Energy Saving in Transition Economies: Environmental Activities in Manufacturing Firms

Round 1

Reviewer 1 Report

The research question addressed in the manuscript is interesting, I have the following comments to improve the quality of the paper. 

1. The key objectives of the study need to explain explicitly.
2. The study composition is given by the authors does not match with the given sections. 
3. According to the given information in the last paragraph of the introduction section, It seems the authors have missed the Literature Review Section. 
4.  The selection of firms and the selection of countries require further justification. 
5. There is a need to write the econometric models according to the objectives of the study, otherwise present results are hard to follow and digest. 
6. The main contribution of the paper is results and discussion, kindly elaborate the results with logical reasoning and compare them to the existing literature.  
7. There is a need to add a sub-section under section 4. "The Robustness Check" where you can depict the results with different controls and discuss the sign and significance of key variables. 
8. The conclusion seems very general, a more specific finding-based suggestion would be appealing for the readers. 

Author Response

The research question addressed in the manuscript is interesting, I have the following comments to improve the quality of the paper. 

1. The key objectives of the study need to explain explicitly.

Thanks for the point.

In the Introduction we have explained the key objectives:

“Most of the studies on energy saving of firms in these countries are based on case studies, while a lack of empirical evidence emerges when the attention is paid on the relationship between firms' environmental activities and energy saving. Therefore, the aim of this paper is to contribute to this strand of literature to check: (i) the relationship between voluntary environmental activities and energy saving in a sample of manufacturing firms localized in 28 Transition countries during the period 2018-2020 and (ii) the role played by firms’ size and firms’ age. Specifically, we enrich this stream investigating the effect of a set of environmental voluntary activities on energy saving. Our analysis is focused on the manufacturing sector since it is energy-intensive and differently from prevailing literature that investigate industrialized economies or specific developing countries, we study firms in Transition countries.”

1. The study composition is given by the authors does not match with the given sections. 

We have changed. Thanks.

“The paper is structured as follows. Section 2 focuses on the literature review. Section 3 describes material and methods. Section 4 discusses both the results of the baseline model and those obtained from the robustness check. Finally, the last section concludes and summarizes the article.”

1. According to the given information in the last paragraph of the introduction section, it seems the authors have missed the Literature Review Section. 

Done. Thanks

1.  The selection of firms and the selection of countries require further justification. 

We have added that the selection of sample firms was carried out by World Bank: “The surveys have been carried out on a sample of firms designated by following a stratified random sample approach, specifically, the stratification levels used are: (i) region, (ii) sector and (iii) firm dimensionin manufacturing sector in the introduction.”

We have added the footnote 4 to explain the country selection: “The choice of these 28 countries depends on data availability.”

1. There is a need to write the econometric models according to the objectives of the study, otherwise present results are hard to follow and digest. 

Thanks for the point. We have re-written the econometric strategy.

• 2 Empirical strategy

The main purpose of this paper is to assess the impact of a set of environmental voluntary activities on energy saving. To this end, we employ binary probit model to investigate the impact The regression coefficients of the probit model have effects on a cumulative normal function of the probabilities that Y = 1 (in our case, the probability that a firm adopts energy saving improvement measures). The equation can be expressed as follows [64]:

where  indicates the cumulative probability distribution function of the standard normal distribution and transforms the regression into the range (0, 1). Therefore, our dependent variable  takes value 1 if the firm implements energy saving measures, 0 otherwise. The environmental manager, renewable sources, environmental objectives and energy consumption audit are the set of environmental voluntary activities, they take value 1 if enterprises have adopted them, 0 otherwise. Finally,  is a vector of controls for firms’ characteristics. We also compute the marginal effects of each explanatory variable on the probability that the observed dependent variable is equal to 1, which is more informative than leaving the results expressed as odds ratios or relative risks [65,66].

1. The main contribution of the paper is results and discussion, kindly elaborate the results with logical reasoning and compare them to the existing literature. 

Thanks. Done. 

1. There is a need to add a sub-section under section 4. "The Robustness Check" where you can depict the results with different controls and discuss the sign and significance of key variables. 

