Scandinavian Working Papers in 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
Additional contact information
Moriah Bostian: Department of Economics, Lewis & Clark College, Postal: Department of Economics, Lewis & Clark College, Portland, OR USA
Rolf Färe: Department of Economics, Oregon State University, Postal: Department of Economics, Oregon State University, Corvallis, OR USA
Shawna Grosskopf: CERE and Department of Economics, Oregon State University, Postal: Department of Economics, Oregon State University, Corvallis, OR USA
Tommy Lundgren: CERE, Postal: Department of Economics, 901 87 Umeå
William L. Weber: Department of Economics and Finance, Southeast Missouri State University, Postal: Department of Economics and Finance, Southeast Missouri State, University, Cape Girardeau, MO USA

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

JEL-codes: D22; D24; M14; Q40; Q41

29 pages, February 22, 2016

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