Accounting for Heterogeneity in the Water-Energy-Carbon Nexus: Evidence from English and Welsh Water Utilities

Improving energy and carbon efficiency in the provision of water services is essential towards more sustainable urban water cycle. This study investigates the performance of water companies in England and Wales by explicitly incorporating heterogeneity into the evaluation of the water-energy-carbon nexus. A novel Water-Energy-Emissions Performance Index (WEEPI) is developed using a latent class stochastic frontier analysis (SFA) framework, accounting for unobserved differences in production technologies across utilities. The analysis, based on data from 2011 to 2019, reveals two distinct classes of water companies. Class 1 companies generally demonstrate slightly higher WEEPI scores than Class 2 companies with average WEEPI of 0.949 and 0.938, respectively. The study finds that economies of scale are prevalent in Class 2 companies, suggesting strategic growth opportunities, while Class 1 companies face diminishing returns. Moreover, environmental factors such as average pumping head and treatment complexity exert class-specific impacts on efficiency. These findings underscore the importance of tailoring regulatory frameworks and incentives to company-level heterogeneity, thereby supporting more equitable and effective transitions towards carbon-neutral and energy-efficient water services.