Done. Thanks

1. The conclusion seems very general, a more specific finding-based suggestion would be appealing for the readers. 

Thanks. We have moved to discussion some sentences and we have added others one. In particular, we have specified the following:

“Empirical findings show that each voluntary environmental activity plays a crucial role in saving energy, in particular the activity related to the strategic environmental objectives. Results also underline differences across areas: firms in Eurasian Former – USSR Countries, Yugoslavian Countries and Albania and in European Former-USSR Countries are more energy saving with respect to firms in the Central European countries. The main findings are also confirmed when we perform the estimations considering the three size classes of firms and the firm age.  In addition, these results suggest that (i) medium and small firms appear more energy saving respect to large ones when we consider the magnitude effects; (ii) small and younger firms are more energy efficient since they use more recent and efficient technologies. Our paper presents some limitations concerning mainly the use of survey carried out over a short period and we employ cross-sectional data. Future research could be conducted by only one area and one sector given the specificity of firms’ characteristics.

Our analysis suggests that the policy implications able to speed up the implementation of energy saving measures in transition countries can be grouped into two categories.  First, to support energy saving, policy makers should stimulate all those initiatives whose purpose is to increase the awareness among entrepreneurs and managers on how firms can better use energy. Second, institutions should remove especially financial barriers and encourage the firms to invest in innovation or in more efficient technology. Investing in clean and green technologies to achieve energy savings represents an asset for increasing energy efficiency and a cost-effective improvement. To do this, it is strategic to provide to firm’s loans, guarantees and other forms of debt finance particularly innovation driven and technology procurement.

To conclude, the institutions play a pivotal role in overseeing new policy instruments for energy saving and creating new energy efficiency measures especially in countries with companies that have a higher energy consumption. The achieving of energy saving target could lead to the enhancement of the general competitiveness of firms generating economic, social and environmental benefits, as well.”

Reviewer 2 Report

Overall comments:

The Paper uses the concept of Transition economies or Transition countries; however, the background of the concept is not explained. It is said that 28 countries are analyzed, it is unclear under which criteria the countries were chosen. There is a need to specify that in the literature review, explaining the concept and source of the definition, list of countries.

Moreover, the actual set of countries is given only in footnote 4 of page 4. Then the countries are divided into four geographical regions, which are also not generally accepted truth. And the actual list of the countries in each group is not provided. There is a need to explain and justify the whole list and division into groups. The Geographical (and for example not economical) factor of division into groups should be specifically explained.

In the Conclusion the specifics of the Transition economy or set of countries are not discussed.

The usage of the probit model was not justified and supported by the literature review, and was not explained even briefly in the Methods part. Should be changed accordingly.

The alternative estimation section is unclear and was not specified as part of the method.

Paper lacks discussion of the results, mainly comparison with other existing results

Overall, the paper lacks such crucial parts as Materials and Methods; Discussion and their content is not present in any other section

Author Response

The Paper uses the concept of Transition economies or Transition countries; however, the background of the concept is not explained. It is said that 28 countries are analyzed, it is unclear under which criteria the countries were chosen. There is a need to specify that in the literature review, explaining the concept and source of the definition, list of countries.

Thanks for pointing out this.

We have specified the Transition countries concept and sources of definition in the Introduction:

“In this paper we highlight the role played by the adoption of environmental activities to save energy in manufacturing firms operating in a set of Transition countries [1,2].… “These countries, that moved from a planned to a market economy after the collapse of the communist regime, were characterized by very intensive energy use. During the transition process the energy use is decreased since market reforms mitigated problems such as resource misallocation and price distortions. However, energy improvement is different across countries and transition areas [29].”

We have reported the list of countries in Appendix.

-Moreover, the actual set of countries is given only in footnote 4 of page 4. Then the countries are divided into four geographical regions, which are also not generally accepted truth. And the actual list of the countries in each group is not provided. There is a need to explain and justify the whole list and division into groups. The Geographical (and for example not economical) factor of division into groups should be specifically explained.

Thanks for the point. In the Section 3.1 Data description and variables, we have added “It is based on data from about 15,246 firms located in 28 countries of Eastern Europe and Central Asia (Table A1, in Appendix contains the list of countries included in our analysis)”.

In footnote 4 we have explained and justified the list: “The choice of these 28 countries depends on data availability.”

We have explained and justified the division into groups: “To group the countries, we use the classification proposed by Biscione and Caruso [62] and Biscione et al. [63].”

