Labour productivity improvements from energy efficiency investments: The experience of European firms

Abstract

Energy efficiency investments are essential to transition to a carbon-neutral economy. Nevertheless, despite being financially viable, many energy efficiency investment opportunities do not materialise. The existing literature attributes this situation to financial and non-financial factors. Research suggests that many firms focus only on direct energy savings and neglect non-energy benefits that include increased labour productivity. Up to date, due to the lack of high-quality data, few studies attempted to quantify how the energy efficiency investments affect firm-level outcomes other than the reductions in energy consumption. This paper overcomes this barrier by using novel data from a firm-level survey conducted by the European Investment Bank. The survey covers more than 15,000 firms in 27 European Union member states and the United Kingdom during 2018–2019. This study investigates the relationship between the energy efficiency investments and the labour productivity of the European firms and uses instrumental variables methodology to account for potential endogeneity. The results show a positive and causal relationship between energy efficiency investments and labour productivity. The findings of the paper suggest that firms can benefit much more from the energy efficiency investment than what is often assumed, and highlight a need for government policies that would increase firms’ awareness of the non-energy benefits.