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The Effects of Electricity Costs on Firm Re-location Decisions: Insights for the Pollution Havens Hypothesis?

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  • Matthew Panhans

    (Duke University)

  • Lucia Lavric

    (Encompass Economics)

  • Nick Hanley

    (University of St Andrews)

Abstract

Electricity costs are partly driven by environmental policy choices. In this paper, the effects of variations in electricity costs—as measured by end-user electricity prices–on firm relocation decisions are investigated. Using a discrete choice model and a data base that has not previously been exploited to study this problem, we investigate the effects of variations in electricity costs on the intensive and extensive re-location decisions of European firms. We find that electricity costs play a significant role in determining relocation destinations. This effect is asymmetric between firms moving into and out of a country, and between high and low energy intensity sectors. The findings of the paper have implications for the Pollution Havens Hypothesis, since they show the extent to which the effects of climate policy on domestic electricity costs can be expected to impact on firm relocation decisions both into and out of a country.

Suggested Citation

  • Matthew Panhans & Lucia Lavric & Nick Hanley, 2017. "The Effects of Electricity Costs on Firm Re-location Decisions: Insights for the Pollution Havens Hypothesis?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 68(4), pages 893-914, December.
    • Handle: RePEc:kap:enreec:v:68:y:2017:i:4:d:10.1007_s10640-016-0051-1
    DOI: 10.1007/s10640-016-0051-1
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    Cited by:

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    3. Bingquan Lin & Junsong Wang, 2023. "Will the “Pairing Assistance” Policy Trigger the Migration of Polluting Enterprises? An Empirical Study Based on the Yangtze River Delta Region," Sustainability, MDPI, vol. 15(3), pages 1-19, January.
    4. Ma, Guangcheng & Qin, Jiahong & Zhang, Yumeng, 2023. "Does the carbon emissions trading system reduce carbon emissions by promoting two-way FDI in developing countries? Evidence from Chinese listed companies and cities," Energy Economics, Elsevier, vol. 120(C).
    5. Yixuan Huang & Mingfei Liu, 2023. "Coupling Coordination and Spatiotemporal Evolution of Low-Carbon Logistics, Industrial Agglomeration, and Regional Economy in the Yangtze River Economic Belt," Sustainability, MDPI, vol. 15(22), pages 1-23, November.
    6. Ferrara, Antonella Rita & Giua, Ludovica, 2022. "Indirect cost compensation under the EU ETS: A firm-level analysis," Energy Policy, Elsevier, vol. 165(C).
    7. Rottner, Elisa, 2023. "Do climate policies lead to outsourcing? Evidence from firm-level imports," ZEW Discussion Papers 23-070, ZEW - Leibniz Centre for European Economic Research.
    8. Michael Reiter & Christian Kimmich & Elisabeth Laa & Daniel Schmidtner & Adrian Wende & Klaus Weyerstraß, 2024. "Auswirkungen von Energiepreisen auf Österreichs Exportwirtschaft," FIW Research Reports series y:2024:m:05, FIW.

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    More about this item

    Keywords

    Firm re-location; Energy costs; Pollution Havens Hypothesis; Climate policy; Carbon leakage;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • F18 - International Economics - - Trade - - - Trade and Environment
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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