EcoEff- Macroeconomic Inefficiency and Emission Reduction Potentials: Accounting for Heterogeneous Industry Structures

Start of Project 12/2018
End of Project 11/2021

EcoEff investigates the potential for reducing greenhouse gas emissions by a more efficient use of existing production possibilities. The analysis relies on nonparametric methods for efficiency analysis which are suited to incorporate undesired outputs such as greenhouse gas emissions or pollutants. Therefore, the macroeconomic environmental efficiency of the EU countries is analyzed and compared in order to quantify and statistically validate potential emission reductions in various industrial sectors. The project also attempts to estimate the costs (in terms of foregone output enhancement) which are associated with the efficiency improvements leading to emission reductions. In a final workpackage, the long-run trends of the potential emission reductions for a broad country sample are projected into the future to assess their contribution to reach the climate stabilization targets.

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Update on the project´s process

Completed is the static efficiency measurement with greenhouse gas emissions (and pollutants) as undesired outputs as the basis of the computation of the potential emissions reduction for 7 sectors in 16 European countries. Statistical bias corrections and confidence intervals are also established. The results are reported in two papers by Krüger and Tarach which are published on SSRN (see below).
The calculation of abatement costs is still in progress. Therefore, the emission abatement costs of total greenhouse gas emissions for 7 sectors and 16 European countries are considered. The related paper by Fait and Wetzel is planned to be submitted and published soon.
Just started has the work on the cross-country time-series analysis to establish trends of potential emission reductions for a broad country sample comprising countries of different stages of development. These trends are then to be projected into the future until the year 2050.

Preliminary results of the project

The figure shows the aggregate emission reduction potentials (computed using medians of the inputs and outputs over the period 2012-2016 in the efficiency analysis) for the sectors A to H (on the left) and 16 European countries (on the right). The y-axis is specified in megatons of CO2 equivalents. Shown are the aggregates (over countries or industries) of the actual emissions of greenhouse gases as open circles conntected by a dashed line. The potential emission reductions computed from the efficiency analysis are depicted in the form of bootstrap-bias corrected estimates as solid dots connected by a solid line. The vertical lines show the size of 95% confidence intervals. The aggregate potential emission reductions are found to be concentrated in certain sectors (manufacturing C, energy and water DE and transport H) and certain countries (Germany, United Kingdom and Poland). To which extent and over which time frame the reduction potentials can be realized must remain an open question.


Krüger, J.J., Tarach, M. (2021), Greenhouse Gas Emission Reduction Potentials in Europe by Sector: A Bootstrap-Based Nonparametric Efficiency Analysis. SSRN Working Paper 3828146. [submitted]

Krüger, J.J., Tarach, M. (2020), Greenhouse Gas Emission Reduction Potentials in Europe: A Nonparametric Efficiency Analysis Approach Using Sectoral Data. SSRN Working Paper 3716203. [working paper]

Fait, L., Wetzel, H. (2021),The value of greenhouse gas emission reductions in the EU: A non-parametric and sector-wise approach.
[work in progress]

Fait, L., Krüger, J.J., Tarach, M., Wetzel, H. (2021), Trend Projections for International Greenhouse Gas Emissions Accounting for Efficiency Improvements. [tentative title, work in progress, just started]