Does climate change pose a risk to competitiveness? - Global firm level evidence


An important concern is the risk to international competitiveness of unilateral climate policy. We explore this risk by looking at past differences in energy prices between countries. Specifi- cally we explore how firm level employment is affected by energy price disparities using a global firm level panel database (ORBIS). We find that estimates are highly sensitive to specific model assumptions. However, in our most general conventional regression model we do not find any ev- idence of a negative impact of energy prices on firm level employment. However, we also develop a new kind of estimator - 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 specificaitons. This leads to moderately negative energy price elas- ticities 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.