Industrial electricity demand and energy efficiency policy: The role of price changes and private R&D in the Swedish pulp and paper industry

The objective of this paper is to analyze electricity demand behaviour in the Swedish pulp and paper industry in the context of the increased interest in so‐called voluntary energy efficiency programs. In these programs tax exemptions are granted if the participating firms carry out energy efficiency measures following an energy audit. We employ a panel data set of 19 pulp and paper firms, and estimate both the own‐ and cross‐price elasticities of electricity demand as well as the impact of knowledge accumulation following private R&D on electricity use. The empirical results show that electricity use in the Swedish pulp and paper industry is relatively own‐price insensitive, and the self‐reported electricity savings following the voluntary so‐called PFE program support the notion of important information asymmetries at the company level. However, the results display that already in a baseline setting pulp and paper firms tend to invest in private R&D that have electricity saving impacts, and our model simulations suggest that up to about one‐third of the industry sector's self‐reported electricity savings in PFE could be attributable to pure baseline effects. Future evaluations of voluntary energy efficiency programs must increasingly recognize the already existing incentives to reduce energy use in energy‐intensive industries.