Measures for Energy Efficiency and Shadow Pricing in the Manufacturing Sector of EU Countries

Abstract

The manufacturing sector is important for the rest of the economy. However, this sector is also an energy‐intensive one and subject to policies of climate change mitigation. The European Union (EU) has embarked on sustainability and competitiveness policies that require increasing the environmental performance of the economy. This paper focuses on the environmental performance of the manufacturing sector of the EU. A nonparametric tool for assessing the effectiveness of climate change mitigation measures in the manufacturing sector is developed. This paper employs a relatively novel by‐production model with constraints ensuring a proper linkage between economic and environmental subtechnologies. This paper applies the shadow carbon price approach to assessing the costs of energy‐related GHG emission reduction in the manufacturing sector of EU countries. This allows one to compare and define the most efficient climate change mitigation policies in the manufacturing sector of EU countries. The results suggest that the variation in the carbon shadow price across EU countries remains substantial. The highest shadow prices are noted for Slovakia, Hungary, Latvia, and Estonia, indicating that further abatement of the carbon dioxide emission there would invoke relatively high costs.