To abate or to generate? Climate policies and electricity prices | Kathrine von Graevenitz

Kathrine von Graevenitz is deputy head of the Department of Environmental and Climate Economics at the ZEW – Leibniz Centre for European Economic Research in Mannheim, Germany, and Professor of Empirical Environmental Economics at the University of Mannheim.

Professor Kathrine von Graevenitz will present the paper To Abate or to Generate? Climate Policies and Electricity Prices’ written with Elisa Rottner.

Abstract

Climate change is the result of global market failure and remedying the situation requires effective policy action. Concerns about competitiveness impacts of unilateral policies hampers the development of effective policies. Climate policies often result in increasing electricity prices which indirectly affect all actors in the economy. We provide causal evidence on how industrial plants respond to electricity price increases. Our research design uses exogenous variation in German electricity prices in combination with administrative data on German manufacturing plants. We find that rising electricity prices led German manufacturing plants to significantly reduce their electricity procurement with an own-price elasticity of -0.4 to -0.6 on average and substantial variation across procurement levels. They also induced industrial users to replace electricity procurement by electricity generated onsite contributing to a decentralization of electricity generation. We find no statistically significant negative effects on competitiveness indicators.

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