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Econometric analysis of the paper industry competitiveness: the role of energy costs

Panel: 3. Matching policies and drivers: Policies and directives to drive industrial efficiency

This is a peer-reviewed paper.

Authors:
Mathieu Bordigoni
Alain Hita, EDF R&D, France
Gilles Le Blanc, Mines ParisTech, France

Abstract

The energy issue is considered crucial for the paper industry competitiveness. Indeed, the paper industry is one of the most energy-intensive industries. Other competitiveness factors are also important to explain the evolution of national paper industries, such as wages, productivity or raw materials abundance. Consequently, a proper understanding of what is driving the paper manufacturing location is necessary to assess future industrial consequences of increasing energy costs.

This study analyses the effect of national differences in energy costs on the international trade of paper products. A gravity model is performed on a dataset of 32 countries for the 1995–2006 period. By this way, the impact of energy costs among others competitiveness determinants is isolated. The hypothesis is that higher energy costs reduce export flows. Our main contribution is to measure quantitatively this energy effect across paper producing countries. For this purpose, a new dataset combining energy and economic data on this industry has been developed. Energy costs, not only prices, are used.

Results indicate that differences in national energy costs per ton of paper produced, either for electricity or fossil fuels, play a significant role on the international trade. Higher energy costs in the exporting country, relatively to the importing country, decrease the level of paper exports. In fact, the study on bilateral flows demonstrates that a rise of 10% in electricity or in fuels costs ratios between two trading countries, results respectively in a 0.92% or in a 1.37% decrease in exports.

These results are helpful for the design of an energy policy, as for energy taxation or changes in the energy mix of a country (e.g. introduction of renewable energy). Energy costs do not involve only energy prices but also the energy efficiency of paper production processes. Increase in energy expected costs can thus be interpreted in terms of competitiveness for the paper industry.

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