ASSESSING THE ECONOMIC IMPACTS OF ENVIRONMENTAL POLICIES : evidence from a decade of oecd research.

Foreword
Acknowledgements
Executive Summary
1 The economic impacts of environmental policies: Key findings and policy implications
	Introduction
		Environmental policies and competitiveness concerns
		Evidence from OECD studies
		Is looking at past experience helpful with regard to future environmental policies?
	The effects of environmental policies on firm behaviour
		The Pollution Haven and Porter hypotheses: the corner stones of predictions of the economic effects of environmental policies
		Different predictions for different aggregation levels
		Predictions for individual economic outcomes
	Measuring environmental policy stringency
	Economic impacts from environmental policies – empirical evidence from OECD studies
		Technologically-advanced industries and firms benefit in the short-run from environmental policies in terms of productivity gains
		Environmental policies have heterogeneous effects on employment, inducing job reallocation between energy-intensive and non-energy-intensive sectors
		Domestic investment suffers, firms invest more abroad
		Overall trade flows are barely affected, with rising exports of low-pollution sectors and declining exchanges of high-pollution ones
	Are the economic effects small only because the effects on environmental outcomes are small? Joint analysis of economic and environmental impacts
		The European Union Emissions Trading System and its economic and environmental impacts
		The joint effects of energy prices and carbon taxes in the French manufacturing sector
		The joint effects of energy prices in the Indonesian manufacturing sector
	Summing up: What to expect from a 10% increase in relative energy prices?
		Winners and losers
	Economy-friendly environmental policies
		Appropriate policy design can underpin the economic benefits of environmental policies
		More stringent environmental policies do not have to come with an increased regulatory burden
		Policy packaging could help increase public acceptance of tighter environmental policies
	Notes
	References
2 Productivity growth, environmental policies and the Porter Hypothesis
	Background
		Environmental policies affect firms’ economic performance
		Productivity increases at the firm level are possible due to previously overlooked potential gains
		An industry-level analysis allows to take reallocation across firms into account
		Empirical evidence is inconclusive so far
		Contribution of this study – first large-scale panel study, combining industry and firm level analysis
	Empirical set-up
		An augmented neo-Schumpeterian growth model to analyse productivity effects
		Heterogeneous industry effects through different exposure to country-level environmental regulation
		Empirical model
		Data
	Results
		Support for the strong version of the Porter Hypothesis at the industry level
		High-productivity firms win, low-productivity firms lose out
		Difference in industry and firm level results are likely driven by exit dynamics
		The effects are independent of the level of environmental regulation but depend on policy design
		The results are robust and potential endogeneity concerns are limited
	Conclusion
		Summary of results
		Limitations: Evidence is limited to OECD countries; the channels at work are not analysed
		A stronger focus on market-based policies is needed
	Notes
	References
3 Firm employment, energy prices and environmental policy stringency
	Background
		A strong negative correlation between energy prices and employment
		Theory predicts no long-run effects but potential short-term adjustments
		Empirical studies suggest a small negative effect on employment
		Contribution of this study – a large-scale dataset allowing for heterogeneous effects, investigating energy prices and environmental policies
	Empirical set-up
		Assessing the effects of energy prices and other environmental policies
		Empirical model
		Data
	Results
		Negative but small decline in employment in response to higher energy prices and tighter environmental policies
		Energy-intensive sectors face a larger negative effect on employment than other sectors
		Difference in industry- and firm-level results are driven by a positive effect on the exit of firms
		Robustness checks of firm level analysis
	Conclusion
		A small employment effect on average – but stronger in energy-intensive sectors
		An upper bound of the true effect?
