Dissecting Environmental Efficiency the Role of Technology Adoption and Usage

How could firms best reduce their environmental impact? Should they change technology? Or could they do better with what they already have? This paper shows that one size does not fit all. We employ a mixture model estimation to dissect environmental efficiency into a technology adoption component (what type of technology is used) and a technology usage component (how a technology is used). For a sample of plants covered by the EU ETS, we find that the share of plants adopting frontier technologies is about 21%. We also find that the average environmental efficiency gains that plants could reach by improving technology adoption and technology usage are 75% and 80% respectively. The analysis of balance-sheet data on parent companies reveals that better environmental technologies are adopted by larger, listed, multi-plant and international companies, while older firms and firms with higher intangible assets intensity more commonly show improved technology usage