Persistent and Transient Carbon Efficiency in the Provision of Water Services: Evidence From England and Wales

Assessing the carbon performance of water utilities is essential for the transition towards low‐carbon urban water systems. However, the design of effective policies and managerial actions requires a clear understanding of the underlying drivers of carbon performance. This study contributes to this objective by proposing and estimating an overall carbon efficiency index (OCEI) that explicitly distinguishes between transient (time‐varying) and persistent (time‐invariant) components of inefficiency. Carbon efficiency is modelled using a four‐error‐component stochastic frontier carbon‐oriented distance function for English and Welsh Water and Sewerage Companies and Water Only Companies over the period 2010–2020. The results show that average OCEI values remain low, at 0.403 for Water and Sewerage Companies and 0.440 for Water Only Companies, indicating substantial scope for reducing carbon emissions. Improvements in OCEI observed up to 2017 are driven almost entirely by transient carbon efficiency, which increases to approximately 0.88 before declining sharply after 2018, highlighting the dominant role of short‐run operational practices in shaping overall carbon performance. In contrast, persistent carbon efficiency remains stable and low throughout the period, with average values close to 0.51 across all utility types, indicating a substantial persistent component of carbon inefficiency throughout the period. These findings provide new evidence on the relative importance of operational versus persistent drivers of carbon efficiency in the water sector and offer policy‐relevant insights for the design of regulatory and managerial strategies aimed at long‐term decarbonization.