		Complementary policies to ease transition costs
		Effects on types of workers and on wages remain outside of the scope of this study
	Notes
	References
4 Induced investment through environmental policies
	Background
		Environmental policies need to incentivise investment in carbon-saving production processes
		Environmental policies may reduce investment through output reductions
		The net effect on investment is unclear a priori
		Investment effects depend on the substitutability of inputs
		The effects on domestic and foreign investment are potentially heterogeneous
		The literature is inconclusive so far
		This study: the first large-scale panel analysis with heterogeneous effects across sectors
	Empirical set-up
		Capital demand derived from a three-factor production function
		Empirical model
		Identification of the effect
		Data
	Results
		Total investment goes down, but the effect is heterogeneous
		Policy-driven price increases seem to trigger investment effect
		Dirty sectors are more sensitive to price changes, particularly in times of high energy price levels
		Divestment effect of domestic investment is present for clean and dirty sectors
		Robustness checks
	Conclusion
		Energy-intensive sectors seem to offshore investment
		Small firms not covered here might provide innovative technological solutions
		Additional policies might help to mitigate the estimated effect on investment
	Notes
	References
5 Foreign direct investment and energy prices
	Background
		Increases in FDI might be motivated by rising energy prices
		Carbon leakage effect through FDI
		The empirical literature comprises mainly single country studies
		The first cross-country study, accounting for endogenous firm choice of fuel inputs
	Empirical set-up
		Absolute versus relative energy price changes
		An instrumental variable approach is used to avoid endogeneity problems in the estimation
		Empirical model
		Data
	Results
		Relative energy prices are a driver of FDI as opposed to absolute prices
		Firms respond differently depending on whether they face an increase or decrease in energy prices
		The economic magnitude of the effect is small
	Conclusion
		Support for the pollution haven effect found – but magnitude is small
		The sample is limited to listed firms, and only the intensive margin is studied
		Carbon leakage concerns are likely to be overstated
	Notes
	References
6 Global value chains, environmental policies, and the Pollution Haven hypothesis
	Background
		The increased fragmentation of production chains gives rise to global value chains
		The comparative advantage of economies might be shifted by tighter environmental policies
		Offshoring versus efficiency gains – what the theory says
		Empirical studies so far ignored changes in the domestic part of value added in exports
		Contribution of this study - new evidence on domestic part of GVCs
	Empirical set-up
		An augmented gravity model is deployed
		Data on the domestic share of value added provide a detailed look at GVCs
		Heterogeneous sector effects
		Empirical model
		Data
	Results
		Only dirty sectors move part of gross exports to pollution havens
		The domestic share of value added is affected for both dirty and clean sectors
		Economic significance for the domestic share of exports is larger than for net exports but the overall effect is small compared to other trade determinants
		Robustness checks
	Conclusion
		Dirty industries face a competitive disadvantage, clean industries a competitive advantage
		The detailed design of environmental policies is not captured
		A good policy setting could help clean sectors gain competitiveness
		Delaying environmental efforts risks masking competitiveness losses of dirty sectors
		Joint global climate commitments should be supplemented with agreements for clean technology transfers
	Notes
	References
7 The European Union Emissions Trading System and its economic and environmental impacts
	Background
		The largest emissions trading system in the world
		Emissions cap and verified emissions decreased over time
		Pollution Haven and Porter Hypothesis – the theory is ambiguous
		Empirical studies on the EU ETS focused on either economic or environmental outcomes so far
		Contribution of this study – first comprehensive study of environmental and economic effects of the EU ETS
	Empirical set-up
		Causal analysis using a difference-in-difference approach
		Empirical model
		Data
	Results
		The EU ETS led to emission reductions, while firm performance was largely unaffected
		The effects of the EU ETS are heterogeneous across sectors and vary with the number of free allowances granted
		Robustness checks
	Conclusion
		The EU ETS led to emission reductions of regulated firms, but did not negatively affect their economic performance
		A larger database would strengthen the external validity of the results
		Higher carbon prices would likely reduce emissions further, but might lead to different economic impacts on firms
	Notes
	References
8 The joint effects of energy prices and carbon taxes in the French manufacturing sector
	Background
		Energy taxes are a commonly used policy instrument to reduce energy use and thus carbon emissions
		The design of the French carbon tax
		Firms might react differently to changes in energy prices depending on their size
		The empirical literature has so far ignored heterogeneous effects along energy-intensity and firm size
		The combination of a firm-level and an industry-level analysis offers deeper insights into the mechanisms behind the effects
	Empirical set-up
		A causal analysis using an instrumental variable approach
		Empirical model
		Data
	Results
		The French carbon tax led to CO2 reductions at the firm level
		Effects differ according to firm size, their energy-intensity and the sector they operate in
		The industry-level analysis suggests reallocation of workers instead of job losses
		Robustness checks
	Conclusion
		The French carbon tax reduced emissions but also triggered a reallocation of workers
		An industry-level analysis of carbon emissions is not possible due to data constraints
		Tighter climate policies reduce carbon emissions, but should be accompanied by complementary labour market policies
	Notes
	References
9 Impacts of energy prices on economic and environmental performance in the Indonesian manufacturing sector
	Background
		Energy costs might increase through energy subsidy reforms
		Indonesian energy prices rose, when fuel subsidies were removed
		Plants might react in different ways to changes in energy prices
		The empirical literature has focused on industrial economies so far
		The combination of plant and industry-level analysis provides causal analysis of joint effects for an emerging economy
	Empirical set-up
		The instrumental variable approach based on exogenous price variation allows for causal analysis
		Empirical model
		Data
	Results
		Increases in energy prices led to decreasing emissions of Indonesian manufacturing plants
		Larger and more energy-intensive plants reduce energy use more than smaller plants
		Energy-intensive plants are more likely to be driven out of the market
		All sectors reduce energy consumption in response to higher energy prices
		No significant employment effects found at the industry-level
	Conclusion
		Rising energy prices in the Indonesian manufacturing sector reduced emissions significantly without large negative effects on economic outcomes
		The effects on demand for skilled and unskilled labour are not accounted for in analysis
		Economic effects of rising energy prices might be lower in emerging economies due to more flexible labour markets
	Notes
	References