Eco-efficiency: Α methodological framework and assessment

Highlights

• A new eco-eff index that captures both economic activity and its ecological impact.

• A new eco-eff index that avoids the methodological issues of previous estimates.

• Country-level analysis (1990–2017) where environmental policy decisions are made.

• eco-eff score is worse than earlier estimates but in line with ecological evidence.

• eco-eff values are deteriorating over time, more rapidly since the financial crisis.

Abstract

The paper develops an innovative approach for estimating a theoretically robust Eco-efficiency index, eco-eff, by combining the ecological impact of a production outcome with its economic decision-making aspect within a production process efficiency framework. The existing literature overlooks the administrative importance of the output, misidentifies the production process, and/or fails to accurately capture the concept of efficiency. The new eco-eff index is the ratio of the technical efficiency for the ecologically adjusted output(s) over the technical efficiency for the output(s). Eco-efficiency is present when the eco-eff value is above one, and it indicates high sensitivity to the reduction of the ecological impact with efficacious environmental policies and actions. On the contrary, a less than one value implies eco-inefficiency. The empirical application estimates the eco-eff index of 47 countries during 1990–2017 for each main pollutant, including neglected ones, and a constructed overall index. The current literature offers limited country-level analysis even though effective environmental policies are usually designed and enforced nationally. The low overall eco-eff index (0.63) displays a declining trend since the mid-1990s and is deteriorating more rapidly since the beginning of the financial crisis, with less than a handful of countries consistently displaying eco-efficiency.