Impacts of industrial decision making on productivity and energy efficiency: examples from the integrated paper sector

Technology cost studies frequently find that `cost effective´ energy efficiency investments are feasible in many industry sectors. At the same time, many firms `fail´ to implement these investments. One empirical result of this `failure´ is an observed gap between average and `best practice´ plants. The reasons behind this alleged `failure´ are many; they include indirect costs of implementing the investments, attitudes toward risk and capital budgeting practices like `capital rationing´. This paper explores the reasons for this failure from both a theoretical and empirical perspective. In particular, empirical evidence of the impact of `capital rationing´ and the observed gap between average and `best practice´ plants are drawn from a recent DOE study. This study examines the impact of mandated environmental investments on the productivity of paper and steel plants under capital availability constraints. The study also estimates the typical productivity and energy efficiency gap between average and `best practice´ plants and how that gap has changed over a 18 year period