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The impacts of the Climate Change Levy on business: evidence from microdata

Author

Listed:
  • Ralf Martin
  • Laure B. de Preux
  • Ulrich J. Wagner
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 buildson the comparison of trends in outcomes between plants subject to the CCL and plants that weregranted 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 comparisonyields 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.

Suggested Citation

  • Ralf Martin & Laure B. de Preux & Ulrich J. Wagner, 2009. "The impacts of the Climate Change Levy on business: evidence from microdata," GRI Working Papers 6, Grantham Research Institute on Climate Change and the Environment.
    • Handle: RePEc:lsg:lsgwps:wp06
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    Cited by:

    1. Lundgren, Tommy & Marklund, Per-Olov & Samakovlis, Eva & Zhou, Wenchao, 2013. "Carbon Prices and Incentives for Technological Development," CERE Working Papers 2013:4, CERE - the Center for Environmental and Resource Economics.
    2. Napp, T.A. & Gambhir, A. & Hills, T.P. & Florin, N. & Fennell, P.S, 2014. "A review of the technologies, economics and policy instruments for decarbonising energy-intensive manufacturing industries," Renewable and Sustainable Energy Reviews, Elsevier, vol. 30(C), pages 616-640.
    3. Raphael Calel, 2020. "Adopt or Innovate: Understanding Technological Responses to Cap-and-Trade," American Economic Journal: Economic Policy, American Economic Association, vol. 12(3), pages 170-201, August.
    4. Dijkstra, Bouwe R. & Rübbelke, Dirk T.G., 2013. "Group rewards and individual sanctions in environmental policy," Resource and Energy Economics, Elsevier, vol. 35(1), pages 38-59.
    5. Yu Zhang & Jie Wang & Jiakai Chen & Weizhong Liu, 2023. "Does environmental regulation policy help improve business performance of manufacturing enterprises? evidence from China," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 25(5), pages 4335-4364, May.
    6. Michael Grubb & Alexandra Poncia & Paul Drummond & Karsten Neuhoff & Jean-Charles Hourcade, 2023. "Policy complementarity and the paradox of carbon pricing," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 39(4), pages 711-730.
    7. Marianne Fay & Stephane Hallegatte & Adrien Vogt-Schilb & Julie Rozenberg & Ulf Narloch & Tom Kerr, 2015. "Decarbonizing Development," World Bank Publications - Books, The World Bank Group, number 21842.
    8. Hallegatte, Stephane & Fay, Marianne & Vogt-Schilb, Adrien, 2013. "Green industrial policies : when and how," Policy Research Working Paper Series 6677, The World Bank.
    9. Massimiliano Mazzanti & Antonio Musolesi, 2010. "Carbon Abatement Leaders and Laggards Non Parametric Analyses of Policy Oriented Kuznets Curves," Working Papers 2010.149, Fondazione Eni Enrico Mattei.

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    More about this item

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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