Job Market Paper

Make or buy? Allocative energy efficiency in production networks
with Giacomo Romanini

How energy efficient is the allocation of production over the network? Firms vastly differ in the energy they need to produce the same input, so the aggregate energy used in a supply chain depends on which producer is selected at each step. We show that, when market prices do not reflect the social cost of emissions, they distort this selection, generating a new extensive margin of energy-use misallocation across producers. Quantifying this margin requires accounting for in-house production: the actual producer of an input may be the buyer itself, and firm-level energy efficiency can only be identified controlling for firm boundaries. We embed a model of make-or-buy decisions in a sequential production network calibrated to Italian firm-to-firm transaction data, and develop a method to infer each firm's unobserved in-house input set. Comparing actual to potential producers, we document large energy efficiency gaps: for most inputs, a more energy-efficient producer is available. Many of these gaps are justified by sourcing gains, but correcting the rest is consequential, cutting the total energy needed per unit of output by 12% and accounting for around a tenth of the welfare gains from optimal carbon pricing.

Presented at: Sciences Po · UZH · Yale · Applied Young Economists’ Webinar · Banca d’Italia/CEPR/EIEF/World Bank Conference on Firm Dynamics, Investment and Aggregate Growth · CEPR Climate Change and the Environment Symposium · CEPR Paris Symposium · FNRS Namur Summer School · PSE-CEPR Policy Forum · SAEE Student Workshop · Swiss Macro Workshop · STEG Annual Conference · UZH Environmental Policy for the Green Transition Workshop · Workshop on International Economic Networks (WIEN)

Working papers

The power of industrial policy: the global impact of chinese subsidies on solar innovation and emissions reduction
with David Hémous and Claudia Gentile (Draft coming soon!)

Solar panel production costs have experienced a dramatic decline in the last two decades. This trend is concomitant with the remarkable rise of China as a global solar producer, in part sparked by industrial policies. We study the impact of the introduction of subsidies for the solar manufacturing sector in China on innovation, emissions reduction, and output at the global level. We use firm-level patent data to show that the increase in Chinese competition in the solar PV manufacturing sector driven by the policy had a negative impact on innovation in the rest of the world. Building on this observation, we develop an open economy growth model with endogenous innovation in solar and non-solar energy technologies to evaluate the overall effect of Chinese industrial policies on solar panel costs, through their counteracting effects on domestic and foreign innovation, combined with their positive effects on production. Our preliminary calibration using US and Chinese data highlights the crucial role of the global innovation response. In the short run, industrial policies have an unambiguously positive impact on the development of the solar energy sector. However, in the long run, the impact on the solar sector is positive with exogenous technological changes, while it turns negative once the global innovation response is taken into account, delaying the clean transition.

Presented at: Bank of Italy · LSE · University of Geneva · University of Oslo · UZH · Annual Congress of the Swiss Society of Economics and Statistics · Barcelona Summer Forum · Columbia New Thinking in Industrial Policy Conference · Energy, Trade and Decarbonization Sloan-NBER conference · IEA World Congress · Imperial-LSE Environment Workshop · Nottingham Trade Workshop · PSE Green R&D and Industrial Policy in Open Economies Workshop · Swiss Workshop on Environmental, Resource and Energy Economics

Carbon Tax and Labor Reallocation: The Role of Firm Heterogeneity and Energy Efficiency
with François Fontaine and Katheline Schubert

This paper studies how firm-level heterogeneity in energy efficiency shapes labor reallocation in response to carbon taxation. Using French administrative data, we document a strong positive correlation between value-added per unit of labor and per unit of energy, with more energy-efficient firms exhibiting higher hiring rates. To analyze the impact of an increase in carbon taxation, we develop a structural search and matching model incorporating firm differences in productivity, energy intensity, and energy mix. We find that a carbon tax operates as a firm-specific productivity shock, generating heterogeneous employment responses and inducing substantial worker reallocation across firms. While labor market frictions give rise to short-run employment and wage adjustments, the resulting reallocation toward more energy-efficient and lower-emission firms amplifies the environmental impact of the policy.

Presented at: Sciences Po · UC Louvain · Aarhus Workshop on Labor Markets · Barcelona Summer Forum · EEA-ESEM Congress · PSE-CEPR Policy Forum · SED · WCERE

Work in progress

Firms’ response to energy price shocks
with François Fontaine

This project studies how firms adjust to changes in their energy costs, using French administrative data combining employment, energy consumption, and firm performance in the manufacturing sector. We combine a dynamic panel methodology with a shift-share strategy to separate permanent from transitory energy price shocks, a distinction that is key when using such shocks to evaluate carbon taxation, which is perceived as largely permanent. Preliminary results suggest that firms adjust more to permanent shocks, and through different channels, with headcount responding mostly to permanent shocks and working hours to transitory ones. We then apply these estimates to measure the potential effects of a uniform increase in carbon taxation on labor reallocation, across firms, sectors, and employment zones.

Presented at: UZH · 6th International Conference on European Economics and Politics

Energy efficiency within firm boundaries
with Giacomo Romanini

This project studies how firm boundaries shape investments in energy-efficient technologies. The returns to such investments depend on firms' make-or-buy decisions: in-house production raises the direct gains from efficiency, synergies across similar inputs save energy through scale, and outsourcing gains free resources for the fixed costs of investment. We develop a model of joint sourcing and investment decisions calibrated to the universe of Italian firm-to-firm transactions, and derive implications for designing environmental policies when firm organization and technology are jointly determined.

Policy Reports

Choc de l’énergie, prix du carbon et emploi : une analyse sur données individuelles
Fontaine F., Marullaz C. (2023), Conseil d’Analyse Économique, Focus 102, Novembre 2023