Eva Alfredsson*, Jonas Månsson** and Peter Vikström*

 * Tillväxtanalys, Östersund

** Linnéuniversitetet, Växjö

Growth Analysis

•Swedish Agency for Growth Policy Analysis – Growth Analysis

•Under the direction of the Ministry of Enterprise, Energy and Communications.

•Our Mission - Sustainable economic development & competetivness using policy analysis, evaluations and policy intelligence

From Sustainable development to green economy

Rio 1992 - Sustainable development through sustainable patterns of producction and consumtion

Rio+20 2012 – Green economy and poverty reduction

The concept of green economy doeas not replace Sustainable development but ”rests on the recognition that achiving sustainability rests almost entirely on getting the economy right” UNEP 2011

Greening the economy – Adressing negative external effects ”bads”

Peak everything, 1750 – 2000Population - redCO2 – blueGDP - redLoss of tropical rainforest and woodland – greenWater use – light bluePaper consumption – yellowSpecies extinction – greenMotor vehicles, blackFisheries exploitedOzone depletion – gryeForaign investment – dark grey

Source: New Scientists

Measuring productivity accounting for environmental efficiency

• The main objective is to apply Data Envelopment Analysis (DEA) to analyse “eco-productivity” i .e. to account for both desired and undesired outputs using register data

• The paper and pulp industry is a suitable case– Several other studies– Relatively homogenous production– Relatively well documented (no small companies)

Modeling alternatives • Key-figures approaches

– Ecco-efficiency is a name used for different ratios between good and bad production (Barba-Gutierrez et.al, 2009; Lin et.al 2010; Fernandez-Viñé, 2010; Wang et.al., 2010; van Caneghem et.al. 2010; Whan and Côté, 2011; Wursthorn et.al 2011; Yang et.al 2011)

• Production economic approaches– Environmental efficiency uses economic production theory

[Pittman, 1983; Färe et.al (1989); Keilback, 1995; Lovell et.al, 1995; Brännlund (1995); Hetemäki (1996); Hailu and Veeman 2000, 2001; Bruvoll et.al (2003); Korhonen and Luptacik, 2004; Kousmanen and Kortelainen 2005; Picazo-Tadeo, 2005; Kortelainen and Kuosmanen 2007; Färe et.al 2007; Zhang et.al 2008; Larsson, 2008; Brännlund (2008); Bye et.al, 2009; Färe et.al 2010, Macpherson et.al 2010; Picazo-Tadeo et.al 2011; Picazo-Tadeo, 2011]

Modeling idea - Economic production theory

• There exist a possibility to substitute between different inputs/outputs

• Efficient = units that produce most, given inputs (output based) alternatively, units that uses the least amount of inputs to produce a given output (input based)

• Problem in our case– The production consist of a mixed objective function

• Maximise production/revenues/profits• Minimise pollution

Production economic approaches

• Ignore pollution. Early studies of the industry

• Use pollution as an input rather than an output[Pittman, 1983; Keilback, 1995; Lovell et.al, 1995; Hailu and

Veeman 2000, 2001; Korhonen and Luptacik, 2004; Kousmanen

and Kortelainen 2005; Kortelainen and Kuosmanen 2007; Zhang

et.al 2008; Larsson, 2008; Bye et.al, 2009; Picazo-Tadeo et.al

2011]

• Directional Distance Function[Chung, Färe and Grosskopf (1995, 1997), Picazo-Tadeo, 2005; Färe et.al 2007, Färe et.al 2010, Macpherson et.al 2010, Picazo-Tadeo, 2011]

( )P x

DY

UDY

AA*

C

D

0

0DY

1UDY 0UDY

( , ) (0, 1)DY UDYg g = -

( , ) (1,0)DY UDYg g =

1DY A**

B

( )P x

DY

UDY

A

A*

A**

B

C

D

0

0DY

1UDY2UDY 0UDY

2DY

1DY

0 0( , ) ( , )DY UDYg g DY UDY=

( , ) (1, 1)DY UDYg g = -

F

Research questions1. How much can the pollution be reduced, given unchanged

production levels of pulp and paper?

2. How much can the production of pulp and paper increase, given unchanged level of pollution?

3. If desired and undesired production is equally important (but opposite direction), how large is the inefficiency in the Swedish pulp and paper industry?

4. How much do environmental regulation cost in terms of not produced pulp and paper. (What would the production be if it was free and costless to get rid of pollution?)

Data• Official statistic 2000 – 2007

• Output• Desired = Real value of pulp and paper production• Undesired = CO2 in 100 ton, SO2 in ton

• Input• Number of employee• Buildings and land (long run capital) (real SEK)• Machinery (medium run capital) (real SEK)• Energy (TWH)• Raw material (real SEK)

Results - How much can the pollution be reduced, given the production of pulp and paper? (Pollution reduction perspectives)

0,70

0,75

0,80

0,85

0,90

0,95

1,00

2000 2001 2002 2003 2004 2005 2006 2007

Year

Avera

ge p

ote

nti

al

po

luti

on

red

ucti

on

Results - How much can the production of pulp and paper increase if the level of pollution is kept constant? (Growth perspective)

0,820

0,840

0,860

0,880

0,900

0,920

0,940

0,960

2000 2001 2002 2003 2004 2005 2006 2007

Year

Avera

ge p

ote

nti

al

pu

lp a

nd

pap

er

incre

ase

Results - If desired and undesired production is equally important (but opposite direction), how large is the inefficiency in the Swedish pulp and paper industry?

0,86

0,88

0,90

0,92

0,94

0,96

0,98

1,00

2000 2001 2002 2003 2004 2005 2006 2007

Year

Ave

rag

e ef

fici

ency

Q4. How much do environmental regulation cost in terms of not produced pulp and paper. (What would the production be if it was free and costless to get rid of pollution?)

( )P x

DY

UDY

A

A***E

C

D

0

0DY

0UDY

2DY

( , ) (1,0)DY UDYg g =

1DY A**

B

Results - How much do environmental regulation cost in terms of not produced pulp and paper. (What would the production be if it was free and costless to get rid of pollution?)

0,82

0,84

0,86

0,88

0,90

0,92

0,94

0,96

0,98

1,00

2000 2001 2002 2003 2004 2005 2006 2007

Year

Co

st o

f en

viro

men

tal

reg

ula

tio

n

Conclusion and concluding remarks

• In this paper we present one method to study eco-efficiency taking into account both desired output in production and negative output

• The goal is to extend and apply the model on another industry, e.g. transport

• It is however clear that the Swedish environmental account data is lacking in precision. Therefore development work has been initiated with SCB

• On the agenda is also to try to measures of productivity in terms of Malmqvist indexes that enables to distinguish between technical progress and efficiency gains over time.

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Eva.Alfredsson@tillvaxtanalys.se

Jonas.mansson@lnu.se