Scandinavian Working Papers in Economics

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

No 2011:3: Efficiency, Productivity and Environmental Policy: A Case Study of Power Generation in the EU

Jurate Jaraite () and Corrado Di Maria ()
Additional contact information
Jurate Jaraite: CERE, Centre for Environmental and Resource Economics, Postal: Dept. of Economics, University of Umeå, S-901 87 Umeå, Sweden
Corrado Di Maria: Economics and Finance Research Group, Postal: Queen’s University , Belfast , UK

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 EU ETS in its pilot phase. Using Data Envelopment Analysis methods, we measures 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 quite robust to changes in controls and specifications.

Keywords: Emissions Trading; EU ETS; Environmental Efficiency; Productivity GrowthM; Data Envelopment Analysis

JEL-codes: O38; Q48; Q58

25 pages, February 22, 2011

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