Abstract
Little is known about how firms change energy consumption over time. Yet, to meet global climate change targets, understanding how changes in firm investment impact environmental performance is important for policymakers and firms alike. To investigate the environmental performance of firms, we measure the energy consumption and efficiency of firms in the Netherlands’ manufacturing industries before and after large capital expenditures over the 2000 to 2008 period. Unique to this data set is that firm investment is decomposed into the following three streams: investment in buildings only, investment in equipment only, or a simultaneous investment in both buildings and equipment. We find that firms increase energy consumption when experiencing a simultaneous investment. However, after large capital expenditures, energy efficiency increases. Further decomposition by firm types suggests that the building capital investments of firms active in high-tech, energy-intensive, and low labor-intensive industries do not coincide with energy efficiency improvements while energy efficiency does increase with capital expenditures in equipment. From a policy perspective, it is important for regulators to understand firm investment and production processes, which help regulators understand when and where energy efficiency increases are feasible across firm types and expansionary production strategies. Firms, regulators, and other third parties may work together to develop an energy efficiency plan in line with investment strategies, including enhanced transparency by firms, energy efficiency subsidies, and R&D tax credits, for innovation. Targeted agreements may work to cooperatively improve energy performance.
Highlights
Firm output in the industrial sector is very energy-intensive
We investigate how Energy Efficiency (2019) 12:2011–2038 the energy performance of firms active in the energyintensive industrial sector develops around episodes of unusually large capital investments—so-called investment spikes (Power 1998)
By comparing the simultaneous development of firms’ energy performance and of their operational efficiency surrounding capital investment spikes, we investigate if environmental goals conflict with—or rather complement—competitive goals
Summary
Firm output in the industrial sector is very energy-intensive. In the US, industrial sector energy consumption in 2010 was 625 million tons of oil equivalent (TOE) or one third of total consumption (US Energy Information Administration 2014). Policymakers have sought to change this energy intensity by incentivizing capital investments towards energy efficiency through stricter building codes and more stringent equipment standards in the industrial sector (Acemoglu et al 2014; Acemoglu et al 2009). Papineau (2013) has shown similar results for commercial buildings. These studies suggest that policymakers could attain environmental goals by shifting energy codes towards a more progressive energy efficiency outcome through stimulating firms to conduct capital investments embodying recent general technological change in energy efficiency
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