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

Ralf Martin, Ulrich Wagner and Laure de Preux

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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.

Keywords: Climate change; Climate Change Levy (CCL); Climate Change Agreement (CCA); trends; firm behaviour (search for similar items in EconPapers)
JEL-codes: D21 Q41 Q48 Q54 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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http://eprints.lse.ac.uk/28592/ Open access version. (application/pdf)

Related works:
Working Paper: The Impacts of the Climate Change Levy on business: Evidence from Microdata (2009)
Working Paper: The impacts of climate change levy on business: evidence from microdata (2009)
Working Paper: The impacts of the climate change levy on business: evidence from microdata (2009)
Working Paper: The impacts of the Climate Change Levy on business: evidence from microdata (2009)
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