IDEAS home Printed from https://ideas.repec.org/p/fem/femwpa/2011.19.html
   My bibliography  Save this paper

Efficiency, Productivity and Environmental Policy: A Case Study of Power Generation in the EU

Author

Listed:
  • Jurate Jaraite

    (CERE, Umeå University)

  • Corrado Di Maria

    (Queen’s University Belfast)

Abstract

This study uses the EU public power generating sector as a case study to investigate the environmental efficiency and productivity enhancing performance of the European Union’s CO2 Emissions Trading Scheme (EU ETS) in its pilot phase. Using Data Envelopment Analysis methods, we measure the environmental efficiency and the productivity growth registered in public power generation across the EU over the 1996-2007 period. In the second stage of our analysis we attempt to explain changes in productivity and efficiency over time using state-of-the-art econometric techniques. Our analysis suggests two conclusions: on the one hand carbon pricing led to an increase in environmental efficiency and to a shift outwards of the technological frontier; on the other hand, the overly generous allocation of emission permits had a negative impact on both measures. These results are shown to be robust to changes in controls and specifications.

Suggested Citation

  • Jurate Jaraite & Corrado Di Maria, 2011. "Efficiency, Productivity and Environmental Policy: A Case Study of Power Generation in the EU," Working Papers 2011.19, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2011.19
    as

