Measuring environmentally sensitive productivity growth : an application to the urban water sector

The energy use and greenhouse gas emissions in the provision of urban water and sewerage services have become an increasingly important issue in recent times. However, the impact of negative externalities such as greenhouse gas emissions on the productivity of urban water provision has received less attention in the literature. This paper applies the global Malmquist-Luenberger (GML) productivity index, which accounts for undesirable outputs in order to evaluate the productivity trends in the Australian urban water sector. Results indicate that the inclusion of greenhouse gas emissions significantly influences the productivity measurement. Findings also indicate that the conventional index, which disregards undesirable outputs, over-states the productivity growth. Despite a declining trend in greenhouse emissions over the period, the overall productivity trend of the urban water sector experienced a downward trend whilst accounting for bad output. This productivity decline occurs in a period of prolonged drought, water security concerns and increased reliance on desalinization and water recycling.