Proponents of energy service companies (ESCOs) argue that these firms provide a crucial instrument for delivering improved energy efficiency in public and private sectors, thus contributing to carbon dioxide (CO2) emission reduction around the world. Do ESCOs
reduce CO2 emissions? To answer this question, we develop an estimating equation, which approximates the IPAT model, from a simple model of production. We estimate a dynamic panel of 129 countries over the period 1980–2007 to show that the ESCOs effectively reduce CO2
emissions and that this effect increases over time. These findings also prove robust to the inclusion of a set of control variables, different dates of the first ESCO and the Kyoto Protocol. Finally, we discuss energy policy implications.