Carbon intensity in production and the effects of climate policy—Evidence from Swedish industry

We analyze carbon intensity performance at firm level and the effectiveness of the Swedish CO₂ tax. Carbon intensity performance is derived from a production technology and measured as changes in the CO₂ emission-output production ratio. As one of the first countries to introduce a CO₂ tax in 1991, Sweden serves as an appropriate “test bench” for analyzing the effectiveness of climate policy in general. Firm level data from Swedish manufacturing spanning over the period 1990–2004 is used for the analysis. Results show that EP has improved in all the sectors and there is an evidence of decoupling of output production growth and CO₂ emissions. Firms' carbon intensity performance responds both to changes in the CO₂ tax and fossil fuel price, but is more sensitive to the tax. - Highlights: • We analyze environmental performance (EP) at the firm level and the effectiveness of environmental policy in Swedish industry 1990–2004. • Results show that EP has improved in all sectors of manufacturing. • We also see a decoupling of economic growth and emissions. • Firms' EP responds to changes in the CO₂ tax and fossil fuel price, but is more sensitive to the tax