Assessing the Environmental Impact of Process Automation in German Manufacturing GVCs

University essay from Lunds universitet/Ekonomisk-historiska institutionen

Abstract: Both automation and climate change are important topics on today’s policy agenda. Automation is often argued to have environmental benefits in terms of energy efficiency, however, no attempt has yet been made to empirically address the relation between automation and energy consumption. Therefore this paper aims to fill this gap by exploring whether automation and energy intensity developments follow similar trends and tests for the existence of a correlation. Another contribution of this paper is the evaluation of energy intensity developments and automation in global value chains, as this accounts for the effect of offshoring and enables the incorporation of the rebound effect commonly discussed in the ICT-energy intensity literature. The first part of the analysis is focused on deriving labor income shares, which serve as a proxy for automation, and energy intensity levels in German GVCs. In order to do so, a multi-region input-output model is employed in combination with data from the WIOD. Subsequently, the existence of a relationship between labor income share and energy intensity developments is examined based on a simple regression model. The main findings show that (i) automation was present in all GVCs as labor income shares declined and were not found to be related to offshoring; (ii) energy intensity initially increased, but started to fall after 2000; (iii) overall automation was associated with a small reduction in energy intensity; and (iv) automation in foreign production stages was accompanied by a rise in energy intensity.

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