Why is the USA so energy intensive? Evidence for US multinationals in the UK

Working Paper 15

Abstract

At present the USA is, in per capita terms, the top greenhouse gas polluter among the world’s major economies. This is mirrored by the high-energy intensity of all sectors of the US economy, including manufacturing industries.

A potential explanation for the higher energy intensity are lower US energy price levels. However, common price elasticity estimates are not high enough to explain the observed differences between countries.

Alternative explanations include:

• geographic or other locational differences;
• firm specific technology differences between US firms and others.

We explore the latter possibility by comparing establishments of US firms in Britain with other comparable firms, thereby ruling out locational differences.

We find that, on average, US firms are not more energy intensive when operating in Britain. However, US firms that have only recently entered the UK market are found to be significantly more energy intensive at an order of magnitude corresponding to the between country US-UK gap. This difference vanishes with increased duration of staying in the UK, with a considerable time lag. This suggests, firstly, that barriers to knowledge diffusion are an important concern, and, secondly, that the long-term response to a sustained price increase might be stronger than common price elasticity estimates suggest.

The study also provides, for the first time, estimates of energy price elasticities for the UK on the basis of representative plant-level panel data for the manufacturing sector.

Ralf Martin