Modeling International Trends in Energy Efficiency and Carbon Emissions

This study uses a stochastic production frontier to model energy efficiency trends, in 85 countries over a 37 year period. No structure is imposed on technological change over time, although differences in technology level across the countries are modelled as a stochastic function of explanatory variables. These variables are selected by a literature survey and a theoretical model of energy-efficient technology choice. An improvement in a country’s energy efficiency is measured as a reduction in energy intensity, while holding constant that economy’s mix of inputs and outputs. All other things remaining constant, the country using the least energy per unit output is on the global best-practice frontier. The model is used to derive decompositions of energy intensity and carbon emissions. It also examines whether there is a convergence across countries. The study shows that energy efficiency rises with increasing general total factor productivity. Energy efficiency is also higher in countries with undervalued currencies. Higher fossil fuel reserves are associated with lower energy efficiency. Energy efficiency converges over time across countries. Technological change was the most important factor counteracting the effect of economic growth in increasing global energy- use increase and carbon emissions.