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The Impact of Rising Electricity Prices on Energy-Intensive Industries

The World Bank's working paper titled "Energy Prices, Energy Intensity, and Firm Performance" investigates how increasing electricity prices affect the performance of firms, particularly in energy-intensive industries. The study focuses on a sample of 24 emerging market and developing economies (EMDEs) over the period from 2019 to 2023. The findings reveal significant insights into the relationship between electricity costs and firm performance metrics such as productivity, sales, and employment.

One of the key findings of the paper is that a 1 percent increase in electricity prices leads to a 1.5 percent reduction in employment at firms within energy-intensive sectors that have not adopted energy efficiency measures. This decline in employment is notably more pronounced compared to firms in less energy-intensive industries. The results suggest that while firms may experience some increase in productivity and sales with rising electricity prices, these outcomes are not consistently reliable across different analytical models.

The paper emphasizes the critical importance of integrating industry-level energy dependence with firm-level energy efficiency initiatives. Understanding this relationship is essential for comprehending how fluctuations in energy prices impact firm performance.

The findings indicate that firms that do not implement energy efficiency measures are particularly vulnerable to the adverse effects of rising electricity costs, leading to job losses and reduced employment stability.

Moreover, the study highlights the role of energy efficiency measures as a vital employment protection strategy. As energy prices are expected to remain volatile, especially during the transition to greener energy sources, firms in energy-intensive sectors must prioritize the adoption of energy efficiency practices. This proactive approach can help mitigate the negative impacts of rising electricity costs on employment and overall firm performance.

The paper also calls for policymakers to encourage the widespread adoption of energy efficiency measures, particularly among firms operating in energy-intensive industries. By promoting energy efficiency, policymakers can help firms better navigate the challenges posed by fluctuating energy prices, ultimately supporting job retention and enhancing firm resilience.