NewsNewsletter 3

Environmental stringency and industrial competitiveness

In 2018, Greenhouse gas emissions (GHG) generated by industrial activity account for  about 40% of the total EU emissions. Some EU governments have already adopted policies aimed at reducing industrial emissions. France, for example, developed an ambitious policy framework for the energy transition, including carbon pricing instruments. To determine implications of these policies on industry players, we analyzed how French manufacturing firms respond to changes in energy price – the immediate result of a policy change. Results show that a 10% increase in energy price reduces CO2 emission by 8%, with larger effect for larger firms. It also reduces employment by 3% in large firms but has no effect on employment in small and medium size enterprises. We simulated the effect of the French carbon tax on CO2 emissions and employment and argued that less than 1% if the observed 500,000 job losses between 2004 and 2015 can be attributed to the changes in energy price. While we do not find substantial effect on industrywide employment, more stringent energy policy can still generate losers as displaced workers incur costs in finding jobs. Thus, we argue that complementary labor and skills policies are needed to compensate the losers.

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