Assessing the efficiency of low-carbon economy within the European Union: a value-based DEA approach combined with cluster analysis

Abstract

Acknowledging the importance of eco-innovation, the European Commission has implemented various strategies and financial programs to promote sustainable energy transitions. Effective monitoring and assessment of these initiatives are crucial for their success. However, existing evaluation methods, such as macroeconomic and econometric models, often face limitations in cross-country comparisons and identifying best practices. A promising alternative, Data Envelopment Analysis, offers a non-parametric approach to efficiency assessment, accommodating multiple inputs and outputs without predefined functional relationships. Data Envelopment Analysis constructs a production possibility frontier, identifying inefficiencies and providing benchmarks for improvement. This study employs a novel approach, the cluster Value-Based Data Envelopment Analysis method, to assess eco-innovation efficiency across 27 European Union member states. By clustering countries and comparing their efficiency to the entire sample, the method provides insights into changes needed to achieve efficiency both within clusters and relative to the meta-frontier, guiding future policy decisions. Key findings show that Germany and Sweden are among the most efficient countries on the meta-frontier, with Germany excelling in researcher employment and eco-patent applications, and Sweden in greenhouse gas emissions productivity and eco-patent applications. Malta achieves high efficiency by focusing on greenhouse gas emissions productivity, while Cyprus prioritizes public funding and researcher employment. Romania demonstrates a balanced performance despite lower public funding efficiency for environmental research and development. Conversely, Portugal and Bulgaria highlight inefficiencies that could be mitigated by improving patent applications and greenhouse gas emissions productivity, respectively.