Energy Costs and Competitiveness in Europe

40 Pages Posted: 28 May 2020

Date Written: February 12, 2020

Abstract

The worldwide upswing in energy prices recorded in the last decade has placed decarbonization strategies, and their potentially negative consequences for firms’ costs and competitiveness, at the centre of the European policy debate. We evaluate the relevance of energy policies for competitiveness by augmenting the standard analysis, largely based on labour costs, with a Unit Energy Cost (UEC) indicator. We analyse how the UEC evolved in different countries and industries and we assess its main drivers (prices, energy intensity, sector composition). Modelling the relationship between foreign sales and the UEC in a gravity model setup, we find that an increase in UECs reduces bilateral exports; the largest negative effects are obtained when limiting the analysis to euro-area countries. Our results strengthen the case for pursuing further integration of European energy markets (as provided for in the Energy Union and Winter packages) to ensure that the ambitious long-term European decarbonization targets do not have a negative impact on the euro-area industry’s ability to compete worldwide.

Keywords: firms’ costs, energy, competitiveness, decarbonization, EMU

JEL Classification: C53, D24, Q41

Suggested Citation

Faiella, Ivan and Mistretta, Alessandro, Energy Costs and Competitiveness in Europe (February 12, 2020). Bank of Italy Temi di Discussione (Working Paper) No. 1259, Available at SSRN: https://ssrn.com/abstract=3612802 or http://dx.doi.org/10.2139/ssrn.3612802

Ivan Faiella

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Alessandro Mistretta (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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