Technology heterogeneity in European industries' energy efficiency performance. The role of climate, greenhouse gases, path dependence and energy mix.

Kounetas, Konstantinos and Stergiou, Eirini (2019): Technology heterogeneity in European industries' energy efficiency performance. The role of climate, greenhouse gases, path dependence and energy mix.

Abstract

Assessment of industrial-level energy efficiency development is a critical research topic that has infiltrated in the global battle against climate change. A balanced panel of fourteen European industries from twenty-four countries for the period 1995-2011 is introduced into a metafrontier framework. Reflecting the divergent views on the importance of desirable and undesirable outcomes in the pursuit of energy efficiency, the proposed approach estimate industrial performance by prioritizing either economic or environmental criterion incorporating technological heterogeneity. It is found that small-scale economies exhibit persistent high energy efficiency scores. Regarding energy efficiency determinants, path dependence phenomena have a strong presence, climate characteristics occurs, while energy mix displays linear but also non-linear relationships. Finally, regardless of the method employed, there is a strong evidence of conditional and unconditional convergence.

• Item Type: MPRA Paper
• Language: English
• Keywords: European industries, Energy efficiency, Technology heterogeneity,Directional distance function, Energy mix, Path dependence, Convergence.
• Subjects: D - Microeconomics > D2 - Production and Organizations > D24 - Production ; Cost ; Capital ; Capital, Total Factor, and Multifactor Productivity ; Capacity; D - Microeconomics > D2 - Production and Organizations > D29 - Other; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q40 - General; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q49 - Other

References

Abadie, L. M., Ortiz, R. A., Galarraga, I. (2012). Determinants of energy efficiency investments in the US.Energy Policy 45: 551-566.

Ang, B. W. (2004). Decomposition analysis for policymaking in energy: which is the preferred method?. Energy policy 32(9): 1131-1139.

Apergis, N., Aye, G. C., Barros, C. P., Gupta, R., Wanke, P. (2015). Energy efficiency of selected OECD countries: A slacks based model with undesirable outputs. Energy Economics 51: 45-53.

Battese, G. E., Rao, D. P., O`Donnell, C. J. (2004). A metafrontier production function for estimation of technical efficiencies and technology gaps for firms operating under different technologies. Journal of Productivity Analysis 21(1): 91-103.

Berndt, E. R., Wood, D. O. (1975). Technology, prices, and the derived demand for energy. The review of Economics and Statistics: 259-268.

Berndt, E. R., Wood, D. O. (1979). Engineering and econometric interpretations of energy-capital complementarity. The American Economic Review 69(3): 342-354.

Bi, G. B., Song, W., Zhou, P., Liang, L. (2014). Does environmental regulation affect energy efficiency in China's thermal power generation? Empirical evidence from a slacks-based DEA model. Energy Policy 66: 537-546.

Bleakley, H., Lin, J. (2012). Portage and path dependence. The quarterly journal of economics 127(2): 587-644.

Boyd, G. A., Pang, J. X. (2000). Estimating the linkage between energy efficiency and productivity. Energy policy 28(5): 289-296.

Breschi, S., Malerba, F., Orsenigo, L. (2000). Technological regimes and Schumpeterian patterns of innovation. The economic journal 110(463): 388-410.

Brown, M. T., Ulgiati, S. (2004). Energy quality, emergy, and transformity: HT Odum’s contributions to quantifying and understanding systems. Ecological Modelling 178(1-2): 201-213.

Carree, M., Klomp, L., 1997. Testing the convergence hypothesis: a comment. Review of Economics and Statistics 79(4): 683-686.

Chambers, R. G., Chung, Y., Färe, R. (1996). Benefit and distance functions. Journal of economic theory 70(2): 407-419.

Chambers, R. G., Chung, Y., Färe, R. (1998). Profit, directional distance functions, and Nerlovian efficiency. Journal of optimization theory and applications 98(2): 351-364.

Chiu, C. R., Liou, J. L., Wu, P. I., Fang, C. L. (2012). Decomposition of the environmental inefficiency of the meta-frontier with undesirable output. Energy Economics 34(5): 1392-1399.

Cleveland, C. J. (1992). Energy quality and energy surplus in the extraction of fossil fuels in the US. Ecological economics 6(2): 139-162.

Cleveland, C. J., Kaufmann, R. K., Stern, D. I. (2000). Aggregation and the role of energy in the economy. Ecological Economics 32(2): 301-317.

Coelli, T. J., Rao, D. S. P., O'Donnell, C. J., Battese, G. E. (2005). An introduction to efficiency and productivity analysis. Springer Science Business Media.

