Businesses, Innovation and Competitiveness

• The impact of environmental and climate policy on energy consumption, emissions and business productivity
• Production adjustments, innovation and the adoption of climate-friendly technologies
• The interplay between climate and industrial policy and its implications for business decisions
• International competitiveness, supply chain relationships and the relocation of production and emissions
   

The research priority ‘Businesses, Innovation and Competitiveness’ will further develop research into the impact of environmental and climate policy on businesses. Building on previous analyses of energy consumption, emissions and production, the aim is to focus more closely on firms’ adaptation mechanisms. The focus will be on changes to product portfolios, investment and innovation, as well as their implications for competitiveness and the spatial distribution of industrial production.

An initial focus will be on the manufacturing sector. The aim is to investigate the contribution made by more efficient production processes, changes to product portfolios and the relocation of production between firms. In doing so, research into varying energy prices and relief schemes will be expanded. The aim is to understand how these differences influence production decisions and the allocation of economic resources between firms. The analyses rely in particular on administrative micro-firm data and micro-econometric methods for identifying causal effects.

A second focus is on the interplay between climate and industrial policy in the context of European and international competition. Analyses are planned to examine which firms receive state aid and how this support influences investment, production and emissions. The aim is to investigate under what conditions industrial policy measures support decarbonisation or undermine climate policy incentives. Differences in regulation between countries will be taken into account, as will potential shifts in production and emissions. To this end, the European firm-level dataset ME-FINE is to be updated and expanded to include information on state aid. Linking financial indicators with emissions data will enable economic and environmental adjustments to be analysed jointly. In order to capture the consequences of climate and industrial policy measures beyond the immediate adjustments made by individual companies, quantitative trade models are to be utilised and further developed. The research will examine how different climate and industrial policy frameworks affect trade flows, production locations and the distribution of economic resources between countries and sectors within the European single market.

A third focus is on innovation and the introduction of climate-friendly production technologies. The aim is to examine how competition, profit expectations, and market entry and exit influence incentives for innovation and technological change. This will take into account barriers to replacing existing production facilities, as well as investment risks and financing conditions.

Methodologically, micro-econometric policy evaluations based on firm-level data are combined with quantitative trade and equilibrium models. This allows for the simultaneous analysis of firms’ adjustment responses and macroeconomic effects, and enables an assessment of their significance for emissions reduction, productivity and competitiveness.