Appendix

Table A1. Countries in macro-regions

-In the Conclusion the specifics of the Transition economy or set of countries are not discussed.

In the Conclusion, we have added:” Results also underline differences across areas: firms in Eurasian Former – USSR Countries, Yugoslavian Countries and Albania and in European Former-USSR Countries are more energy saving with respect to firms in the Central European countries.”

-The usage of the probit model was not justified and supported by the literature review and was not explained even briefly in the Methods part. Should be changed accordingly.

Thanks for the point. We have changed and added the literature.

3.2Empirical strategy

“The main purpose of this paper is to assess the impact of a set of environmental voluntary activities on energy saving. To this end, we employ binary probit model to investigate the impact The regression coefficients of the probit model have effects on a cumulative normal function of the probabilities that Y = 1 (in our case, the probability that a firm adopts energy saving improvement measures). The equation can be expressed as follows [64]:

16PY=1x1, …, xk)=ϕ(β0+β1environmental manager+β2renewable sources+β3envriromental objectives+β4energy consumption audit+β5X" style="width: 483pt; height: 35pt">

where 16œï" style="width: 6pt; height: 12pt"> indicates the cumulative probability distribution function of the standard normal distribution and transforms the regression into the range (0, 1). Therefore, our dependent variable 16Y" style="width: 6pt; height: 12pt"> takes value 1 if the firm implements energy saving measures, 0 otherwise. The environmental manager, renewable sources, environmental objectives and energy consumption audit are the set of environmental voluntary activities, they take value 1 if enterprises have adopted them, 0 otherwise. Finally, 16X" style="width: 6pt; height: 12pt"> is a vector of controls for firms’ characteristics. Finally, we compute the marginal effects of each explanatory variable on the probability that the observed dependent variable is equal to 1, which is more informative than leaving the results expressed as odds ratios or relative risks [65,66]. To do this, we use the statistical software for data science STATA version 14.”

-The alternative estimation section is unclear and was not specified as part of the method.

It is not an alternative estimation, but it is a Robustness Check since we re-run the baseline model splitting our sample according to the size and the age of the firms.

For this reason, we have changed the sub-section title:” 4.1 The Robustness Check”

-Paper lacks discussion of the results, mainly comparison with other existing results.

Done, Thanks.

Overall, the paper lacks such crucial parts as Materials and Methods; Discussion and their content is not present in any other section.

Done. Thanks.

Reviewer 3 Report

General comments.

1- The paper deals on a relevant issue, as is energy savings in the industry sector and is well designed and presented. The research is based on up-to-date and relevant databases from reliable international institutions and obtains some relevant results. However, the main relationship that the research tries to uncover is not clearly defined, and some results are contradictory and not fully discussed. Likewise, the policy implications proposed, although sensible and more or less obvious, do not follow from the results presented.

2- The main issue that I find unconvincing in the research design is the definition of causal/explanatory variables, denoted as ‘environmental practices’ – line 178 section 3-, and the explained variable, energy savings. In fact, rather than environmental practices, I think that they are better defined as internal institutional arrangements, since they are all adopted voluntarily by the firm. The first problem that I see is that if a firms intends to implement energy savings, it needs some institutional and bureaucratic restructurings, as precisely those defined here as ‘environmental practices’: so, I do not see a clear causality direction from one to the other, and rather, I think they are just two aspects of the same fact. In fact, interestingly the conclusions stress that no causality implication can be derived from the research results: but, although I agree on that, what is the point of the study then? Even more, the paper concludes suggesting some measures, reasonable as they may be, but which are in fact ‘coercive’ or externally applied by the appropriate authorities – i.e., decrease red tape, increase finance facilities, etc. These measures, obvious on the other hand, are not supported by the research results in my view.

Other specific comments.

-The abstract makes reference to ‘unexpected results’ without mentioning what they are: either delete that comment, or give more details.

-the introduction repeats itself quite a lot, and is confusing.

a) line 42 states that ‘… helping decarbonize the energy sector making buildings more efficient’. But, isn’t the industry sector the research focus?

b) line 44 states ‘…increase in dangerous waste and toxic materials emitted …’. Again, the focus of the paper is energy savings, not waste and recycling.

c) line 46 ‘‘… green business practices that companies voluntarily adopt …’, and then in line 48, ‘Green practices of firms consist in external and coercive adoptions …’: so, what are they finally, voluntary or coercive?

d) the introduction states that the effect found in the research is stronger for older and bigger firms; however, in line 289 in section 5 the opposite effect is reported, i.e., that it is precisely small and younger firms who are more energy efficient, and the explanation offered in line 296 is convincing in this case – they use more recent and efficient technologies.

