Assessing energy transition using exponential production technology under different convexity assumptions

Environmentally sustainable development necessitates striking a balance between reducing carbon emissions and fostering economic growth. Despite their role in shaping both environmental and economic performance outcomes, energy consumption patterns and their impact on sustainable growth have not received the attention they deserve in the performance assessment literature. Approaches used to model production technologies using a network of separate processes often overlook the constraints that must be imposed on energy structure when energy use is treated as a pollution-generating input, potentially leading to biased policy recommendations. This study addresses this gap by extending the so-called by-production technology model (Murty et al., 2012). We define the exponential model of by-production with respect to both convex and non-convex technology and assume identical energy consumption and structure across different processes comprising the by-production model. Our analysis of the performance across a sample of countries between 2000 and 2019 demonstrates that omitting these constraints overestimates inefficiency, or the performance improvement potential. Results suggest that environmental inefficiency generally exceeds economic inefficiency. Moreover, most nations show progressively heavier reliance on carbon-emitting energy sources, suggesting a significant potential for transitioning to cleaner alternatives in the future. Finally, we find that performance trajectories are similar under different convexity assumptions.