The Effect of Temperature on Energy Use, CO2 Emissions, and Economic Performance in German Industry

This paper represents an addition to the scanty empirical evidence relating to the impactof climate change on the manufacturing sector. To study the effect of temperature onenergy use, CO2 emissions, and firms’ economic performance, we combine daily temperatureinformation from 11,000 German municipalities with the census of the manufacturingindustry. The census data covers the universe of German manufacturing plants with morethan 20 employees (≈ 40,000 plants annually) and spans more than two decades, from 1995to 2017. We find large and significant effects of low temperatures on CO2 emissions as areflection of heating requirements and some evidence for an increase of emissions resultingfrom electricity consumption due to cooling needs. When combining theses estimates withclimate projections, we calculate an approximate 14% decrease of direct emissions by theend of the century under a business as usual scenario. We extend our analysis to encompassthe effect of temperature on economic performance, finding no negative heat effects butsome indication that cold days may have a negative effect on gross output