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Climate policies often increase electricity prices by more than they
increase prices of fossil fuels. Using administrative data on German
manufacturing plants from 2009 to 2017, we provide evidence
that these price changes induce plants to generate electricity onsite
using fossil fuels. Not all manufacturing plants are subject to
emissions pricing under the EU’s Emissions Trading System, and
we find evidence of emissions leakage: Electricity generation shifts
from regulated power plants to unregulated manufacturing plants.
