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Reference Number ES/N016971/1
Title Assessing the trade and innovation impacts of climate change policies: do they help UK firms or competitors abroad?
Status Completed
Energy Categories OTHER CROSS-CUTTING TECHNOLOGIES or RESEARCH(Environmental, social and economic impacts) 20%;
Research Types Basic and strategic applied research 100%
Science and Technology Fields SOCIAL SCIENCES (Business and Management Studies) 80%;
SOCIAL SCIENCES (Development Studies) 20%;
UKERC Cross Cutting Characterisation Not Cross-cutting 60%;
Sociological economical and environmental impact of energy (Environmental dimensions) 20%;
Sociological economical and environmental impact of energy (Other sociological economical and environmental impact of energy) 20%;
Principal Investigator Dr M Sato
No email address given
Grantham Research Inst on Climate Change
London School of Economics and Political Science (LSE)
Award Type Standard
Funding Source ESRC
Start Date 01 October 2016
End Date 30 September 2018
Duration 24 months
Total Grant Value £127,494
Industrial Sectors
Region London
Programme Training
Investigators Principal Investigator Dr M Sato , Grantham Research Inst on Climate Change, London School of Economics and Political Science (LSE) (100.000%)
Web Site
Abstract This project proposes the first detailed analysis of how climate change policies implemented in one region can simultaneously influence business decisions on innovation and trade activities. It uses UK firm level (micro-)data covering all manufacturing sectors, and asks if UK and EU climate policies indeed help regulated firms to boost innovation activity and exports as intended, or if firms instead react by shifting both production and innovation activity abroad. Specifically, I will focus on two research questions: Q.1 Is there evidence that climate change regulations in the UK cause manufacturing companies to outsource the production of pollution intensive input materials? If so, does outsourcing to low production cost countries lead to higher innovation in these countries (innovation leakage)? And Q.2 Do climate change regulations in the UK increase innovation in clean technologies in regulated companies, and if so, does it improve firms' export competitiveness?Existing studies fail to find compelling evidence on whether climate policies lead to positive or adverse effects on firms' competitiveness. This is problematic because it makes the issue around competitiveness a highly politicised and contentious one, and prevents countries such as the UK from undertaking more ambitious climate policies to aid the low carbon transformation of their economies.This project takes a new approach to examining the evidence. Existing research tends to assess impacts of climate change policy on a single measure of competitiveness, be it export volumes, employment or innovation activity. However, jointly assessing how policy simultaneously impacts multiple dimensions of competitiveness has been recently identified as a key gap in the literature (Dechezlepretre and Sato 2014). This is because in the real world, the same policy can have opposing effects on different indicators of competitiveness. This project quantifies the link between two economic adjustments - innovation and trade - as well as the trade-offs between them. This will mark a significant step in deepening our understanding of the highly complex business response to regulation and contribute to improving the design of climate policies, which requires fine-tuning in order to balance multiple policy goals with multiple impacts.This project will construct and exploit a new and rich micro-database of over 40,000 UK companies in the manufacturing sectors through access to several channels including the host institution, the ESRC funded UK Data Service Secure Lab and the HMRC Datalab. I will construct two core datasets that combines trade (imports and exports), innovation (patenting activity) and basic firm characteristics (economic variables). Using microdata is advantageous not only because competitiveness impacts take place at the level of a company, but also because climate polices tend to concern only a small share of companies within economic sectors. Few other research papershave used the UK microdata in this field of research, making this research unique. The statistical analyses will use a range of data management and advanced econometric techniques which I have developed throughout my PhD and post-doctorate training (e.g. fixed effects panel data estimations, instrumental variables, propensity score matching and non-parametric matching).The primary beneficiaries of this research are policy makers operating in the area of climate change mitigation. It will inform the design of more efficient policies to control industry emissions by illuminating where policy needs to be strengthened, whether it be more support for innovation or more robust measures against trade distortions. The outcomes of this research will provide new and valuable evidence to support a number of other discussions including the negotiations on liberalising trade in low-carbon goods and policies to boost innovation activity in low carbon technologies.
Publications (none)
Final Report (none)
Added to Database 29/09/17