Energy Efficiency with Undesirable Output at the Economy-Wide Level: Cross Country Comparison in OECD Sample

Abstract

Measuring the environmental efficiency of countries is important in the climate change process. The aim of this paper is to measure the energy efficiency of OECD countries with undesirable output. For this purpose, the Bad Output index (non-radial and non-oriented, CRS) developed by Tone (2001) is used in order to obtain the efficiency scores for the period 1995-2009. In this paper, I focus on the production process where labour, capital stock (mostly omitted in such papers), and energy consumption are inputs, GDP is a desirable output and CO2 emission is an undesirable output. To see the energy inefficiencies separately, if there are any, energy input is considered as three separate variables in the model. For this purpose, oil and natural gas consumption are incorporated as one input. Hydropower and nuclear are incorporated as another input. Coal is the third input. An important contribution of this paper is to use various proxy variables for the capital stock. Determining the reasons of these inefficiencies is important for these countries. But modelling the factors behind these inefficiencies is the subject of another paper.