administrative firm-level production census. As a measure of the economic performance, I estimate cost efficiencies and their determinants for narrowly defined industries with a stochastic costfrontier (SCF) analysis. In order to directly compare cost efficiencies across treatment groups, Iuse a stochastic meta frontier (SMF) analysis. I provide additional evidence of the causal impactof the EU ETS on various types of firms‘ costs with a Difference-in-differences (DiD) framework.My results indicate that the EU ETS regulation has resulted in a small but significant increase in costs across the German manufacturing sector. This increase is driven mostly by an increase in energy and capital costs. I demonstrate that the potential to increase cost efficiency exists for most industries in the German manufacturing sector. The analysis of the drivers of cost efficiency confirms that in most industries, exporting firms are more cost efficient than their counterparts. In contrast, the results show that innovating firms and firms that are regulated by the EU ETS are less cost efficient than unregulated firms.
Swiss climate policy consists of three regulatory instruments for greenhouse gas emissions reduction: A CO2 levy, the Swiss Emissions Trading System (CH EHS), and an additional “non-EHS” program for medium-sized plants that consists of command-and-control elements plus a sizeable abatement subsidy. Our paper informs about this tripartite climate policy, which is unique in the international context. Second, we empirically evaluate the differential impact of the CH EHS and the non-EHS program on plants’ emissions using a difference-in-differences framework. We find that the non-EHS outperforms the CH EHS for a subset of plants, but that on average, the two programs result in similar abatement efforts despite very different financial incentives. Our results suggest the presence of preferences for abatement per se, above and beyond financial incentives.
We investigate productivity and cost pass-through of German manufacturingfirms using administrative data from 2001 to 2014. Our framework allows for the estimation of quantity-based production functions for multi-product firms while controlling for unobserved productivity shocks and unobserved input quality. Usingour parameter estimates, we can compute total factor productivity, markups andmarginal costs. We find no effect of the EU ETS on firm productivity or profits forthe whole sector, and a positive effect for some industries. Firms pass on shocks tomaterials costs completely, or even more than completely, whereas pass-through ofenergy costs is around 35-60%. Although pass-through of energy costs is incomplete, it nevertheless allowed firms to recover more than their total carbon costs due to generous free allocation of allowances. Our results add to the recent literature concerning the causal effects of climate policy on firms and are relevant for policymakers when defining the level of free allowance allocation to industry.
The use of price instruments is often advocated by economists, based on their ability to bring about marginal abatement cost equalisation, and hence to achieve targets at least cost. We use the EU ETS as a case study and test this theoretical prediction. We parametrically estimate separate enhanced hyperbolic distance functions for various industries of the German manufacturing sector and are therefore able to compute the shadow value of CO2 emissions. We are the first to provide firm-level estimates of the marginal cost of CO2 emissions using confidential administrative data for German manufacturing firms between 2005 and 2014. This allows for an unprecedented insight into the cost of the EU flagship climate policy for manufacturing firms. We are able to describe the evolution of the abatement costs over time and across industries, tracking the impact of changes in the policy design and its stringency onthe behaviour of the firms in our panel. Our findings provide valuable information for policymakers in the European Union and beyond on the actual level of the costs imposed by climate change policy, and its distributional impacts across firms and industries.
Existing evidence indicates that natural disasters are an important political variable, as they induce a change in voters' attitudes towards the government. The support of the incumbents has been previously shown to depend on the robustness of their actions, where voters' support increases with effectiveness of the response, such as the provision of financial aid. We exploit a state relief program for damaged dwellings introduced after an exogenous event, the 2014 torrential floods in Serbia, to assess the validity of these findings in the context of absent disaster risk insurance of public and private assets. Using a difference-in-differences approach we investigate the electoral outcomes in two subsequent elections. Our rich data allows us to investigate how voter gratitude varies depending on the share of aid recipients among voters across very disaggregated geographical units. Exploiting the variations in treatment intensity we are able to detect a certain level of voter dissatisfaction. Our findings imply that while the state relief program mobilizes the voters, the voters’ gratitude is not guaranteed. After the floods, voters in some areas punished the incumbents, most likely because of the lower overall attention received during the recovery process. Evidence suggests that in these areas the recovery of economic activity was slower and involved less donations from private organizations. This negative effect persists for three years after the receipt of the aid. Our results contribute to a better understanding of confounding factors in similar analyses and suggest that governments should coordinate all of the components of a disaster recovery plan better in order to secure the voters' trust.