Is Industrial Energy Inefficiency Transient or Persistent? Evidence from Swedish Manufacturing

CERE Working Paper, 2020:15

27 Pages Posted: 9 Jan 2021

See all articles by Golnaz Amjadi

Golnaz Amjadi

STATEC Research; Centre for Environmental and Resource Economics (CERE)

Date Written: November 4, 2020

Abstract

Energy inefficiency in production implies that the same level of goods and services could be produced using less energy. The potential energy inefficiency of a firm may be linked to long-term structural rigidities in the production process and/or systematic shortcomings in management (persistent inefficiency), or associated with temporary issues like misallocation of resources (transient inefficiency). Eliminating or mitigating different inefficiencies may require different policy measures. Studies measuring industrial energy inefficiency have mostly focused on overall inefficiencies and have paid little attention to distinctions between the types. The aim of this study was to assess whether energy inefficiency is transient and/or persistent in the Swedish manufacturing industry. I used a firm-level panel dataset covering fourteen industrial sectors from 1997–2008 and estimated a stochastic energy demand frontier model. The model included a four-component error term separating persistent and transient inefficiency from unobserved heterogeneity and random noise. I found that both transient and persistent energy inefficiencies exist in most sectors of the Swedish manufacturing industry. Overall, persistent energy inefficiency was larger than transient, but varied considerably in different manufacturing sectors. The results suggest that, generally, energy inefficiencies in the Swedish manufacturing industry were related to structural rigidities connected to technology and/or management practices.

Keywords: Stochastic energy demand frontier model, persistent and transient energy inefficiency, energy inefficiency

JEL Classification: D22, L60, Q40

Suggested Citation

Amjadi, Golnaz, Is Industrial Energy Inefficiency Transient or Persistent? Evidence from Swedish Manufacturing (November 4, 2020). CERE Working Paper, 2020:15, Available at SSRN: https://ssrn.com/abstract=3725037 or http://dx.doi.org/10.2139/ssrn.3725037

Golnaz Amjadi (Contact Author)

STATEC Research ( email )

House of Entrepreneurship
14, rue Erasme
Luxembourg, L-1468
Luxembourg

Centre for Environmental and Resource Economics (CERE)

Department of Economics
Umeå University
Umeå, 901 87
Sweden

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