Energy Price Shocks and Short-Term Reactions of Firms: The Case of the German Energy Crisis in 2022

After the beginning of the war in Ukraine, energy prices in Germany increased drastically. The paper analyses responses of German firms to this energy price shock. A variety of measures and reactions at the firm-level are explored, such as substituting machinery and equipment by less energy consuming alternatives, a change of energy suppliers, the use of digital technologies to reduce energy consumption, the introduction of energy management systems, relocation or closure of energy-intensive activities, or replacing fossil by other energy sources. The analysis is based on data from the German part of the Community Innovation Survey. The econometric results show that a high affectedness by the energy price shock in 2022 triggers the substitution of machinery and equipment by more energy efficient alternatives. This measure in turn is correlated to a decrease of electricity consumption and oil use, and it promotes the substitution of fossil energy sources by renewables. From a policy perspective, energy price shocks and politically induced higher energy prices can be advantageous for a shift of energy use towards higher levels of energy efficiency and a substitution of fossil energies by renewables. However, such shocks can lead to negative short-term economic consequences in energy-intensive firms.