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Energy-Augmenting Productivity and Carbon Pricing: Evidence from Production Microdata

Author

Listed:
  • Tatsuya Abe

    (Graduate School of Economics, Hitotsubashi University, 2-1 Naka, Kunitachi, Tokyo, Japan.)

  • Arlan Brucal

    (The World Bank Group, 1818 H Street, NW, Washington, DC, USA.)

  • Yuta Toyama

    (School of Political Science and Economics, Waseda University, 1-6-1 Nishi-Waseda, Shinjuku-ku, Tokyo, Japan.)

Abstract

How does directed technological change toward energy efficiency shape the effects and design of carbon pricing? We estimate a structural production function that separates energy-augmenting productivity from Hicks-neutral productivity using Indonesian manufacturing microdata. Exploiting energy-price variation from fossil-fuel subsidy reforms, we find that higher energy prices induce energy-augmenting productivity growth. Counterfactual simulations show that heterogeneity in energy-augmenting productivity, rather than Hicks-neutral productivity, drives the welfare advantage of carbon pricing over uniform regulation. When carbon pricing induces energy-augmenting innovation, aggregate emissions fall further, although a rebound effect partially offsets this additional abatement. Effective carbon-pricing design should account for productivity heterogeneity, induced innovation, and rebound effects.

Suggested Citation

  • Tatsuya Abe & Arlan Brucal & Yuta Toyama, 2026. "Energy-Augmenting Productivity and Carbon Pricing: Evidence from Production Microdata," RIEEM Discussion Paper Series 2603, Research Institute for Environmental Economics and Management, Waseda University.
    • Handle: RePEc:was:dpaper:2603
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    Keywords

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    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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