Arlan Brucal (External Seminar)

Title: Assessing the impact of energy prices on plant-level environmental and economic performance: Evidence from Indonesian manufacturers (joint w/ Antoine Dechezleprêtre)

Abstract: The paper investigates the impact of policy-induced higher energy prices on the environmental performance and competitiveness of Indonesian firms using plant-level data covering all medium and large enterprises in the Indonesian manufacturing industry for the period 1980-2015. The study exploits geographic, industrial and temporal energy price variations to identify the causal effect of price increases on the performance of firms. Preliminary results show that a 10% energy price increase induces a reduction in energy use by 5.23%, higher than most estimates in developed-country settings, with minimal effect on average employment. In response to energy price shocks, Indonesian plants tend to update their capital stock towards more energy-efficient and/or energy-saving machineries and vehicles. Our approach also highlights the importance of considering not only surviving firms but also entry and exit when analysing the effects of energy price policies. At the micro-level, we find that higher energy prices increase the likelihood of plant exits. This kind of response is higher in magnitude for plants that are relatively more energy intensive.

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