The Effect of Plant Size on Energy-Efficiency Decisions
The gradual diffusion of apparently cost-effective energy-efficiency technologies, known as the energy paradox, has long perplexed policy makers. Many of the explanations, such as information asymmetries, behavioral failures, and barriers to financing, are theoretically related to firm size, but a definitive connection has yet to be made. The Industrial Assessment Center database provides data on thirty years of industrial energy efficiency audits, and is used in this paper to test if size affects the choices available to, and the decisions made by, small and medium sized firms. Plant level fixed effects logit models and pooled logistic regression models are used to examine the effect of employee size on plant managers' energy-efficiency decision-making after an energy audit. The evidence suggests that size has a small but significant effect on adopting a recommendation for plants that are very small or very large in relation to the rest of the sample. Costs of efficiency improvements are more burdensome for very small plants, but increases in predicted savings are make improvements more attractive to small plants in relation to large ones. Overall, the reduction in the likelihood that a plant will adopt a recommendation due to an increase in payback period (cost/savings) is greater for smaller plants than larger plants. While this suggests that market barriers are larger for the smallest plants, they explain only a small part of the energy paradox.
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