European Industrial Energy Intensity: Innovation, Environmental Regulation, and Price Effects

We investigate the direct role of technological innovation and other factors influencing industrial energy intensity across 17 EU countries over 1995–2009. We develop an innovative industry-level patent dataset and find compelling evidence that patent stock negatively influences industrial energy intensity. In particular, we find a much stronger effect of patent stock on energy-intensive industries with an estimated coefficient of –0.138 which almost double that of less energy-intensive industries (estimated at –0.085). While our results show that energy price remains the major determinant of energy intensity, the chemicals industry, which is not covered by the EU Emissions Trading Scheme (ETS) during the sample period, appears more susceptible to energy prices relative to other energy-intensive industries that are covered by the EU ETS. Exploring regional differences in carbon taxation, we find a significant decline in energy intensity in Northern Europe owing to the carbon tax policy implemented in the early 1990s across the Nordic countries.