The impact of greenhouse gas emissions on the performance of water companies: a dynamic assessment

Abstract

The water industry plays an important role in reducing greenhouse gas (GHG) emissions and therefore, moving to a low-carbon urban water cycle is of great importance. However, traditional performance assessment of water companies ignores GHG emissions. To overcome this limitation and to compare productivity change estimations of water companies excluding and including GHG emissions, this study computes the Luenberger productivity indicator (LPI) and the Malmquist-Luenberger productivity index (MLPI), respectively. Moreover, in a second stage, we investigate the impact of exogenous variables on environmentally sensitive productivity change estimations. The empirical application conducted for a sample of water and sewerage companies in England and Wales over the period 201–2019 has illustrated that when GHG emissions were considered in the assessment (i.e., MLPI estimations), average productivity decreased. By contrast, when productivity estimation ignored GHG emissions (i.e., LPI), average productivity increased. Hence, it is concluded that the inclusion of GHG emissions in productivity analysis impacted the results. This finding is very relevant from a policy perspective as it illustrates the importance of considering GHG emissions when evaluating the performance of water companies for regulatory purposes.