Estimating the linkage between energy efficiency and productivity

Abstract

Many analyses have referred to industrial productivity benefits associated with energy efficiency that are at least as great or larger than the energy benefits. If plants with higher energy intensity also tend to have lower productivity, then energy policy needs to consider this. This study examines this issue for two segments of the glass industry, using plant level data from the Census Bureau. Productivity is defined by the difference in `best practice’ production efficiency, as measured by data envelopment analysis (DEA). This study uses regression analysis to estimate how differences in plant level electricity and fossil fuel intensity, i.e. energy use per unit of production, are attributable to differences in plant level productivity and other economic variables, like energy prices and cumulative production. In every case, productivity differences between plants are statistically significant in explaining differences in plant energy intensity. The coefficient that links productivity to energy efficiency yields a less than proportional impact for only one industry and fuel type. For others the relationship is implies that a 1% increase in productivity increase energy efficiency by more than 1%. This effect is statistically significant for flat glass, but not container glass. The estimates of the price and learning-by-doing coefficients seem reasonable, but without imposing the assumption that all plants in the industry are equally productive. This lends further credence to a significant relationship between productivity and energy efficiency.