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Emission intensity and firm dynamics: reallocation, product mix, and technology in India

Listed author(s):
  • Geoffrey Barrows
  • Helene Ollivier

We study how market conditions shape aggregate CO2 emission intensity from manufacturing. We first develop a multi-product multi-factor model with heterogeneous firms, variable markups, and monopolistic competition in which each product has a specific emission intensity. Competition affects output shares across heterogeneous firms, product-mix across heterogeneous products, and technological choice within firm-product lines. We find that increased competition shifts production to cleaner firms, but has ambiguous effects on withinfirm changes in emission intensity via product-mix and technology adoption. Next, using detailed firm-product emission intensity data from India, we find core-competency products tend to be cleaner than non-core products; but since market conditions have induced Indian firms to shift production away from core-competency, product-mix has increased CO2 emission intensity in India by 49% between 1990-2010. These emission intensity increases are offset by reductions within firm-product lines and by across-firm share shifts, so aggregate emission intensity has actually fallen by 50%.

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Paper provided by Grantham Research Institute on Climate Change and the Environment in its series GRI Working Papers with number 245.

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Date of creation: Jun 2016
Handle: RePEc:lsg:lsgwps:wp245
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