Top European electricity producers´eco-efficiency : And the role of policy instruments

Abstract: There is an implicit trade-off between environmental quality and the production of goods which can be analysed using an eco-efficiency approach. Within an eco-efficiency approach, Decision Making Units (e.g., firms) are compared to each other, where they are assessed based on their production’s environmental impact per unit of economic value produced. In this thesis I investigate eco-efficiency within the electricity, gas, steam and air conditioning supply sector. This sector is both an important contributor to the production and consumption of goods, and highly polluting. I calculate the eco-efficiency scores of 10 of the top European electricity producing countries between the years of 2008 and 2019 using an input-oriented Data Envelopment Analysis approach with variable returns to scale. In my analysis I choose carbon dioxides, nitrogen oxides, and sulphur oxides as the environmental impacts. After calculating the eco-efficiency scores I turn to analyse how different factors, with a focus on policy instruments, impact the calculated eco-efficiency scores. I find that no country is eco-efficient in the whole time period. Most countries, however, significantly improve their eco-efficiency throughout the years and several of them become efficient in the last year. I find that Norway and Belgium have the highest mean efficiency, while Poland and Spain have the lowest mean efficiency. The results suggest that the share of fossil fuel in electricity production has a negative impact on eco-efficiency and that GDP per capita has a positive impact on eco-efficiency. Finally, while the results are not consistent across models they indicate a positive effect of taxes on NOX (nitrogen oxides) and SO2 (sulphur dioxides) on eco-efficiency, and a negative effect of a refundable NOX charge on eco-efficiency.