Andriy Zozulinskyy

Type of the article: Research Article

Abstract
Decarbonization has become a challenge for European manufacturing, particularly after Russia’s full-scale invasion of Ukraine, amid rising energy costs and tensions between environmental transition and industrial competitiveness. This study assesses whether market-based climate-policy stringency is non-linearly associated with European machinery production, whether this relationship differed during 2022–2023, and whether it varies with electricity-market stress and 2020–2021 baseline energy-use characteristics. The analysis uses a 2017–2023 panel of 24 European countries; the principal C28 models cover 20 countries and 140 observations. Two-way fixed-effects models combine quadratic specifications, post-2022 interactions, electricity-price moderation, baseline energy-use moderators, and wild-cluster bootstrap inference. The contemporaneous C28 industrial-production specification shows statistically significant concavity: the quadratic MBI coefficient is −0.019 (bootstrap p = 0.047), with a model-implied turning point of approximately 4.7. The upper-bound marginal effect is −0.0984 (p < 0.001), whereas the positive lower-bound effect of 0.0768 is not statistically significant (p = 0.120). This pattern is not reproduced when MBI is lagged or when real C28 GVA levels or growth are used as alternative outcomes. Neither the post-2022 interactions (F = 0.611, p = 0.553) nor the electricity-price interactions (F = 2.193, p = 0.139) are jointly significant. The natural-gas triple interaction is positive but statistically inconclusive under wild-cluster bootstrap inference (β = 0.242, p = 0.057), while the alternative energy-use moderators are insignificant. The findings support contemporaneous concavity in short-run C28 industrial production and an adverse association at high MBI levels, but not a general non-linear relationship across broader measures of machinery-sector performance.

Acknowledgment
Tetiana Vasylieva contributed to this article within the framework of the MSCA4Ukraine project 06030419, which is funded by the European Union. Views and opinions expressed are, however, those of the authors only and do not necessarily reflect those of the European Union, the European Research Executive Agency, or the MSCA4Ukraine Consortium. Neither the European Union, the European Research Executive Agency, nor the MSCA4Ukraine Consortium, nor any individual member institution of the MSCA4Ukraine Consortium can be held responsible for them.