Environmental efficiency indices: towards a new approach to green-growth accounting

This article analyses the link between environmental and productive efficiency in a group of EU member states and the US using data from the UN Framework Convention on Climate Change. Its main indicator, carbon intensity, is defined as the ratio of total greenhouse gases emissions to output. A non-parametric frontier approach enables modelling a multiple output technology in which greenhouse gas emissions are an undesirable outcome of a production process. A DEA method is used to compute environmental efficiency indices, which grade countries according to their ability to increase production while reducing pollutants, under minimal assumptions. The only assumptions are that bad outputs are costly to dispose of and that returns to scale are variable. The study shows that productive efficiency is considerably lowered when environmental degradation are taken into account. Only two (Luxembourg and Sweden) out of 16 countries are environmentally efficient. Malmquist indices, however, show that environmental performances improved over the period considered in nearly all countries. A decomposition of carbon intensity, which links emission performance to technical progress, is also presented; this highlights the positive contribution of labour productivity on the reduction in carbon intensity. Finally, no evidence of a DEA-based environmental Kuznet curve is found.