Environmental and Energy Efficiency of EU Electricity Industry: An Almost Spatial Two Stages DEA Approach

Abstract

This study analyzes the relationship between the energy efficiency and the stringency of environmental and market regulation in the electricity sectors has been analyzed. Using 19 European Union countries (2006–2014), we decomposed the environmental policy stringency index, the OECD regulatory indicators and the total factor productivity growth to highlight the complexity of the relations between electricity sector and regulatory policies. In the first stage we compute the three main components of total factor productivity. These three efficiency measures are used in the second stage to assess the impact of the regulatory policies on the total factor productivity also controlling for spatial effect. Results suggest that market and environmental regulations have not unidirectional impacts on the three components of total factor productivity. Pure and scale efficiency index are negatively affected by sectorial regulation that positively affect the shift of technological frontier. Environmental policy negatively affects the shift of the efficient frontier, but has a positive effect on the scale efficiency.