The Impact of a Carbon Tax on Manufacturing: Evidence from Microdata

Abstract

We estimate the impact of a carbon tax on manufacturing plants using panel data from the UK production census. Our identification strategy builds on the comparison of outcomes between plants subject to the full tax and plants that paid only 20% of the tax. Exploiting exogenous variation in eligibility for the tax discount, we find that the carbon tax had a strong negative impact on energy intensity and electricity use. There is no evidence of an adverse impact on employment, revenue or plant exit.

Keywords: carbon tax, climate change levy, energy use, manufacturing, panel data, policy evaluation, UK

JEL Classification: Q41, Q48, Q54, D21, H23