Energy Cost Pass-Through in U.S. Manufacturing: Estimates and Implications for Carbon Taxes

Sharat Ganapati, Joseph S. Shapiro, Reed Walker

NBER Working Paper No. 22281
Issued in May 2016, Revised in July 2019
NBER Program(s):Environment and Energy Economics, Industrial Organization, International Trade and Investment, Public Economics, Productivity, Innovation, and Entrepreneurship

We study how changes in energy input costs for U.S. manufacturers affect the relative welfare of manufacturing producers and consumers (i.e., incidence). We also develop a methodology to estimate the incidence of input taxes which accounts for incomplete pass-through, imperfect competition, and substitution amongst inputs. For the several industries we study, 70 percent of energy price-driven changes in input costs get passed through to consumers in the short- to medium-run. The share of the welfare cost that consumers bear is 25-75 percent smaller (and the share producers bear is larger) than models featuring complete pass-through and perfect competition would suggest.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w22281

Published: Sharat Ganapati & Joseph S. Shapiro & Reed Walker, 2020. "Energy Cost Pass-Through in US Manufacturing: Estimates and Implications for Carbon Taxes," American Economic Journal: Applied Economics, American Economic Association, vol. 12(2), pages 303-342, April. citation courtesy of

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