Green Cloud? An Empirical Analysis of Cloud Computing and Energy Efficiency

Abstract

The rapid, widespread adoption of cloud computing over the last decade has sparked debates on its environmental impacts. Given that cloud computing alters the dynamics of energy consumption between service providers and users, a complete understanding of the environmental impacts of cloud computing requires an investigation of its impact on the user side, which can be weighed against its impact on the vendor side. Drawing on production theory and using a stochastic frontier analysis, this study examines the impact of cloud computing on users’ energy efficiency. To this end, we develop a novel industry-level measure of cloud computing based on cloud-based information technology (IT) services. Using U.S. economy-wide data from 57 industries during 1997–2017, our findings suggest that cloud-based IT services improve users’ energy efficiency. This effect is found to be significant only after 2006, when cloud computing started to be commercialized, and becomes even stronger after 2010. Moreover, we find heterogeneous impacts of cloud computing, depending on the cloud service models, energy types, and internal IT hardware intensity, which jointly assist in teasing out the underlying mechanisms. Although software-as-a-service (SaaS) is significantly associated with both electric and nonelectric energy efficiency improvement across all industries, infrastructure-as-a-service (IaaS) is positively associated only with electric energy efficiency for industries with high IT hardware intensity. To illuminate the mechanisms more clearly, we conduct a firm-level survey analysis, which demonstrates that SaaS confers operational benefits by facilitating energy-efficient production, whereas the primary role of IaaS is to mitigate the energy consumption of internal IT equipment and infrastructure. According to our industry-level analysis, the total user-side energy cost savings from cloud computing in the overall U.S. economy are estimated to be USD 2.8–12.6 billion in 2017 alone, equivalent to a reduction in electricity use by 31.8–143.8 billion kilowatt-hours. This estimate exceeds the total energy expenditure in the cloud service vendor industries and is comparable to the total electricity consumption in U.S. data centers. This paper was accepted by Chris Forman, information systems. Supplemental Material: Data files and the online appendices are available at https://doi.org/10.1287/mnsc.2022.4442 .