    Download full text from publisher

    File URL: https://feem-media.s3.eu-central-1.amazonaws.com/wp-content/uploads/NDL2011-019.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Jaffe, Adam B. & Newell, Richard G. & Stavins, Robert N., 2003. "Chapter 11 Technological change and the environment," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 1, chapter 11, pages 461-516, Elsevier.
    2. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
    3. Yang, Hongliang & Pollitt, Michael, 2009. "Incorporating both undesirable outputs and uncontrollable variables into DEA: The performance of Chinese coal-fired power plants," European Journal of Operational Research, Elsevier, vol. 197(3), pages 1095-1105, September.
    4. Graus, Wina & Worrell, Ernst, 2009. "Trend in efficiency and capacity of fossil power generation in the EU," Energy Policy, Elsevier, vol. 37(6), pages 2147-2160, June.
    5. Zhou, P. & Ang, B.W., 2008. "Linear programming models for measuring economy-wide energy efficiency performance," Energy Policy, Elsevier, vol. 36(8), pages 2901-2906, August.
    6. Fried, Harold O. & Lovell, C. A. Knox & Schmidt, Shelton S. (ed.), 2008. "The Measurement of Productive Efficiency and Productivity Growth," OUP Catalogue, Oxford University Press, number 9780195183528.
    7. Barry Anderson & Corrado Di Maria, 2011. "Abatement and Allocation in the Pilot Phase of the EU ETS," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 48(1), pages 83-103, January.
    8. Fare, Rolf & Grosskopf, Shawna & Tyteca, Daniel, 1996. "An activity analysis model of the environmental performance of firms--application to fossil-fuel-fired electric utilities," Ecological Economics, Elsevier, vol. 18(2), pages 161-175, August.
    9. Tooraj Jamasb and Michael Pollitt, 2005. "Electricity Market Reform in the European Union: Review of Progress toward Liberalization & Integration," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 11-42.
    10. Tim J. Coelli & D. S. Prasada Rao, 2005. "Total factor productivity growth in agriculture: a Malmquist index analysis of 93 countries, 1980–2000," Agricultural Economics, International Association of Agricultural Economists, vol. 32(s1), pages 115-134, January.
    11. Zhou, P. & Ang, B.W. & Han, J.Y., 2010. "Total factor carbon emission performance: A Malmquist index analysis," Energy Economics, Elsevier, vol. 32(1), pages 194-201, January.
    12. Fare, Rolf & Shawna Grosskopf & Mary Norris & Zhongyang Zhang, 1994. "Productivity Growth, Technical Progress, and Efficiency Change in Industrialized Countries," American Economic Review, American Economic Association, vol. 84(1), pages 66-83, March.
    13. Simar, Leopold & Wilson, Paul W., 1999. "Estimating and bootstrapping Malmquist indices," European Journal of Operational Research, Elsevier, vol. 115(3), pages 459-471, June.
    14. Stavins, Robert N., 2003. "Experience with market-based environmental policy instruments," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 1, chapter 9, pages 355-435, Elsevier.
    15. Frank Convery, 2009. "Origins and Development of the EU ETS," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 43(3), pages 391-412, July.
    16. Yaisawarng, Suthathip & Klein, J Douglass, 1994. "The Effects of Sulfur Dioxide Controls on Productivity Change in the U.S. Electric Power Industry," The Review of Economics and Statistics, MIT Press, vol. 76(3), pages 447-460, August.
    17. Ellerman,A. Denny & Joskow,Paul L. & Schmalensee,Richard & Montero,Juan-Pablo & Bailey,Elizabeth M., 2005. "Markets for Clean Air," Cambridge Books, Cambridge University Press, number 9780521023894, October.
      • Ellerman,A. Denny & Joskow,Paul L. & Schmalensee,Richard & Montero,Juan-Pablo & Bailey,Elizabeth M., 2000. "Markets for Clean Air," Cambridge Books, Cambridge University Press, number 9780521660839, October.
    18. Lawrence H. Goulder & Ian W. H. Parry, 2008. "Instrument Choice in Environmental Policy," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 2(2), pages 152-174, Summer.
    19. repec:dau:papers:123456789/10174 is not listed on IDEAS
    20. Requate, Till & Unold, Wolfram, 2003. "Environmental policy incentives to adopt advanced abatement technology:: Will the true ranking please stand up?," European Economic Review, Elsevier, vol. 47(1), pages 125-146, February.
    21. A. Ellerman & Barbara Buchner, 2008. "Over-Allocation or Abatement? A Preliminary Analysis of the EU ETS Based on the 2005–06 Emissions Data," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 41(2), pages 267-287, October.
    22. Zhou, P. & Ang, B.W. & Poh, K.L., 2008. "Measuring environmental performance under different environmental DEA technologies," Energy Economics, Elsevier, vol. 30(1), pages 1-14, January.
    23. Milliman, Scott R. & Prince, Raymond, 1989. "Firm incentives to promote technological change in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 17(3), pages 247-265, November.
    24. Voigt, Sebastian & Hoffmann, Tim, 2009. "What Drives the Efficiency of Hard Coal Fuelled Electricity Generation? An Empirical Assessment," ZEW Discussion Papers 09-011, ZEW - Leibniz Centre for European Economic Research.
    25. Barbara Buchner & Denny Ellerman, 2006. "Over-Allocation or Abatement? A Preliminary Analysis of the Eu Ets Based on the 2005 Emissions Data," Working Papers 2006.139, Fondazione Eni Enrico Mattei.
    26. Simar, Leopold & Wilson, Paul W., 2007. "Estimation and inference in two-stage, semi-parametric models of production processes," Journal of Econometrics, Elsevier, vol. 136(1), pages 31-64, January.
    27. Korhonen, Pekka J. & Luptacik, Mikulas, 2004. "Eco-efficiency analysis of power plants: An extension of data envelopment analysis," European Journal of Operational Research, Elsevier, vol. 154(2), pages 437-446, April.
    28. Fleishman, Rachel & Alexander, Rob & Bretschneider, Stuart & Popp, David, 2009. "Does regulation stimulate productivity? The effect of air quality policies on the efficiency of US power plants," Energy Policy, Elsevier, vol. 37(11), pages 4574-4582, November.
    29. Caves, Douglas W & Christensen, Laurits R & Diewert, W Erwin, 1982. "Multilateral Comparisons of Output, Input, and Productivity Using Superlative Index Numbers," Economic Journal, Royal Economic Society, vol. 92(365), pages 73-86, March.
