Greenhouse Gas Emission Reduction Potentials in Europe by Sector: A Bootstrap-Based Nonparametric Efficiency Analysis

Abstract

Abstract The reduction of greenhouse gases is the key action to limit global warming. An important source of greenhouse gas emissions and pollution is the inefficiency of production processes. We report results from a stochastic nonparametric efficiency analysis using directional distance functions to take account of undesirable outputs like greenhouse gases and pollutants. With this approach, we are able to provide estimates of the potential emission reductions for 7 main sectors in 16 European countries. A specially adapted bootstrapping approach allows to implement a bias correction of the estimates and to compute confidence intervals. The results show that static efficiency improvements are a quantitatively important element of the emission reductions necessary to achieve the reduction targets of the European Union.

Keywords: climate policy, environmental efficiency, nonparametric measurement, bootstrapping, Europe

JEL Classification: Q54, E23, C14