Climate Policies and Electricity Prices: Why Abate When You Can Generate?

Climate policies often increase electricity prices by more than they increase prices of fossil fuels. Using administrative data on German manufacturing plants from 2009 to 2017, we provide evidence that these price changes induce plants to generate electricity onsite using fossil fuels. Not all manufacturing plants are subject to emissions pricing under the EU’s Emissions Trading System, and we find evidence of emissions leakage: Electricity generation shifts from regulated power plants to unregulated manufacturing plants.

von Graevenitz, Kathrine und Elisa Rottner (forthcoming), Climate Policies and Electricity Prices: Why Abate When You Can Generate?, American Economic Journal: Economic Policy