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Businesses are crucial to solving
the UK’s productivity problems.

Do climate policies explain the productivity puzzle?

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. We investigate this possibility in the case of the regulated energy network industries in a sample of OECD countries over the period 1998-2016. Our analysis is twofold. First, using the growth accounting method, we 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, we identify the impact of climate policies on productivity levels. We find that energy and climate policy indirectly reduced energy sector and economy-wide productivity.

Author Victor Ajayi, Geoffroy Dolphin, Karim Anaya, Michael Pollitt

Themes

  • Knowledge Capital

Published

25/01/2022

Cite

V. Ajayi, G. Dolphin, K. Anaya, M Pollitt (2022) V. Ajayi, G. Dolphin, K. Anaya, M Pollitt (2022) Do climate policies explain the productivity puzzle? Evidence from the Energy Sector. Working Paper No. 016, The Productivity Institute.

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