The Effects of Electricity Costs on Firm Re-location Decisions: Insights for the Pollution Havens Hypothesis?

Matthew Panhans (), Lucia Lavric () and Nick Hanley
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Matthew Panhans: Duke University
Lucia Lavric: Encompass Economics

Environmental & Resource Economics, 2017, vol. 68, issue 4, No 4, 893-914

Abstract: Abstract Electricity costs are partly driven by environmental policy choices. In this paper, the effects of variations in electricity costs—as measured by end-user electricity prices–on firm relocation decisions are investigated. Using a discrete choice model and a data base that has not previously been exploited to study this problem, we investigate the effects of variations in electricity costs on the intensive and extensive re-location decisions of European firms. We find that electricity costs play a significant role in determining relocation destinations. This effect is asymmetric between firms moving into and out of a country, and between high and low energy intensity sectors. The findings of the paper have implications for the Pollution Havens Hypothesis, since they show the extent to which the effects of climate policy on domestic electricity costs can be expected to impact on firm relocation decisions both into and out of a country.

Keywords: Firm re-location; Energy costs; Pollution Havens Hypothesis; Climate policy; Carbon leakage (search for similar items in EconPapers)
JEL-codes: D22 F18 Q41 Q52 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (9)

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DOI: 10.1007/s10640-016-0051-1

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