Do firms respond differently to the carbon pricing by industrial sector? How and why? A comparison between manufacturing and electricity generation sectors using firm-level panel data in Korea

Pyung Kim and Hyunhoe Bae

Energy Policy, 2022, vol. 162, issue C

Abstract: With firm-level panel data for seven years, this study evaluated the effect of carbon pricing policy and analyzed how firms respond to the carbon price, focusing on Korea's Emission Trading Scheme (ETS). Under the assumption that firms' responses to the carbon price might differ across industries, this study compared the manufacturing and electricity generation sectors. Our panel regression analyses show that the ETS has significant impacts on firms' carbon reduction. However, the carbon reduction mechanisms of firms differ by industrial sector. Firms in the manufacturing sector reduced carbon emissions by improving the energy efficiency of their facilities. On the other hand, those in the electricity generation sector reduced emissions by phasing out the use of fossil fuels and by giving more weight to low carbon-intensive energy sources. These findings imply that carbon pricing works as designed, sending economic signals for firms to decarbonize their economic activities. Furthermore, it works differently (and so effectively) according to the industry's characteristics.

Keywords: Emission trading scheme (ETS); Carbon pricing; Market-based regulation; Climate change policy (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:162:y:2022:i:c:s030142152100639x

DOI: 10.1016/j.enpol.2021.112773

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