This study investigates the long-term and causal relationship between lower-carbon energy consumption and firm-level Total Factor Productivity (TFP) in Vietnam. Utilizing panel data cointegration, DOLS estimation, and Granger causality tests on a balanced panel dataset from 2011-2020, we find evidence of a long-term relationship across the economy. While overall lower-carbon energy consumption positively impacts TFP, sectoral analysis reveals a nuanced story: a positive long-term relationship in Manufacturing and Construction, but a negative one for Wholesale/ Retail and Logistics, particularly linked to LPG/natural gas consumption. Causality tests confirm a two-way relationship only for the full sample and Manufacturing, with other sub-sectors showing unidirectional causality from TFP to lower-carbon energy. These findings highlight the critical need for tailored, sector-specific energy transition policies in Vietnam. Policies should foster lower-carbon energy adoption in sectors showing positive TFP impacts, while actively discouraging reliance on LPG/natural gas in others. Furthermore, enhancing overall firm productivity and investing in robust green infrastructure are crucial to enable and accelerate sustainable energy transitions across the economy. These findings suggest that energy transition policies should be sector-specific and account for firms’ productive capacity, as the relationship between lower-carbon energy adoption and TFP varies markedly across sectors and firm types.
