Energy Efficiency in the Cloud: An Empirical Analysis of Information Technology Outsourcing, Cloud Computing, and Energy

Abstract

Improving energy efficiency is one of the most cost-effective ways to address the challenges of energy security and global climate change. Using U.S. economy-wide data from 57 private industries during 1998-2014, this study examines the impacts on client industry’s energy efficiency of in-house information technology (IT) capital and data processing and hosting services (DP&HS) outsourcing which is closely related to cloud computing. Based on a two-stage stochastic frontier approach, we find that IT capital and DP&HS outsourcing play a complementary role in reducing energy consumption. Specifically, IT capital contributes to technical progress toward less energy-consuming production, whereas DP&HS outsourcing improves energy efficiency. Notably, DP&HS outsourcing substantially improves the client industry’s energy efficiency after 2007, when cloud computing services began to rapidly grow. Furthermore, the contribution of DP&HS outsourcing to energy efficiency appears to be amplified with more intensive investments in internal IT capital. Relevant implications for research and practice are discussed.