Assessing the Economic Impacts of Environmental Policies
Evidence from a Decade of OECD Research
Over the past decades, governments have gradually adopted more rigorous environmental policies to tackle challenges associated with pressing environmental issues, such as climate change. The ambition of these policies is, however, often tempered by their perceived negative effects on the economy. The empirical evidence in this volume – covering a decade of OECD analysis – shows that environmental policies have had relatively small effects on economic outcomes such as employment, investment, trade and productivity. At the same time, they have been effective at reducing emissions from industry. The policies can however generate winners and losers across firms, industries and regions: while the least productive firms from high-polluting sectors are adversely affected, more productive firms and low-pollution sectors benefit. Environmental policies can be designed and combined with other policies to compensate workers and industries that may lose and to emphasise their positive impacts.
Impacts of energy prices on economic and environmental performance in the Indonesian manufacturing sector
This chapter focuses on the environmental and economic effects of energy prices in the Indonesian manufacturing sector. In a similar vein to the previous chapter, this chapter evaluates the joint environmental and economic effects of changes in energy prices but this time focusing on an emerging economy. The study uses a rich national dataset, which covers the whole population of medium-sized and large Indonesian manufacturing plants and makes use of geographic, industrial and temporal energy price variations to pursue a causal analysis. The study finds that a 10% increase in energy prices leads to a decline in energy use by 5.2% and to a decline of CO2 emissions by 5.8%, alongside small, heterogeneous effects on employment. Smaller plants seem to increase their number of workers in response to higher energy prices while larger plants show a slight reduction in employment. Energy price shocks seem to trigger investment in more energy-efficient machinery. Moreover, the probability of plant exit rises particularly for energy-dependent plants in times when energy prices are rising. An additional analysis at the industry-level shows no effects on aggregate net job creation, suggesting that rising energy prices lead to a reallocation of workers but not to permanent employment losses.
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