The Effect of Temperature on Energy Use, 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 CO2 emissions (energy use) and plants’ 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. 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 the average plant’s emissions by ≈ 0.15% or 6t CO2 relative to a day with mean temperatures between 12°C and 15°C. Evidence for increased emissions from electricity consumption due to cooling needs is less consistent. 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 gross output and labor productivity, results for hot days are mixed. Finally, we interpret our estimates against the backdrop of climate projections.