Explaining the environmental efficiency of drinking water and wastewater utilities

Demand for drinking water and wastewater services has increased drastically due to increased urbanization and population growth worldwide. The provision of these services entails several negative externalities including greenhouse gas emissions (GHGs). Conventional economic performance evaluation methods often ignore the negative externalities of production. Using a nonparametric approach, this paper analyzes the environmental efficiency of drinking water utilities, which incorporates GHGs into the evaluation as an undesirable output. A model based on the directional distance function was applied to drinking water and wastewater utilities in Australia. Findings indicate that the source of raw water, the level of wastewater treatment and production density have a statistically significant influence on the environmental efficiency of drinking water and wastewater utilities. © 2018 Institution of Chemical Engineers