Report providing an empirical assessment of EU sectors ‘at risk’ and devising suitable indicators


The ENTRACTE research project is aiming to analyse the European climate policy portfolio with special emphasis on the role of interactions between its different parts. The project’s ultimate goal is to provide pragmatic guidance to policy makers for designing effective, cost efficient and politically and legally feasible climate policy portfolios.

An important concern is the risk to international competitiveness of unilateral climate policy. This risk is explored by looking at past differences in energy prices between countries. Specifically it is explored how firm level employment is affected by energy price disparities using a global firm level panel database (ORBIS). As findings estimates are highly sensitive to specific model assumptions. However, in the most general conventional regression model no evidence of a negative impact of energy prices on firm level employment is found. However, in this report a new kind of estimator is developed - the Worst case scenario estimator (WOCASCE) - that systematically tries to find the most dramatic impact of energy price gaps on firm level employment from a wide range of possible model specifications. This leads to moderately negative energy price elasticities ranging from -0.17 for the Chemical sector to -0.09 for the Iron&Steel sector; i.e. a 10% increase of energy prices in Chemicals relative to competitors would lead to a 1.7% reduction of employment in the worst case.

Author: Ralf Martin