-Section 3; the dependent variable takes on 1 if the firm has adopted at least one of the measures mentioned: this is correct, but a better approach in this setting is to use a discrete dependent variable that can take several values – i.e., 1, 2, 3 etc..-, like e.g., the Poisson.

-the paper states that the research has been conducted with the probit model: this implies using the Gaussian cumulative distribution function, for which there is no analytical expression; I assume that the authors have used some econometrics program readily available, and it should be made clear which one.

-Section2 ‘theroretical background’: this section is well written, but it is a literature review, not a theoretical background – which, by the way, is missing.

-Section 4: the model is presented in a wrong way: the observation is 1/0, but the explanatory side is precisely the cumulative distribution of the Gaussian density, where its mean depends on a set of explanatory variables; an error is added to make up for the difference between the probability, which always lies between 0 and 1, and the observed value, 1/0; check any econometrics book.

-Other conclusion somewhat shocking is that firms outside the EU are more proactive and efficient regarding energy savings and environmental concerns; the EU is strongly committed to countering and fighting climate change, and has put in place many measures to that effect. Some explanation is in order.

minor points.

- the literature cited is relevant, sufficient, and up-to-date.

- the English is generally correct, but would benefit from a revision, e.g.,

a) line 31 In the introduction, ‘…is reduced…’, better put, ‘…has been reduced…’

b) line 53, ‘…the literature at this regard …’, better put ‘…in this regard…’ or ‘…on this topic/subject…’

Author Response

Author Response File: Author Response.pdf

Round 2

Reviewer 2 Report

1.a)Added paragraph (58-62) does not reflect definition of the transition economies. "These countries, that moved from a planned to a market economy" - they did not move, they are in a process of moving (has been moving). Moreover, it is widely accepted that there are no countries with purely market economies. "During the transition process the energy use is decreased since market reforms mitigated problems such as resource misallocation and price distortions." This is mostly not true. For example, in Former USSR countries the absolute energy use decreased due to the rapid decrease in production. If authors mean some other energy indicators they should include it. The question is still the same – who decides if the economy is transition or not?

1.b)Footnote 5 says “The choice of these 28 countries depends on data availability.”  When performing analysis of the set of data authors always need to justify what was included in it. At least it can be specified what countries were not included and mentioned that their data does not have high impact “Data on other transition countries such as … was not available.”

1.c)Lines 201-203 for the essential question of how to group the countries authors use references to their own work. I strongly suggest to support it by another evidence, because the groups do not seem to follow clear logic, except geography.

1.d)Official definitions and classifications (IMF, EBRD, World bank) or researches by a few well-known researchers should be used to define transition economies and groups of countries.

2)There is no literature review regarding usage of the particular model (probit) or similar cases. Therefore, still no justification of the choice of the model. The process of the robustness check is not defined in the methods part

3) As far as I know, literature review is usually included in the Introduction. Authors should check the rules and templates.

The structure of the paper is still not right – part 4 has only one subpart 4.1

Author Response

In what follows, we report our responses to referee’s requests.

1.a) Added paragraph (58-62) does not reflect definition of the transition economies. "These countries, that moved from a planned to a market economy" - they did not move, they are in a process of moving (has been moving). Moreover, it is widely accepted that there are no countries with purely market economies. "During the transition process the energy use is decreased since market reforms mitigated problems such as resource misallocation and price distortions." This is mostly not true. For example, in Former USSR countries the absolute energy use decreased due to the rapid decrease in production. If authors mean some other energy indicators they should include it. The question is still the same – who decides if the economy is transition or not?

Thanks for the point. We have changed in:

“These countries have been moving from a planned to a market economy [27-29]2 after the fall of the communist regime. At the beginning of this process almost all countries were characterized by very intensive energy use especially in industry sector. During the transition process the energy use is decreased since market reforms mitigated problems such as resource misallocation and price distortions [31]. This reduction, different across countries and transition areas, may be also due to other determinants, such as a decrease in production and a collapse in economic activity [32].”

and we have added the footnote 2:

“Although we base our analysis on traditional definition of transition economies [27-29] this concept has evolved over time. In particular, Besley et al. [30] provided a new definition of ‘transition concept’ that redefines the role of institutions and considers the qualitative rather than quantitative transition aspects. In other words, it is necessary to focus on achieving well-functioning markets.”