Comin, D., Hobijn, B. (2010). An exploration of technology diffusion. American Economic Review 100(5): 2031-59.

Cui, Q., Kuang, H. B., Wu, C. Y., Li, Y. (2014). The changing trend and influencing factors of energy efficiency: the case of nine countries. Energy 64: 1026-1034.

David, P. A. (2011). Path Dependence, Its Critics and the Quest for 'Historical Economics'. In T. Cowen (Ed.).

Directive 2006/32/EC of the European Parliament and of the Council of 5 April 2006 on energy end-use efficiency and energy services and repealing Council Directive 93/76/EEC. Accessible at \url{https://eurlex.europa.eu/legalcontent/EN/ALL/?uri=celex\3A32006L0032.

Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC Text with EEA relevance. Accessible at \url{https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=celex\3A32009L0028.

Directive 2012/27/EU of the European Parliament and of the Council of 25 October 2012 on energy efficiency, amending Directives 2009/125/EC and 2010/30/EU and repealing Directives 2004/8/EC and 2006/32/EC Text with EEA relevance. Accessible at \url{https://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2012:315:0001:0056:en:PD.

Dosi, G., 1982. Technological paradigms and technological trajectories: a suggested interpretation of the determinants and directions of technical change. Research Policy 11: 147–162.

Du, K., Lu, H., Yu, K. (2014). Sources of the potential CO2 emission reduction in China: a nonparametric metafrontier approach. Applied Energy 115: 491-501.

Färe, R., Grosskopf, S. (2010). Directional distance functions and slacks-based measures of efficiency. European journal of operational research 200(1): 320-322.

Färe, R., Grosskopf, S., Hernandez-Sancho, F. (2004). Environmental performance: an index number approach. Resource and Energy economics 26(4): 343-352.

Färe, R., Grosskopf, S., Tyteca, D. (1996). An activity analysis model of the environmental performance of firms—application to fossil-fuel-fired electric utilities. Ecological economics 18(2): 161-175.

Färe, R., Grosskopf, S., Lovell, C. K., Pasurka, C. (1989). Multilateral productivity comparisons when some outputs are undesirable: a nonparametric approach. The review of economics and statistics: 90-98.

Färe, R., Grosskopf, S., Noh, D. W., Weber, W. (2005). Characteristics of a polluting technology: theory and practice. Journal of Econometrics 126(2): 469-492.

Fei, R., Lin, B. (2016). Energy efficiency and production technology heterogeneity in China's agricultural sector: A meta-frontier approach. Technological Forecasting and Social Change 109: 25-34.

Filippini, M., Hunt, L. C. (2012). US residential energy demand and energy efficiency: A stochastic demand frontier approach. Energy economics 34(5): 1484-1491.

Fisher-Vanden, K., Jefferson, G. H., Liu, H., Tao, Q. (2004). What is driving China’s decline in energy intensity?. Resource and Energy economics 26(1): 77-97.

Fouquet, R. (2016). Historical energy transitions: Speed, prices and system transformation. Energy Research Social Science 22: 7-12.

Fukuyama, H., Weber, W. L. (2009). A directional slacks-based measure of technical inefficiency. Socio-Economic Planning Sciences 43(4): 274-287.

Grösche, P. (2009). Measuring residential energy efficiency improvements with DEA. Journal of Productivity Analysis 31(2): 87-94.

Guo, X. D., Zhu, L., Fan, Y., Xie, B. C. (2011). Evaluation of potential reductions in carbon emissions in Chinese provinces based on environmental DEA. Energy Policy 39(5): 2352-2360.

Halkos, G. E., Tzeremes, N. G. (2011). A conditional nonparametric analysis for measuring the efficiency of regional public healthcare delivery: An application to Greek prefectures. Health policy 103(1): 73-82.

Honma, S., Hu, J. L. (2008). Total-factor energy efficiency of regions in Japan. Energy Policy 36(2): 821-833.

Hosier, R. H., Dowd, J. (1987). Household fuel choice in Zimbabwe: an empirical test of the energy ladder hypothesis. Resources and energy 9(4): 347-361.

Howarth, R. B., Schipper, L., Duerr, P. A., Strøm, S. (1991). Manufacturing energy use in eight OECD countries: decomposing the impacts of changes in output, industry structure and energy intensity. Energy economics 13(2): 135-142.

Hu, J. L., Kao, C. H. (2007). Efficient energy-saving targets for APEC economies. Energy policy 35(1): 373-382.

