Do Manufacturing Plants Respond to Exogenous Changes in Electricity Prices? Evidence From Administrative Micro-Data

Climate change is the result of global market failure and remedying the situation requires effective policy action. Climate policies often increase energy prices thereby affecting all actors in the economy. Concerns about competitiveness impacts of unilateral policies hamper the development of effective policies. 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 detailed 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.

von Graevenitz, Kathrine and Elisa Rottner (2022), Do Manufacturing Plants Respond to Exogenous Changes in Electricity Prices? Evidence From Administrative Micro-Data, ZEW Discussion Paper No. 22-038, Mannheim.