Determinants of firm-level energy productivity – Evidence from the Korean emission trading scheme

Abstract

With increasing global pressure on transition to carbon neutrality, various technical and policy efforts such as emission trading scheme and carbon tax are being made to improve energy productivity. Yet, there are not many literatures that analyze determinants of firm-level energy productivity, which is an important issue as energy use in industry accounts for one fourth of global carbon emission. This study investigates factors affecting energy productivity such as technology innovation, environmental policy and energy price based on firm-level data from the Korean Emission Trading Scheme (KETS). The total factor energy productivity is estimated by industry based on stochastic frontier analysis (SFA) and panel data analysis is performed to identify determinants of firm-level energy productivity. The results show that energy productivity in Korea has been improved since 2016, and technical progress and environmental policy play an important role in promoting energy productivity. In addition, analysis identifying industry-specific characteristics is performed as their production process and energy consumptions structures vary. The result shows that innovation activity does not significantly affect energy productivity in process industries, but it does in the assembling and high technology industries. This paper implies that policy design reflecting industry-specific characteristics is important to improve energy efficiency more effectively.