Vertical spillovers and the energy intensity of European industries

The prior literature has argued that inter-sectoral supply chain links provide an important channel for technology diffusion and productivity spillovers across industries, but whether such vertical spillovers influence industrial energy use has remained unexplored thus far. This study analyzes how the energy intensity of European industries is affected by vertical technology and energy productivity spillovers along the industrial supply chain. The analysis combines international input-output tables, energy use and patent data. Panel data from 2000 to 2014 for 27 industries in 29 countries is analyzed using panel fixed effects and instrumental variable estimation methods. The findings reveal that supply-use links channel significant vertical spillovers that promote a decline in energy intensity in downstream industries. These spillovers appear to be more strongly associated with overall energy intensity changes in upstream industries and, to some degree, with patented green innovations in upstream industries.