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CERE - the Center for Environmental and Resource Economics CERE Working Papers, CERE - the Center for Environmental and Resource Economics

No 2016:3:
Time substitution for environmental performance: The case of Sweden manufacturing

Moriah Bostian (), Rolf Färe, Shawna Grosskopf, Tommy Lundgren () and William L. Weber

Abstract: We apply recent advances in time substitution modeling to examine the environmental performance of firms in Sweden’s pulp and paper industry for the years 2002 - 2008. Our data allow us to estimate the optimal reallocation of environmental investments, expenditures and energy use to simultaneously maximize production output and minimize emissions reductions in the years immediately before and after the implementation of the European Union Emissions Trading Scheme. We find some evidence of overall productivity decline when considering both emissions and output objectives, due primarily to technological decline, and that cumulative dynamic inefficiency outweighs static inefficiency. A comparison of optimal investment time paths to observed investment levels indicates that firms could have improved their performance by reallocating environmental investments to early periods and production-oriented investment to later periods.

Keywords: Time Substitution; Dynamic Efficiency; Environmental Performance; Environmental Investment; DEA; (follow links to similar papers)

JEL-Codes: D22; D24; M14; Q40; Q41; (follow links to similar papers)

29 pages, February 22, 2016

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