Scandinavian Working Papers in Economics

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

No 2014:9: Energy Efficiency in Swedish Industry A Stochastic Frontier Approach

Tommy Lundgren (), Per-Olov Marklund () and Shanshan Zhang ()
Additional contact information
Tommy Lundgren: CERE, Postal: CERE, Centre for Environmental and Resource Economics, Umeå University and SLU, Umeå, Sweden
Per-Olov Marklund: CERE, Postal: CERE, Centre for Environmental and Resource Economics, Umeå University and SLU, Umeå, Sweden
Shanshan Zhang: CERE, Postal: CERE, Centre for Environmental and Resource Economics, Umeå University and SLU, Umeå, Sweden

Abstract: This paper estimates firm level energy efficiency and its determinants in 14 sectors of Swedish manufacturing by using stochastic frontier analysis (SFA). We derive energy demand frontiers both from cost minimizing and profit maximizing perspectives. To account for firms’ heterogeneity, Greene’s true random effects model is adopted. Results show that, from both firm behavior perspectives, there is room to improve energy efficiency in all sectors of Swedish manufacturing. The EU ETS seem to have had a moderate or no effect on Swedish firms’ efficient use of energy. Moreover, we found that energy intensity or energy productivity (energy use over production value) is not an appropriate proxy for energy efficiency.

Keywords: energy demand; energy efficiency; manufacturing; stochastic frontier analysis; true random effects

JEL-codes: D22; D24; L60; Q41

50 pages, September 12, 2014

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