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Profit Decomposition: Analyzing the Pathway from Carbon Dioxide Emission Reduction to Revenues and Costs

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  • Andewi Rokhmawati

    (The Faculty of Economics and Business, Universitas Riau, Kampus Bina Widya, Riau, Indonesia.)

Abstract

In 2009, the Indonesian Government has introduced regulation on reducing carbon dioxide (CO2) emission known as energy management to follow up its commitment to reduce CO2 emission that was ratified in the Kyoto protocol. The regulation mandates companies in Indonesia which consumed more than 6000-tonne of oil equivalent (TOE). The obligation to reduce CO2 emission has an implication to the companies that the company has to implement strategies incorporating an expensive investment. Through investment, the company s sales are expected to increase and costs are expected to decrease. Several conceptual frameworks have been developed to identify through which pathway CO2 emission reduction can gain profits for companies but a little study (if any) has been done to analyze the pathways of CO2 emission reduction that can improve companies profits. This study aims to examine the pathway of CO2 emission reductions to the profits generated by revenues and costs. The purposive sampling method was used to obtain data from 384 companies that consumed 6000- TOE from 2016-2017 in Indonesia. The multiple regression analysis with ordinary least square was used to analyze their relationship. The results showed that in the case of Indonesia, the CO2 emission reduction can generate profits through both pathways namely revenue improvement and cost-efficiency. The increase in revenues and decrease in cost are due to their ability to meet customers interests, the positive responses of stakeholders in compliance with the regulation to reduce CO2 emissions, and the investment of environmentally friendly machinery.

Suggested Citation

  • Andewi Rokhmawati, 2020. "Profit Decomposition: Analyzing the Pathway from Carbon Dioxide Emission Reduction to Revenues and Costs," International Journal of Energy Economics and Policy, Econjournals, vol. 10(4), pages 150-160.
    • Handle: RePEc:eco:journ2:2020-04-19
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    More about this item

    Keywords

    CO 2 emissions; costs; decomposition; profit; revenues.;
    All these keywords.

    JEL classification:

    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • G3 - Financial Economics - - Corporate Finance and Governance

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