THE NEXUS BETWEEN TYPE OF ENERGY CONSUMED, CO2 EMISSIONS, AND CARBON-RELATED COSTS

Andewi Rokhmawati

doi:10.32479/ijeep.9246

Abstract

Reducing carbon emissions while minimizing carbon costs is the main objective of Indonesian carbon management. Using data from 2016, this article focuses on 475 Indonesian manufacturing firms with consumption greater than 6,000 tons of oil equivalent mandated by regulation to reduce their emissions. This study examines the effect of the type of energy consumed on carbon-related costs, with CO2emissions as the mediating variable. The study decomposes the type of energy consumed, namely into coal, natural gas, diesel, and electricity. The results show that: 1) Coal, natural gas, diesel, have a positive effect on CO2emissions; electricity has a negative effect on CO2emissions; 2) electricity, and CO2emissions have a negative effect on costs; and 3) CO2emissions significantly mediated the effect of coal, natural gas, diesel, and electricity on costs. The findings imply that firms' investment in an efficient machine and technology required to reduce CO2emissions, as mandated by the regulation, has seemingly been unable to reduce the CO2emissions produced by fossil fuels but has been able to reduce CO2emissions from consumed electricity. Moreover, such investment seems able to reduce carbon-related costs. Policymakers should review the Indonesian energy mix from fossil fuels and socialize to firms that using the source of power from electricity is cleaner and cheaper than fossil fuels so that firms may be considered to shift fossil fuels energy into electricity. Hence, the government should ensure the availability of electricity supply generated from cleaner energy sources.Keywords: CO2; Costs; Electricity; Energy Management; Fossil Fuels; Path AnalysisJEL Classifications: Q4; Q51; L5DOI: https://doi.org/10.32479/ijeep.9246

Highlights

It is no longer acceptable to state that in business, a firm can aim solely at maximizing its profits with no associated obligation to consider the impacts arising from its activities
The skewness and kurtosis statistics reveal that the data are not normally distributed, indicating that the use of linear regression based on ordinary least squares (OLS) was not suitable
The Effect of Coal, Natural Gas, Diesel, and Electricity on CO2 Emissions The consumption of coal, natural gas, and diesel has a positive and significant effect on CO2 emissions. This positive effect means that an increase in the consumption of coal, natural gas, and diesel is followed by an increase in CO2 emissions

Summary

Introduction

It is no longer acceptable to state that in business, a firm can aim solely at maximizing its profits with no associated obligation to consider the impacts arising from its activities. Fossil fuels are very important concerning the production process. Stern (2006) argued that rising year-on-year energy consumption renders energy efficiency efforts very important. This is due to the finite and non-renewable nature of the world’s fossil fuel resources. The inefficient use of energy results in increased energy consumption costs and an increase in CO2 emissions. Hatzigeorgiou et al (2010) suggested that reducing the consumption of fossil fuels and electricity will reduce emissions. The intensity of CO2 emissions has become one of the important benchmarks for evaluating the environmental performance of a firm’s activities (DEFRA, 2006; WBCSD and WRI, 2004)

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Conclusion