Accounting For Environmental Factors In Energy Efficiency Analysis

ABSTRACT

This study utilizes a nonparametric DEA approach, to assess the energy efficiency of 135 selected countries across the globe during the period of 2000 - 2014 to account for environmental factors in energy efficiency analysis and to analyze the relationship between economic factors and energy efficiency within a two - stage framework. Three kinds of variables are used: input, desirable output, and undesirable output. The inputs are labor, capital, and energy consumption. The undesirable outputs (environmental factors) are Carbon dioxide (CO2), methane (CH4) and Nitrous oxide (N2O) emissions, the desirable output variable is gross domestic product (GDP). Energy efficiency is measured within a total factor framework by way of an SBM-Undesirable model. The second stage assesses the determinants of energy efficiency in countries by way of a bootstrapped truncated regression, FE, 2SLS and Systems Generalized Methods of Moments to control for possible heteroscedasticity, autocorrelation and endogeneity. The results showed that the selected countries are on average 39% energy efficient within the study period, suggesting that increasing the levels of energy consumption in countries is not being used to produce the maximum GDP possible. The results also showed that incorporating the environmental factors improves the efficiency scores. Income per capita (GNIPC) and CAPLAB (Technological progress) are found to have significantly positive effects on energy efficiency of the countries, whilst higher debt stock and population growth leads to higher inefficiency given their negative significant relationship with energy efficiency