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The Many Channels of Firm's Adjustment to Energy Shocks: Evidence from France

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  • Fontagné, Lionel
  • Martin, Philippe
  • Orefice, Gianluca

Abstract

Based on firm level data in the French manufacturing sector, we find that firms adapt quickly, strongly and through multiple channels to energy shocks, even though electricity and gas bills represent a very small share of their total costs. Over the period 1996-2019, faced with an idiosyncratic energy price increase, firms reduce their energy demand, improve their energy efficiency, increase intermediate inputs imports and optimize energy use across plants. Firms are also able to pass-through the cost shock fully on their export prices. Their production, exports and employment fall. A consequence of these multiple adjustment mechanisms is that the fall in profits is either non-significant, small or specific to only the most energy intensive firms. We also find that the impact of electricity shocks has weakened over time, suggesting that only firms able to adapt their production process to energy cost shocks have survived. Importantly, when faced with large electricity and gas price increases, firms are less able to reduce their consumption. These results shed light on the mechanisms of resilience of the European manufacturing sector in the context of the present energy crisis

Suggested Citation

  • Fontagné, Lionel & Martin, Philippe & Orefice, Gianluca, 2023. "The Many Channels of Firm's Adjustment to Energy Shocks: Evidence from France," CEPR Discussion Papers 18262, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:18262
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    Cited by:

    1. Dodini, Samuel & Stansbury, Anna & Willén, Alexander, 2023. "How Do Firms Respond to Unions?," IZA Discussion Papers 16697, Institute of Labor Economics (IZA).
    2. Fetzer, Thiemo & Palmou, Christina & Schneebacher, Jakob, 2024. "How do firms cope with economic shocks in real time?," CAGE Online Working Paper Series 722, Competitive Advantage in the Global Economy (CAGE).
    3. Thiemo Fetzer & Christina Palmou & Jakob Schneebacher, 2024. "How Do Firms Cope with Economic Shocks in Real Time?," ECONtribute Discussion Papers Series 337, University of Bonn and University of Cologne, Germany.
    4. Thiemo Fetzer & Christina Palmou & Jakob Schneebacher, 2024. "How Do Firms Cope with Economic Shocks in Real Time?," CESifo Working Paper Series 11367, CESifo.

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    More about this item

    Keywords

    Energy crisis; Employment; Production; Competitiveness; Electricity; Gas;
    All these keywords.

    JEL classification:

    • L6 - Industrial Organization - - Industry Studies: Manufacturing
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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