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Assessing the impact of energy prices on plant-level environmental and economic performance: Evidence from Indonesian manufacturers

Arlan Brucal and Antoine Dechezleprêtre
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Arlan Brucal: London School of Economics
Antoine Dechezleprêtre: OECD

No 170, OECD Environment Working Papers from OECD Publishing

Abstract: This paper provides an empirical analysis of the impact of energy price increases – induced notably by the removal of fossil fuel subsidies – on the joint environmental and economic performance of Indonesian plants in the manufacturing industry for the period 1980-2015. The paper shows that a 10% increase in energy prices causes a a reduction in energy use by 5.2% and a reduction in CO2 emissions by 5.8% on average, with more energy-intensive sectors responding more to the shocks. At the same time, energy price increases increase the probability of plant exit and reduce employment of large and energy intensive plants, but the estimated effect is very small (-0.2% for a 10% increase in energy prices). Morevoer, energy price changes have no significant influence on net job creation at the industry-wide level, suggesting that jobs are not lost but reallocated from energy-intensive to energy-efficient firms. Overall, the empirical evidence demonstrates that environmental fiscal reforms in emerging economies like Indonesia can bring about large environmental benefits with little to no effect on employment.

Keywords: carbon emissions reductions; competitiveness; energy price; firm performance; fossil fuel subsidy reform (search for similar items in EconPapers)
JEL-codes: Q52 Q54 Q58 (search for similar items in EconPapers)
Date: 2021-03-25
New Economics Papers: this item is included in nep-ene, nep-env, nep-reg, nep-res and nep-sea
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Persistent link: https://EconPapers.repec.org/RePEc:oec:envaaa:170-en

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