International and sectoral variation in energy prices 1995-2011: how does it relate to emissions policy stringency?

The lack of information on the cost of energy for industry poses a major barrier in assessing the effects of energy prices and taxes on the economic performance and international competitiveness of regulated firms. This paper documents the construction of an energy price index for 12 industrial sectors, covering 48 countries for the period 1995 to 2011. Two distinct indices are constructed: the Variable-Weight Energy Price Level (VEPL) which is useful for cross sectional analysis or descriptive statistics and; the Fixed-Weight Energy Price Index (FEPI) which is designed for use in times series and panel data analysis. We present a descriptive analysis of the major trends in energy prices and taxes, and provide guidelines for the use of our energy price data which is made publicly available for download. The indices reveal, among other things, that industrial energy prices have been on an increasing trend in real terms since 2000 for most countries, and that the gap between the highest and the lowest energy prices internationally has widened with the average price in the 10% highest countries being 2.4 times larger than the 10% lowest in 2010. The bulk of variation in industrial energy prices across countries is attributable not to the wholesale price differences but the tax component. We then evaluate to what extent energy prices are a good proxy for emissions policy stringency, and it shows that it has many attractive qualities and avoid problems common to other proxies which have been used in the literature.