The effect of temperature on energy related CO2 emissions and economic performance in German industry

This paper represents an addition to the scanty empirical evidence relating to the impact of temperature on the manufacturing sector. To study the effect of temperature on plants’ energy-related CO2 emissions and economic performance, we combine daily temperature information from 11,000 German municipalities with the German census of the manufacturing industry for the period 2004–2017. Based on fixed effects panel regression models, we find that temperature affects industrial emissions significantly. Low temperatures cause a large and robust increase in CO2 emissions as a reflection of heating requirements. For example, one additional day with a mean temperature below −6 °C increases average plant-level emissions by ≈ 0.16% or 4.2t CO2 relative to a day with mean temperatures between 15 °C and 18 °C. Evidence for increased emissions from electricity consumption due to cooling needs is less consistent. Our findings indicate that, on average, plants in the German manufacturing sector experienced a 4–7.5% reduction in their annual CO2 emissions from using fossil fuels in recent years (2004–2017 vs 2018–2022) due to warmer temperatures. We extend our analysis to encompass the effect of temperature on economic performance. While finding consistent evidence for a negative effect of cold days on output, growth, and labor productivity, results for hot days are mixed. Finally, we interpret our estimates against the backdrop of climate projections.