Energy Intensity and Long- and Short-Term Efficiency in US Manufacturing Industry

Abstract

We analyze energy use efficiency of manufacturing industries in US manufacturing over five decades from 1960 to 2011. We apply a 4-component stochastic frontier model, which allows disentangling efficiency into a short- and long-term efficiency as well as accounting for industry heterogeneity. The data come from NBER-CES Manufacturing Industry Database. We find that relative to decade-specific frontiers, the overall efficiency of manufacturing industries, which is a product of transient and persistent efficiencies has deteriorated greatly in the 1970s and rebounded only in the 2000s. The industries are very efficient in the short-term and this has not changed over five decades. The high level of overall inefficiency is almost completely due to the structural inefficiency which can be explained by what is referred to as the “energy paradox”. Finally, higher energy-intensive industries perform worse in terms of energy use efficiency than their low energy-intensity counterparts.