 Carbon Tax and Energy Intensity: Assessing the Channels of Impact using UK MicrodataMorakinyo O. Adetutu, Kayode A. Odusany and Thomas G. Weyman-Jones The Energy Journal, 2020, vol. 41, issue 2, 143-166 Abstract: Prior empirical studies indicate that carbon taxes have a negative impact on energy intensity, yet, the literature is unable to shed much light on the channels through which a moderate carbon tax reduces industrial energy intensity. Using a two-stage econometric approach, we provide the first comprehensive analysis of the five components of the energy intensity gain (EIG) arising from the UK climate change levy (CCL). First, we propose an EIG decomposition based on a stochastic energy cost frontier and a confidential panel of UK manufacturing plants covering 2001-2006. In the second stage, we identify the impact of the CCL on EIG components using an instrumental variable (IV) approach that addresses the endogeneity of the carbon tax rules. Factor substitution and technological progress are the dominant firm responses to the CCL, while energy efficiency is surprisingly the least responsive component. Our findings underscore the challenge arising from overreliance on narrow energy policy objectives such as energy efficiency improvements, suggesting that a broader policy approach aimed at improving overall firm resource allocation might be more appropriate. Keywords: Climate Change Levy; Stochastic frontier analysis; Energy intensity gain; Firm Behavior; Manufacturing (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:sae:enejou:v:41:y:2020:i:2:p:143-166 DOI: 10.5547/01956574.41.2.made Access Statistics for this article More articles in The Energy Journal |
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