A comparative study of energy efficiency of OECD countries: An application of the stochastic frontier analysis

We parametrically estimate total-factor energy efficiency (TFEE) scores for 10 industries in 14 developed countries for the period 1995-2005 using stochastic frontier analysis (SFA) technique. The model includes four inputs (labor, capital stock, energy, and non-energy intermediate inputs) and one output (value added). Unlike previous studies that use data envelopment analysis (DEA), our method can take into account statistical noises. The results show that More than half of the industries have insignificant changes in the inefficiency trend. However, construction, paper, and textile industries have significantly increasing inefficiency (decreasing efficiency). The metal industry is the only industry which has decreasing inefficiency (increasing efficiency). As a result, most of the OECD industries have much room in improving their total-factor energy efficiency. Moreover, more than half of the industries have insignificant changes in the inefficiency trend. However, construction, paper, and textile industries have significantly increasing inefficiency. The metal industry is the only industry which has decreasing inefficiency. As a result, most of the OECD industries have much room in improving their total-factor energy efficiency.