Working paper

Do climate policies explain the productivity puzzle? Evidence from the energy sector

Utilities regulation Energy industries Environmental impacts Sector regulation Productivity

Productivity growth in advanced economies has slowed. What accounts for it remains a puzzle. One possible explanation lies with the increased stringency of environmental regulations. The authors investigate this possibility in the case of the regulated energy network industries in a sample of OECD countries over the period 1998-2016. The analysis is twofold. First, using the growth accounting method, they estimate total factor productivity (TFP) growth in the electricity and gas sectors and find that these exhibit a lower TFP growth than the whole economy over the period. TFP growth falls further post-financial crisis. Second, they identify the impact of climate policies on productivity levels. The authors find that energy and climate policy indirectly reduced energy sector and economy-wide productivity.

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Productivity Institute Working Paper 16