Industrial characteristics and air emissions: Long-term determinants in the UK manufacturing sector

Empirical assessments of the relationship between emissions from the industrial sector and the characteristics of the production process are surprisingly scarce in the literature for European countries, despite the industrial sector being one of the major air polluters. In our study, we assess long-term relationship between industrial process and air emissions by building on an existing empirical framework. Our work implies re-estimating published findings for the UK industrial sector on a bigger dataset, incorporating additional observed factors which can plausibly influence the level of emissions and taking into account, for the first time in the empirical literature, unobserved common factors through cross section dependence. In comparison to previous findings we conclude that production inputs, total factor productivity and economies of scale cannot be relied upon to reduce emissions from industrial sector. We provide evidence that reduction in emissions can be reliably delivered by reducing energy consumption, encouraging fuel substitution and by encouraging market competition so that one can counteract the increase in emissions related to higher level of capital investment. We observe considerable similarities in the relationship between market concentration on one side and industrial emissions and innovation on the other side. This is an interesting result in for the energy and environmental economic literature as the relationship between the level of emissions and market structure is a considerably under-researched area.