The effect of ESCOs on carbon dioxide emissions

Proponents of energy service companies (ESCOs) argue that these firms provide a crucial instrument for delivering improved energy efficiency in public and private sectors, thus contributing to carbon dioxide (CO2) emissions reduction around the world. Do ESCOs reduce CO2 emissions? To answer this question, we develop an estimating equation, which approximates the IPAT model, from a simple model of production. Based on the modified dynamic IPAT model, using the panel data of 129 countries over the period 1980 to 2007, we provide significant evidence to show that the ESCOs effectively reduce CO2 emissions and this effect increases over time. These findings also prove robust to the inclusion of a set of control variables, different dates of the first ESCO, and the Kyoto Protocol. Finally, we discuss energy policy implications.