The Nexus between Type of Energy Consumed, CO2 Emissions, and Carbon-Related Costs

• Main Author: Andewi Rokhmawati
• Format: Article
• Language: English
• Published: EconJournals 2020-05-01
• Series: International Journal of Energy Economics and Policy
• Online Access: https://econjournals.com/index.php/ijeep/article/view/9246

<p>Reducing carbon emissions while minimizing carbon costs is the main objective of Indonesian carbon management. Using data from 2016, this article focuses on 475 Indonesian manufacturing firms with consumption greater than 6,000 tons of oil equivalent mandated by regulation to reduce their emissions. This study examines the effect of the type<strong> </strong>of energy consumed on carbon-related<strong> </strong>costs, with CO₂emissions as the mediating variable. The study decomposes the type of energy consumed, namely into coal, natural gas, diesel, and electricity. The results show that: 1) Coal, natural gas, diesel, have a positive effect on CO₂emissions; electricity has a negative effect on CO₂emissions; 2) electricity, and CO₂emissions have a negative effect on costs; and 3) CO₂emissions significantly mediated the effect of coal, natural gas, diesel, and electricity on costs. The findings imply that firms’ investment in an efficient machine and technology required to reduce CO₂emissions, as mandated by the regulation, has seemingly been unable to reduce the CO₂emissions produced by fossil fuels but has been able to reduce CO₂emissions from consumed electricity. Moreover, such investment seems able to reduce carbon-related<strong> </strong>costs. Policymakers should review the Indonesian energy mix from fossil fuels and socialize to firms that using the source of power from electricity is cleaner and cheaper than fossil fuels so that firms may be considered to shift fossil fuels energy into electricity. Hence, the government should ensure the availability of electricity supply generated from cleaner energy sources.</p><p><strong>Keywords</strong>: CO₂; Costs; Electricity; Energy Management; Fossil Fuels; Path Analysis</p><p><strong>JEL Classifications</strong>: Q4; Q51; L5</p><p>DOI: <a href="https://doi.org/10.32479/ijeep.9246">https://doi.org/10.32479/ijeep.9246</a></p>