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The impacts of climate change levy on business: evidence from microdata

Martin, Ralf and de Preux, Laure B. and Wagner, Ulrich J. (2009) The impacts of climate change levy on business: evidence from microdata. Centre for Climate Change Economics and Policy and Grantham Research Institute on Climate Change and the Environment, 6. Centre for Climate Change Economics and Policy and Grantham Research Institute on Climate Change and the Environment, London, UK.

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Identification Number: 6

Abstract

We estimate the impacts of an energy tax – the Climate Change Levy (CCL) – on the manufacturing sector using panel data from the UK production census. Our identification strategy builds on the comparison of trends in outcomes between plants subject to the CCL and plants that were granted an 80% discount on the levy after joining a so-called Climate Change Agreement (CCA). Since the CCAs stipulate specific targets for energy usage or carbon emissions, this comparison yields a lower bound on the impact of the discount. To address a likely selection endogeneity in CCA participation, we adopt an IV approach that exploits exogenous variation in pollution discharges that determined eligibility for CCA participation. We find robust evidence that CCA participation had a strong positive impact on growth in both energy intensity and energy expenditures. An analysis of fuel choices at the plant level reveals that this effect is mainly driven by stronger growth in electricity use and translates into a positive impact on CO2 emissions. We do not find any statistically significant impacts of the tax on employment, gross output or total factor productivity. We conclude that, had the CCL been implemented at full rate for all businesses, further cuts in energy use of substantial magnitude could have been achieved without jeopardizing economic performance.

Item Type: Monograph (Working Paper)
Official URL: http://www2.lse.ac.uk/GranthamInstitute/Home.aspx
Additional Information: © 2009 The Authors
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor
JEL classification: Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate; Natural Disasters
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q4 - Energy > Q41 - Demand and Supply
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q4 - Energy > Q48 - Government Policy
D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 28 Jul 2011 13:22
Last Modified: 02 Aug 2011 14:00
URI: http://eprints.lse.ac.uk/id/eprint/37676

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