Environment and Energy? The Impact of Environmental Management Systems on Energy Efficiency

Problem definition: Despite the widespread adoption of environmental management systems (EMS), their relationship with energy efficiency remains unclear. This study investigates whether and how EMS adoption lowers energy efficiency and, if so, how to mitigate the impact. Academic/practical relevance: Understanding the relationship between EMS and energy efficiency is important because any decrease in energy efficiency may eventually lead to undesired environmental outputs (e.g., CO2), potentially contributing to climate change. This study sheds light on energy as a necessary input required for environmental management, thereby elucidating the issue of environmental trade-offs in sustainable operations. Methodology: Using novel panel data on energy efficiency and EMS standards obtained from 2,690 South Korean plants operating between 2001 and 2014, this study empirically investigates the impact of EMS on energy efficiency at the plant level. Results: We provide evidence of a trade-off relationship between environmental performance and energy efficiency in relation to EMS adoption. We find that the adoption of ISO 14001, the representative EMS standard, results in approximately 6%–12% lower energy efficiency compared with nonadoption although it effectively reduces air, water, and waste pollution. More importantly, our results show that the trade-off, an unintended consequence of EMS implementation, can be moderated through quality management capability. Managerial implications: We suggest that sustainability managers take balancing actions to reduce trade-offs between environmental performance and energy efficiency. Specifically, when implementing EMS, managers are advised to (1) actively incorporate energy management activities, (2) employ more comprehensive measurements for energy efficiency, and (3) redesign incentive schemes to facilitate improvements in energy efficiency.