Is industrial energy inefficiency transient or persistent? Evidence from Swedish manufacturing

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.

Material demand and material efficiency for sustainable development in the European Union countries: A stochastic frontier analysis

“…Some recent models of the SFA capture different sources of efficiency, such as time-varying TE and time-invariant PE (Kumbhakar et al, 2015). Therefore, some recent empirical papers also enrich the literature in this direction, such as Filippini and Hunt (2012) and Filippini and Hunt (2016) at the state level, Filippini and Zhang (2016) at the provincial level, Alberini and Filippini (2018) at the sector level, Amjadi and Lundgren (2022)…”

“…both time-invariant PE and unobservable time-invariant countryspecific effects (Amjadi & Lundgren, 2022;Colombi et al, 2014;Hunt & Kipouros, 2023;Kumbhakar et al, 2014;Kumbhakar et al, 2015). The basic theoretical idea behind the SFA is that there is an ideal frontier that no country can exceed.…”

“…However, SFA relying on econometric techniques is better than the DEA in dealing with noisy data, omitted variable bias, or measurement errors (Mutz et al, 2017). Besides, unlike the DEA, the SFA, depending on the model used, can separate time‐varying TE from both time‐invariant PE and unobservable time‐invariant country‐specific effects (Amjadi & Lundgren, 2022; Colombi et al, 2014; Hunt & Kipouros, 2023; Kumbhakar et al, 2014; Kumbhakar et al, 2015). The basic theoretical idea behind the SFA is that there is an ideal frontier that no country can exceed.…”

“…For example, if the problem does not arise from a long‐term systematic error, it makes little sense to implement a short‐term policy solution. In this regard, while policies focusing on long‐term structural changes should be implemented in cases where persistent inefficiency scores are higher, short‐term policies should be designed in cases where transient inefficiency scores are higher (Amjadi & Lundgren, 2022; Badunenko & Kumbhakar, 2016).…”

What kinds of subsidies affect technical efficiency? The case of Italian dairy farms

“…Four-component models have been estimated also adopting a single-stage maximum-likelihood procedure (e.g.,Colombi et al, 2014). While more efficient, the latter method is "contaminated by distributional assumptions"(Lien et al, 2018, p. 54), and less convenient to implement in practice because it is based on a nonlinear optimization, often resulting in severe convergence problems(Amjadi & Lundgren, 2022).6 The Italian section of FADN, one of the major EU-wide datasets and a fundamental information tool used in the decision-making processes for the design of the EU CAP. FADN collects accounting information from a representative sample of EU farms.…”