Energy costs and export competitiveness: evidence from Australian industries

Mathew Horne and Claire Reynolds

Research Paper 4/2016 |

Energy costs’ impact on industrial competitiveness is not well known in Australia. This paper investigates this question empirically by undertaking a two-part analysis. First, the impact of energy price changes on industrial energy efficiency is tested using Australian data from 2002–03 to 2013–14. The short-term energy efficiency response is found to be small, on average, across 1-digit industries. But rather than an inefficient price mechanism, it is more a reflection of the difficulty in immediately changing energy use behaviour. The energy efficiency response is expected to be larger over longer time periods and for more energy intensive sectors, though data limitations prevented this from being tested definitively. The second part of this paper tests whether energy costs impact on export competitiveness. No discernible effect is found for a selection of 1-digit industries. However, when the focus shifts to more energy intensive manufacturing industries, a rise in energy costs is shown to have a small detrimental impact on export competitiveness, as measured by revealed comparative advantage (RCA). The significance of energy costs to export competitiveness is generally overshadowed by other factors.

JEL Codes: P18, Q4

Keywords: Energy, Competitiveness, Energy costs, Energy intensity, Energy efficiency, Energy prices, Revealed Comparative Advantage

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