Hu, J. L., Wang, S. C. (2006). Total-factor energy efficiency of regions in China. Energy policy 34(17): 3206-3217.

Hu, J. L., Wang, S. C., Yeh, F. Y. (2006). Total-factor water efficiency of regions in China. Resources Policy 31(4): 217-230.

Hudson, E. A., Jorgenson, D. W. (1974). US energy policy and economic growth, 1975-2000. The Bell Journal of Economics and Management Science: 461-514.

Jacobsson, S., Johnson, A. (2000). The diffusion of renewable energy technology: an analytical framework and key issues for research. Energy policy 28(9): 625-640.

Jaffe, A. B., Stavins, R. N. (1994). Energy-efficiency investments and public policy. The Energy Journal: 43-65.

Kontolaimou, A., Tsekouras, K. (2010). Are cooperatives the weakest link in European banking? A non-parametric metafrontier approach. Journal of Banking Finance 34(8): 1946-1957.

Kontolaimou, A., Kounetas, K., Mourtos, I., Tsekouras, K. (2012). Technology gaps in European banking: Put the be on inputs or outputs?. Economic Modelling 29(5): 1798-1808.

Köppen, W. (1884): The thermal zones of the Earth according to the duration of hot, moderate and cold periods and of the impact of heat on the organic world. Meteorol. Z. 1: 215-226(translated and edited by Volken, E. and S. Brönnimann). Meteorol. Z. 20: 351-360.

Kounetas K, Mourtos I, Tsekouras K, (2009). Efficiency decompositions for heterogeneous technologies. European Journal of Operational Research 199: 209-218.

Kounetas, K. (2015). Heterogeneous technologies, strategic groups and environmental efficiency technology gaps for European countries. Energy Policy 83: 277-287.

Kounetas, K. E. (2018). Energy consumption and CO2 emissions convergence in European Union member countries. A tonneau des Danaides?. Energy Economics 69: 111-127.

Kounetas, K., Anastasiou, A., Mitropoulos, P., Mitropoulos, I. (2011). Departmental efficiency differences within a Greek university: An application of a DEA and Tobit analysis. International Transactions in Operational Research 18(5): 545-559.

Kumar, S. (2006). Environmentally sensitive productivity growth: a global analysis using Malmquist–Luenberger index. Ecological Economics 56(2): 280-293.

Lam, P. L., Shiu, A. (2001). A data envelopment analysis of the efficiency of China’s thermal power generation. Utilities Policy 10(2) 75-83.

Li, H., Shi, J. F. (2014). Energy efficiency analysis on Chinese industrial sectors: an improved Super-SBM model with undesirable outputs. Journal of Cleaner Production 65: 97-107.

Li, K., Lin, B. (2015). Metafroniter energy efficiency with CO2 emissions and its convergence analysis for China. Energy Economics 48: 230-241.

Li, L. B., Hu, J. L. (2012). Ecological total-factor energy efficiency of regions in China. Energy Policy 46: 216-224. Liao, H., Fan, Y., Wei, Y. M. (2007). What induced China's energy intensity to fluctuate: 1997–2006?. Energy Policy 35(9): 4640-4649.

Liddle, B. (2012). The importance of energy quality in energy intensive manufacturing: Evidence from panel cointegration and panel FMOLS. Energy Economics 34(6): 1819-1825.

Lin, B., Du, K. (2013). Technology gap and China's regional energy efficiency: a parametric metafrontier approach. Energy Economics 40: 529-536.

Ma, C., Stern, D. I. (2008). China's changing energy intensity trend: A decomposition analysis. Energy economics 30(3): 1037-1053.

Mandal, S. K. (2010). Do undesirable output and environmental regulation matter in energy efficiency analysis? Evidence from Indian cement industry. Energy Policy 38(10): 6076-6083.

Martin, R., Sunley, P. (2006). Path dependence and regional economic evolution. Journal of economic geography 6(4): 395-437.

Masera, O. R., Saatkamp, B. D., Kammen, D. M. (2000). From linear fuel switching to multiple cooking strategies: a critique and alternative to the energy ladder model. World development 28(12): 2083-2103.

Metcalf, G. E. (2008). An empirical analysis of energy intensity and its determinants at the state level. The Energy Journal: 1-26.

Morris, J., Paltsev, S., Reilly, J. (2012). Marginal abatement costs and marginal welfare costs for greenhouse gas emissions reductions: results from the EPPA model. Environmental Modeling Assessment 17(4): 325-336.

Nelson, R. R., Winter, S. G. (1980). Firm and industry response to changed market conditions: an evolutionary approach. Economic Inquiry 18(2): 179-202.

