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The Effects of Electricity Costs on Firm Re-location Decisions: Insights for the Pollution Havens Hypothesis?

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  • Matthew Panhans

    (Duke University)

  • Lucia Lavric

    (Encompass Economics)

  • Nick Hanley

    (University of St Andrews)

Abstract

Electricity costs are partly driven by environmental policy choices. In this paper, the effects of variations in electricity costs—as measured by end-user electricity prices–on firm relocation decisions are investigated. Using a discrete choice model and a data base that has not previously been exploited to study this problem, we investigate the effects of variations in electricity costs on the intensive and extensive re-location decisions of European firms. We find that electricity costs play a significant role in determining relocation destinations. This effect is asymmetric between firms moving into and out of a country, and between high and low energy intensity sectors. The findings of the paper have implications for the Pollution Havens Hypothesis, since they show the extent to which the effects of climate policy on domestic electricity costs can be expected to impact on firm relocation decisions both into and out of a country.

Suggested Citation

  • Matthew Panhans & Lucia Lavric & Nick Hanley, 2017. "The Effects of Electricity Costs on Firm Re-location Decisions: Insights for the Pollution Havens Hypothesis?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 68(4), pages 893-914, December.
    • Handle: RePEc:kap:enreec:v:68:y:2017:i:4:d:10.1007_s10640-016-0051-1
    DOI: 10.1007/s10640-016-0051-1
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

    Firm re-location; Energy costs; Pollution Havens Hypothesis; Climate policy; Carbon leakage;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • F18 - International Economics - - Trade - - - Trade and Environment
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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