Energy taxes, voluntary agreements and investment subsidies-a micro-panel analysis of the effect on Danish industrial companies' energy demand

A model of industrial companies' demand for energy is estimated on a large micro-panel database in order to quantify the effect of different applied policy instruments (CO2 tax, voluntary agreements and subsidies to investments in energy reduction). An average energy price elasticity at -0.44 was estimated. It is also found that energy price elasticities are lower for energy-intensive companies as compared with energy-extensive companies. Results suggest that the voluntary agreements have yielded a significant reduction in energy demand. The empirical results support the projection from recent theoretical models that voluntary agreements, which are backed up by a strong threat of alternative regulation, may protect the environment even more than the regulation used as threat. (C) 2002 Elsevier Science B.V. All rights reserved.