Measuring the gap between optimal and observed energy structure: Evidence from 36 OECD countries

Sustainable development has always been given priority by economic authorities, therefore pursuing both environmental emissions reduction and economic growth at the same time is required. However, energy structure is often disregarded in existing performance evaluation methodologies, despite its essential function in determining environmental efficiency or productivity. This study shows how ignoring the energy structure can lead to distorted policy recommendations as well as evaluation results. The present study provides a non-parametric estimating approach to quantify the difference between the optimal (theoretical) energy structure required to achieve sustainable development and the actual (observed) energy structure. This method may assess the energy transition process and evaluate the observed and optimal energy structure of a country or region. We demonstrate that using the countries of the Organization for Economic Co-operation and Development as an example, that only a limited number of countries are able to meet their objectives for carbon reduction and economic development simultaneously without transforming their energy structure. The relationship between energy structure and green total factor productivity (GTFP) was further studied using a two-stage least squares regression on the observed energy structure and GTFP. The findings indicate that most countries need to increase their share of renewable energy in order to achieve green growth.