    30. K. G. Mäler & J. R. Vincent (ed.), 2003. "Handbook of Environmental Economics," Handbook of Environmental Economics, Elsevier, edition 1, volume 1, number 1.
    31. Tietenberg, T H, 1990. "Economic Instruments for Environmental Regulation," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 6(1), pages 17-33, Spring.
    32. Soderholm, Patrik, 2001. "Fossil fuel flexibility in west European power generation and the impact of system load factors," Energy Economics, Elsevier, vol. 23(1), pages 77-97, January.
    33. Ellerman, A. Denny & Buchner, Barbara K., 2006. "Over-Allocation or Abatement? A Preliminary Analysis of the Eu Ets Based on the 2005 Emissions Data," Climate Change Modelling and Policy Working Papers 12062, Fondazione Eni Enrico Mattei (FEEM).
    34. Widerberg, Anna & Wråke, Markus, 2009. "The Impact of the EU Emissions Trading System on CO2 Intensity in Electricity Generation," Working Papers in Economics 361, University of Gothenburg, Department of Economics.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sueyoshi, Toshiyuki & Yuan, Yan & Goto, Mika, 2017. "A literature study for DEA applied to energy and environment," Energy Economics, Elsevier, vol. 62(C), pages 104-124.
    2. Bai-Chen Xie & Jie Gao & Shuang Zhang & ZhongXiang Zhang, 2017. "What Factors Affect the Competiveness of Power Generation Sector in China? An Analysis Based on Game Cross-efficiency," Working Papers 2017.12, Fondazione Eni Enrico Mattei.
    3. Stavins, Robert, 2004. "Environmental Economics," RFF Working Paper Series dp-04-54, Resources for the Future.
    4. Gómez-Calvet, Roberto & Conesa, David & Gómez-Calvet, Ana Rosa & Tortosa-Ausina, Emili, 2014. "Energy efficiency in the European Union: What can be learned from the joint application of directional distance functions and slacks-based measures?," Applied Energy, Elsevier, vol. 132(C), pages 137-154.
    5. Yang, Hongliang & Pollitt, Michael, 2010. "The necessity of distinguishing weak and strong disposability among undesirable outputs in DEA: Environmental performance of Chinese coal-fired power plants," Energy Policy, Elsevier, vol. 38(8), pages 4440-4444, August.
    6. Robert W. Hahn & Robert N. Stavins, 2011. "The Effect of Allowance Allocations on Cap-and-Trade System Performance," Journal of Law and Economics, University of Chicago Press, vol. 54(S4), pages 267-294.
    7. Jurate Jaraite-Ka~ukauske and Corrado Di Maria, 2016. "Did the EU ETS Make a Difference? An Empirical Assessment Using Lithuanian Firm-Level Data," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    8. Xie, Bai-Chen & Shang, Li-Feng & Yang, Si-Bo & Yi, Bo-Wen, 2014. "Dynamic environmental efficiency evaluation of electric power industries: Evidence from OECD (Organization for Economic Cooperation and Development) and BRIC (Brazil, Russia, India and China) countrie," Energy, Elsevier, vol. 74(C), pages 147-157.
    9. Zhou, Haibo & Yang, Yi & Chen, Yao & Zhu, Joe, 2018. "Data envelopment analysis application in sustainability: The origins, development and future directions," European Journal of Operational Research, Elsevier, vol. 264(1), pages 1-16.
    10. Hampf, Benjamin & Rødseth, Kenneth Løvold, 2019. "Environmental efficiency measurement with heterogeneous input quality: A nonparametric analysis of U.S. power plants," Energy Economics, Elsevier, vol. 81(C), pages 610-625.
    11. Mushtaq Taleb & Ruzelan Khalid & Ali Emrouznejad & Razamin Ramli, 2023. "Environmental efficiency under weak disposability: an improved super efficiency data envelopment analysis model with application for assessment of port operations considering NetZero," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 25(7), pages 6627-6656, July.
    12. George Halkos & Nickolaos Tzeremes, 2014. "Measuring the effect of Kyoto protocol agreement on countries’ environmental efficiency in CO 2 emissions: an application of conditional full frontiers," Journal of Productivity Analysis, Springer, vol. 41(3), pages 367-382, June.
    13. Stavins, Robert, 2001. "Lessons From the American Experiment With Market-Based Environmental Policies," RFF Working Paper Series dp-01-53, Resources for the Future.
    14. Lori Bennear & Robert Stavins, 2007. "Second-best theory and the use of multiple policy instruments," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 37(1), pages 111-129, May.
    15. M. Lábaj & M. Luptáčik & E. Nežinský, 2014. "Data envelopment analysis for measuring economic growth in terms of welfare beyond GDP," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 41(3), pages 407-424, August.
    16. Zhou, P. & Ang, B.W. & Wang, H., 2012. "Energy and CO2 emission performance in electricity generation: A non-radial directional distance function approach," European Journal of Operational Research, Elsevier, vol. 221(3), pages 625-635.
    17. Larry Karp & Jiangfeng Zhang, 2016. "Taxes Versus Quantities for a Stock Pollutant with Endogenous Abatement Costs and Asymmetric Information," Studies in Economic Theory, in: Graciela Chichilnisky & Armon Rezai (ed.), The Economics of the Global Environment, pages 493-533, Springer.
    18. Yang, Hongliang & Pollitt, Michael, 2009. "Incorporating both undesirable outputs and uncontrollable variables into DEA: The performance of Chinese coal-fired power plants," European Journal of Operational Research, Elsevier, vol. 197(3), pages 1095-1105, September.
    19. Asproudis, Elias & Weyman-Jones, Tom, 2011. "Third parties �participation in tradable permits market. Do we need them?," MPRA Paper 28766, University Library of Munich, Germany.
    20. Marit Klemetsen & Knut Einar Rosendahl & Anja Lund Jakobsen, 2020. "The Impacts Of The Eu Ets On Norwegian Plants’ Environmental And Economic Performance," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 11(01), pages 1-32, February.

    More about this item

    Keywords

    Emissions Trading; EU ETS; Environmental Efficiency; Productivity Growth; Data Envelopment Analysis;
    All these keywords.

    JEL classification:

    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fem:femwpa:2011.19. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Alberto Prina Cerai (email available below). General contact details of provider: https://edirc.repec.org/data/feemmit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.