Assessing the impact of energy prices on plant-level environmental and economic performance
Evidence from Indonesian manufacturers
This paper provides an empirical analysis of the impact of energy price increases
– induced notably by the removal of fossil fuel subsidies – on the joint environmental
and economic performance of Indonesian plants in the manufacturing industry for the
period 1980-2015. The paper shows that a 10% increase in energy prices causes a a
reduction in energy use by 5.2% and a reduction in CO2 emissions by 5.8% on average,
with more energy-intensive sectors responding more to the shocks. At the same time,
energy price increases increase the probability of plant exit and reduce employment
of large and energy intensive plants, but the estimated effect is very small (-0.2%
for a 10% increase in energy prices). Morevoer, energy price changes have no significant
influence on net job creation at the industry-wide level, suggesting that jobs are
not lost but reallocated from energy-intensive to energy-efficient firms. Overall,
the empirical evidence demonstrates that environmental fiscal reforms in emerging
economies like Indonesia can bring about large environmental benefits with little
to no effect on employment.
Published on March 25, 2021
In series:OECD Environment Working Papersview more titles