How do Swedish industry respond to improved energy efficiency?

 

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Golnaz Amjadi has studied the impacts of energy efficiency improvements in Swedish manufacturing firms using a detailed firm-level datasets for the Swedish manufacturing industry consisting of 14 sectors spanning the period 1997–2008. Her research suggests that manufacturing firms have generally potential to improve energy efficiency, but paradoxically, improved energy efficiency can increase a firm’s energy use.

Golnaz Amjadi, the Centre for Environmental and Resource Economics (CERE) and Umeå School of Business Economics and Statistics.

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- Broadly speaking, the main source(s) of energy inefficiency are long run shortcomings mainly related to structural rigidities connected to technology and/or management issues. Manufacturing firms which improve their efficiency in the use of energy, may further respond to such improvement by increasing their energy use, this is called energy rebound effects. The reason is that energy efficiency improvement lowers the price of energy service and that may result in an increased energy consumption. An intuitive and widely used example of energy rebound effect is that if one upgrades to a more fuel-efficient car, then he/she might drive more kilometers since the price of fuel per kilometer for this person is lower after this upgrade. This does not mean that improved efficiency is harmful. Indeed, higher energy efficiency is welfare enhancing. I measured the size of energy rebound effect for manufacturing firms, and found that the size of this effect is generally substantial. However, rebound effect does not totally offset the energy and emission savings expected from efficiency gains. This result help to set realistic energy and climate targets and to design policy mandates that show an awareness of accounts for behavioral responses to energy efficiency improvements, Golnaz Amjadi continues.

Environmental regulations pose little threat to industrial jobs

In the public and academic debate on environmental regulations, concerns are raised about a potential “jobs versus the environment” conflict. Labor unions and trade groups argue that environmental regulations impose extra costs on producers. The output prices increase and demand for the outputs decrease. Firms scale down their production and employment levels.
- When studying this data, I can find no substantial trade-off between the environment and jobs, suggesting that environmental regulation has no large effect on employment. However, the results show that the negative effects become relatively larger for firms exposed to world market competition, says Golnaz Amjadi.

- I hope that this thesis contributes to policy design and provides more insights into the relationships between major policy objectives in Sweden (such as energy efficiency improvement, preservation of the environment/climate, and employment) in order to better understand how industrial firms react to these policies, and how those reactions in turn affect whether policy goals are met, Golnaz Amjadi concludes.

Golnaz Amjadi is a doctoral student at the Centre for Environmental and Resource Economics (CERE), Umeå School of Business, Economics and Statistics, Umeå University. She holds a Master in Economics and Econometrics from Örebro University, Sweden, and a bachelor in Economics from Ferdowsi University of Mashhad, Iran. Since October 2018, she joined the Research Division of STATEC (STATEC Red) in Luxembourg to work on productivity and efficiency related subjects.

Download the thesis: Essays on energy efficiency, environmental regulation and labor demand in Swedish industry