Nelson, R., Winter, S. (1982). An evolutionary theory of economic growth. Belknap-Harvard, Cambridge, MA.

O’Donnell, C. J., Rao, D. P., Battese, G. E. (2008). Metafrontier frameworks for the study of firm-level efficiencies and technology ratios. Empirical economics 34(2): 231-255.

Önüt, S., Soner, S. (2006). Energy efficiency assessment for the Antalya Region hotels in Turkey. Energy and Buildings 38(8): 964-971.

Page, S. E. (2006). Path dependence. Quarterly Journal of Political Science 1(1): 87-115.

Pan, H., Zhang, H., Zhang, X. (2013). China’s provincial industrial energy efficiency and its determinants. Mathematical and Computer Modelling 58(5-6): 1032-1039.

Patterson, M. G. (1996). What is energy efficiency?: Concepts, indicators and methodological issues. Energy policy 24(5): 377-390.

Paul, S., Bhattacharya, R. N. (2004). CO2 emission from energy use in India: a decomposition analysis. Energy Policy 32(5): 585-593.

Pfeiffer, B., Mulder, P. (2013). Explaining the diffusion of renewable energy technology in developing countries. Energy Economics 40: 285-296.

Picazo-Tadeo, A. J., Reig-Martinez, E., Hernandez-Sancho, F. (2005). Directional distance functions and environmental regulation. Resource and Energy Economics 27(2): 131-142.

Quah, D. T. (1996). Empirics for economic growth and convergence. European economic review 40(6): 1353-1375.

Quah, D.T., 1993. Galton's Fallacy and the Convergence Hypothesis. Scandinavian Journal of Economics 95: 427-443.

Ramanathan, R. (2006). A multi-factor efficiency perspective to the relationships among world GDP, energy consumption and carbon dioxide emissions. Technological Forecasting and Social Change 73(5): 483-494.

Reichstein, T., Salter, A. (2006). Investigating the sources of process innovation among UK manufacturing firms. Industrial and Corporate change 15(4): 653-682.

Sala-Garrido, R., Molinos-Senante, M., Hernández-Sancho, F. (2011). Comparing the efficiency of wastewater treatment technologies through a DEA metafrontier model. Chemical Engineering Journal 173(3): 766-772.

Sala-i-Martin, X. X. (1996). The classical approach to convergence analysis. The economic journal: 1019-1036.

Schmidt, O., Hawkes, A., Gambhir, A., Staffell, I. (2017). The future cost of electrical energy storage based on experience rates. Nature Energy 2(8): 17110.

Shao, S., Yang, L., Yu, M., Yu, M. (2011). Estimation, characteristics, and determinants of energy-related industrial CO2 emissions in Shanghai (China), 1994–2009. Energy Policy 39(10): 6476-6494.

Shepard, R.W. (1970) Theory of Cost and Production Function. Princeton University Press, Princeton.

Shorrocks, A. F. (2013). Decomposition procedures for distributional analysis: A unified framework based on the Shapley value. The Journal of Economic Inequality 11(1): 99-126.

Sinton, J. E., Levine, M. D. (1994). Changing energy intensity in Chinese industry: The relatively importance of structural shift and intensity change. Energy policy 22(3): 239-255.

Smith, K. R., Apte, M. G., Yuqing, M., Wongsekiarttirat, W., Kulkarni, A. (1994). Air pollution and the energy ladder in Asian cities. Energy 19(5): 587-600.

Solow, R.M., 1956. A contribution to the theory of economic growth. The Quarterly Journal of Economics 70(1): 65-94.

Solow, R.M., 1957. Technical change and the aggregate production function. The Review of Economics and Statistics 39(3): 312-320.

Stavins, R. N., Jaffe, A. B., Newell, R. G. (2010). The induced innovation hypothesis and energy-saving technological change. In Technological Change and the Environment: 103-132. Routledge.

Stern, D. I. (2010). Energy quality. Ecological Economics 69(7): 1471-1478.

Stern, D. I. (2012). Modeling international trends in energy efficiency. Energy Economics 34(6): 2200-2208.

Stuetzer, M., Obschonka, M., Audretsch, D. B., Wyrwich, M., Rentfrow, P. J., Coombes, M., Satchell, M. (2016). Industry structure, entrepreneurship, and culture: An empirical analysis using historical coalfields. European Economic Review 86: 52-72.

Trianni, A., Cagno, E., Thollander, P., Backlund, S. (2013). Barriers to industrial energy efficiency in foundries: a European comparison. Journal of Cleaner Production 40: 161-176.

