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Energy prices, environmental policies and investment: Evidence from listed firms

Author

Listed:
  • Dennis Dlugosch

    (OECD)

  • Tomasz Kozluk

    (OECD)

Abstract

The 2°C (or less) limit on global warming agreed at the UN Climate Change Conference of 2015 in Paris effectively implies that manufacturing industries in developed countries have to undertake significant investments, in particular in more energy efficient production technology. To implement policies making the most of such a change, policymakers need to know what consequences climate policies have on business investment. This paper sheds light on the relationship between environmental policies, energy prices and firm-level investment using a sample of listed firms over the period 1995-2011 in 30 OECD economies. Higher energy price inflation is associated with a small, but statistically significant decrease in total investment across firms, though in the most energy intensive sectors, total investments are actually found to increase. However, for domestic investment, effects of higher energy price inflation are negative, independent of the energy intensity of industries. The gap in reactions between total and domestic investment is likely driven by increased offshoring in response to higher energy price inflation, in line with the Pollution Haven Hypothesis. We also find tentative evidence that the negative effects of rising energy prices on investment can be largely attributed to tightening upstream environmental policies.

Suggested Citation

  • Dennis Dlugosch & Tomasz Kozluk, 2017. "Energy prices, environmental policies and investment: Evidence from listed firms," OECD Economics Department Working Papers 1378, OECD Publishing.
    • Handle: RePEc:oec:ecoaaa:1378-en
    DOI: 10.1787/ef6c01c6-en
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    Cited by:

    1. Sato, Misato & Singer, Gregor & Dussaux, Damien & Lovo, Stefania, 2019. "International and sectoral variation in industrial energy prices 1995–2015," Energy Economics, Elsevier, vol. 78(C), pages 235-258.
    2. Balázs Égert, 2021. "Investment in OECD Countries: a Primer," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 63(2), pages 200-223, June.
    3. Dechezleprêtre, Antoine & Kozluk, Tomasz & Kruse, Tobias & Nachtigall, Daniel & de Serres, Alain, 2019. "Do Environmental and Economic Performance Go Together? A Review of Micro-level Empirical Evidence from the Past Decade or So," International Review of Environmental and Resource Economics, now publishers, vol. 13(1-2), pages 1-118, April.

    More about this item

    Keywords

    energy prices; environmental policies; investment;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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