1.b) Footnote 5 says "The choice of these 28 countries depends on data availability."  When performing analysis of the set of data authors always need to justify what was included in it. At least it can be specified what countries were not included and mentioned that their data does not have high impact "Data on other transition countries such as ... was not available."

Thanks for this point. Footnot 5 is now footnot 4 that we have changed as follow: “Data on other transition countries such as Turkmenistan, Cambodia, China, Laos, Vietman and Botswana was not available.”

In addition, we have added: “To identify the Transition economies, we combine the FMI [28] and the World Bank [29] classifications.” (Lines 180-181)

1.c) Lines 201-203 for the essential question of how to group the countries authors use references to their own work. I strongly suggest to support it by another evidence, because the groups do not seem to follow clear logic, except geography.

Thanks. We have given more details and added the follow sentence and reference 69:

“Then, these transition countries are subdivided in categories to consider their geographical location and level integration in EU market [69]. From a purely geographical point of view, we group the countries in four regions: (i) European Former-USSR Countries; (ii) Former Yugoslavian Countries and Albania (iii) Eurasian Former-USSR Countries and (iv) Central European countries [70, 71]. Finally, to classify countries by their degree of integration into the EU market…”

1.d) Official definitions and classifications (IMF, EBRD, World bank) or researches by a few well-known researchers should be used to define transition economies and groups of countries.

We have answered in 1.a) and Lines 180-181.

2)There is no literature review regarding usage of the particular model (probit) or similar cases. Therefore, still no justification of the choice of the model. The process of the robustness check is not defined in the methods part.

Thanks for pointing out this. In the introduction we have added:

“Whereas most of the empirical literature investigates energy saving employing the stochastic frontier model [32-34] or the DEA approach [35, 36], in this paper, given the nature of the variable that captures energy saving, we use a probit regression model. Therefore...”

In section 3.2 Empirical part, we have added: “Given the nature of our dependent variable,…”(Line 318)

In the method part, we have added the process of the robustness check as suggested.

“Then, we explore the effect of environmental practices on energy saving by considering (i) the three size classes of firms and (ii) the firm age. Therefore, we re-run the baseline model splitting our sample according to the size and the age of the firms. With reference to the size class of firms, the probability of firms to adopt energy saving measures can be expressed as follows:

 is equal to 1 if a firm of the group j (j=A, B, C) has implemented energy saving solutions, 0 otherwise. Note that A is for small firms, B indicates medium firms and C stands for large firms.

While, in relation to firms’ age, the equation is defined as:

 is 1 if a firm of the group z (z=A, B) has introduced energy saving actions, 0 otherwise. In this case, A is for younger firms and B indicates older firms. “

Therefore, we have changed the beginning of the section 4.2 Robustness check to not repeat the same concept

Hereafter, the robustness check results. (Line 327)

3) As far as I know, literature review is usually included in the Introduction. Authors should check the rules and templates.

Thank you for this concern.

“We have checked the rules, templates and other papers published by the Sustainability Journal. In particular, we have found that authors generally decide whether to include literature in the introduction or to distinguish introduction and literature. For instance:  Do, B.; Nguyen, N. The Links between Proactive Environmental Strategy, Competitive Advantages and Firm Performance: An Empirical Study in Vietnam. Sustainability 2020, 12, 4962.”

-The structure of the paper is still not right – part 4 has only one subpart 4.1.

Thanks.

We have changed the structure as follow:

4. Results and discussion

4.1 Baseline results

….

4.2 Robustness check

Author Response File: Author Response.pdf

Reviewer 3 Report

Thank you for answering all of my suggestions and criticisms. The paper looks much improved and I have no further comments.

Author Response

Thank you for answering all of my suggestions and criticisms. The paper looks much improved and I have no further comments.

Thanks for your useful suggestions that have improved our paper.

Author Response File: Author Response.pdf

Round 3

Reviewer 2 Report

Thank you, the comments have been answered