Tsekouras, K., Chatzistamoulou, N., Kounetas, K. (2017). Productive performance, technology heterogeneity and hierarchies: Who to compare with whom. International Journal of Production Economics 193: 465-478.

Tsekouras, K., Chatzistamoulou, N., Kounetas, K., Broadstock, D. C. (2016). Spillovers, path dependence and the productive performance of European transportation sectors in the presence of technology heterogeneity. Technological Forecasting and Social Change 102: 261-274.

Unruh, G. C., Carrillo-Hermosilla, J. (2006). Globalizing carbon lock-in. Energy Policy 34(10): 1185-1197.

Van der Kroon, B., Brouwer, R., Van Beukering, P. J. (2013). The energy ladder: Theoretical myth or empirical truth? Results from a meta-analysis. Renewable and Sustainable Energy Reviews 20: 504-513.

Vardanyan, M., Noh, D. W. (2006). Approximating pollution abatement costs via alternative specifications of a multi-output production technology: a case of the US electric utility industry. Journal of Environmental Management 80(2): 177-190.

Voigt, S., De Cian, E., Schymura, M., Verdolini, E. (2014). Energy intensity developments in 40 major economies: structural change or technology improvement?. Energy Economics 41: 47-62.

Wang, H., Zhou, P., Zhou, D. Q. (2013). Scenario-based energy efficiency and productivity in China: a non-radial directional distance function analysis. Energy Economics 40: 795-803.

Wang, Q., Zhao, Z., Zhou, P., Zhou, D. (2013). Energy efficiency and production technology heterogeneity in China: a meta-frontier DEA approach. Economic Modelling 35: 283-289.

Wang, Q., Zhou, P., Zhao, Z., Shen, N. (2014). Energy efficiency and energy saving potential in China: A directional meta-frontier DEA approach. Sustainability 6(8): 5476-5492.

Watanabe, M., Tanaka, K. (2007). Efficiency analysis of Chinese industry: a directional distance function approach. Energy policy 35(12): 6323-6331.

Wei, C., Ni, J., Du, L. (2012). Regional allocation of carbon dioxide abatement in China. China Economic Review 23(3): 552-565.

Wei, Y. M., Liao, H., Fan, Y. (2007). An empirical analysis of energy efficiency in China's iron and steel sector. Energy 32(12): 2262-2270.

Wei, Y. M., Liu, L. C., Fan, Y., Wu, G. (2007). The impact of lifestyle on energy use and CO2 emission: An empirical analysis of China's residents. Energy policy 35(1)L 247-257.

Worrell, E., Bernstein, L., Roy, J., Price, L., Harnisch, J. (2009). Industrial energy efficiency and climate change mitigation. Energy efficiency 2(2): 109.

Wu, F., Fan, L. W., Zhou, P., Zhou, D. Q. (2012). Industrial energy efficiency with CO2 emissions in China: A nonparametric analysis. Energy Policy 49: 164-172.

Wu, L., Kaneko, S., Matsuoka, S. (2005). Driving forces behind the stagnancy of China’s energy-related CO2 emissions from 1996 to 1999: the relative importance of structural change, intensity change and scale change. Energy policy 33(3): 319-335.

Yao, X., Zhou, H., Zhang, A., Li, A. (2015). Regional energy efficiency, carbon emission performance and technology gaps in China: a meta-frontier non-radial directional distance function analysis. Energy Policy 84: 142-154.

Zhang, N., Choi, Y. (2013). Total-factor carbon emission performance of fossil fuel power plants in China: a metafrontier non-radial Malmquist index analysis. Energy Economics 40: 549-559.

Zhang, N., Kong, F., Yu, Y. (2015). Measuring ecological total-factor energy efficiency incorporating regional heterogeneities in China. Ecological indicators 51: 165-172.

Zhang, N., Zhou, P., Choi, Y. (2013). Energy efficiency, CO2 emission performance and technology gaps in fossil fuel electricity generation in Korea: A meta-frontier non-radial directional distance function analysis. Energy Policy 56: 653-662.

Zhang, X. P., Cheng, X. M., Yuan, J. H., Gao, X. J. (2011). Total-factor energy efficiency in developing countries. Energy Policy 39(2): 644-650.

Zhou, P., Ang, B. W. (2008). Linear programming models for measuring economy-wide energy efficiency performance. Energy Policy 36(8): 2911-2916.

Zhou, P., Ang, B. W., Poh, K. L. (2008). A survey of data envelopment analysis in energy and environmental studies. European Journal of Operational Research 189(1): 1-18.