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The authors estimate the impacts of an energy tax - the Climate Change Levy (CCL) - on the manufacturing sector using panel data from the UK production census. The identification strategy builds on the comparison of trends in outcomes between plants subject to the CCL and plants that were granted an 80% discount on the levy after joining a so-called Climate Change Agreement (CCA). Since the CCAs stipulate specific targets for energy usage or carbon emissions, this comparison yields a lower bound on the impact of the discount. To address a likely selection endogeneity in CCA participation, they adopt an IV approach that exploits exogenous variation in pollution discharges that determined eligibility for CCA participation.
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