More and more scientific evidence verifies the causal relationship between the emission of greenhouse gases (GHG) and global warming. The United Nations Framework Convention on Climate Change (UNFCCC) ratified in 1992 Summit in Rio, Brazil, started tackling this emissions problem. At the third Conference of Parties in 1997, numerous countries committed to reduce CO2 emissions by signing the Kyoto Protocol. The average emission level of the six greenhouse gases, including carbon dioxide (CO2), must fall by 5.2%, relative to 1990 levels by 2012 (United Nations, 2007). Thus, minimising CO2 emissions is an important challenge for many countries.
Fossil fuels have been the most important energy resource, generating rapid economic development for many developed countries. The higher the development of the economy, the more energy is required. This also indicates more GHG emissions are expected. Under such circumstances, maintaining the use of energy technology and/or complying with the emission reduction commitment will slow down or even sacrifice the development of the economy.
Currently, most of the 38 countries that ratified Kyoto Protocol to commit to reducing emissions are developed countries. The bounded emissions of GHG and CO2 in particular will slow down the use of energy and development of the economy for these countries (United Nations, 2007). Other developing countries with high GHG emissions, however, are expected to be brought into future emission reduction commitments (Tonn, 2003).
To achieve the objectives of both economic development and a commitment to CO2 emission reduction, policies designed to change the production structure through the change of energy use and control of CO2 emission are foreseeable. Most research in this area uses decomposition approach to destruct the carbon intensity index into carbonization index and energy intensity to measure the amount of CO2 emissions and the energy requirement for every domestic national product (GDP) created2 (Kaya, 1990, Mielnik and Goldemberg, 1999 and Zhang, 2000).
However, the decomposition of the carbon intensity index have been challenged for being too subjective, for not taking the production process into account and could not be applied to the cross units comparison (Dietz and Rosa, 1994 and York et al., 2005). Tyteca, 1996, Yunos and Hawdon, 1997 and Lozano and Gutiérrez, 2008 have resolved these deficiencies using the efficiency measure index based on productive efficiency perspective. The focuses of these studies can be divided into two categories. One type is to analyse the energy use and its relationship with economic output, and the other type is to focus on the importance of control on CO2 emission.
It can be concluded that the common framework for these two streams of literature is to utilise the theory of production to construct an efficiency index for relative efficiency comparisons among the country or firm decision-making units (DMU) and/or along the time trends. The difference between all these works is that some studies examine the efficiency comparison at the country level (e.g., Arcelus and Arocena, 2005, Barla and Perelman, 2005, Färe et al., 2004, Hawdon, 2003, Hu and Kao, 2007, Kumar, 2006, Murillo-Zamorano, 2005 and Zhou et al., 2008), and others focus on the firm level (e.g., Coelli et al., 2007, Vaninsky, 2008 and Wossink and Denaux, 2006).
In addition, the change in technology and institutions through the progress of economic development will have an impact on the consumption of energy and transformation of technology (Suri & Chapman, 1998). All these changes will further influence the efficient use of energy and efficient control of CO2 emission. As a result, the development of the economy should have a certain linkage between the energy use efficiency and the CO2 emission control efficiency. The existing efficiency analysis literature, however, has not investigated the interaction between the energy use efficiency, CO2 emission control efficiency, and economic development in a theoretical or empirical aspect.
As such, this study employ the data envelopment analysis approach (DEA) to construct the global technical efficiency (TE) of energy use index (denoted as EUTE) and global technical efficiency of CO2 emission control index (denoted as CECTE) to measure the energy use efficiency and CO2 emission control efficiency at the DMU of country level. Furthermore, in order to capture the sources and factors of inefficiencies of energy use and CO2 emission control and to understand how these factors change in relation to the development of an economy, this study further deconstructs the index of EUTE into pure technical efficiency (PTE) of energy use (denoted as EUPTE) and scale efficiency (SE) of energy use (denoted as EUSE) to capture the DMU’s management performance and production scale’s influence on energy use efficiency. Similarly, deconstruction of the index of CECTE into pure technical efficiency of CO2 emission control (denoted as CECPTE) and scale efficiency of CO2 emission control (denoted as CECSE) is employed to measure how those factors affect the CO2 emission control efficiency and to identify their relations with the economic development.
In sum, there are three purposes to this study. Our first goal is to construct the possible interrelationship among economic development, energy use efficiency, and CO2 emission control efficiency. Secondly, we estimate the EUTE, EUPTE, EUSE and explore their relationship with economic development. Similarly, we perform this analysis for the CO2 emission control efficiency. Finally, we identify the relationships among global technical efficiency, pure technical efficiency, scale efficiency, and economic development both for energy use and CO2 emission control.
In order to conduct the empirical analyses, we utilise data from The Climate Analysis Indicator Tool (CAIT) (World Resource Institute, 2008), United Nations Statistics Division (2008) and the World Development Indicators (WDI) from the World Bank (2008). The selection of countries and the corresponding years follows the rules of representation, completeness, and consistency for analysing the issues of global change (Levett, 1998). The empirical analyses hereafter use 57 countries in total, including all the countries on the Kyoto Protocol, during the years of 1990 through 2005.
This study’s primary purpose is to explore a possible interrelationship among economic development, energy use efficiency, and CO2 emission control efficiency. It further deconstructs the global technical efficiency of energy use and global efficiency of CO2 emission control into their pure technical efficiency and scale efficiency, respectively. The interrelationship among global technical efficiency, pure technical efficiency, scale efficiency, and economic development, both for energy use and CO2 emission control, can thus be identified. Fifty-seven countries, including all the emission reduction commitment countries in the Kyoto Protocol, are analysed from 1990 to 2005.
The results show that for the energy use efficiency, CO2 emission control efficiency, or any sub-indices of their related efficiency, economic development, represented by GDP per capita, is a significant factor. It is thus essential to note the relationship between any of the efficiency indices and economic development in order to observe the change in these efficiencies along the development of economy.
As the development of their economies proceeds, most countries take advantage of neither the pure technical efficiency of energy use nor the global technical efficiency of energy use through better technology. In order to achieve the objective of CO2 emission reduction and to maintain a certain level of economic development, potential policies have to redirect their focus from changing the scale efficiency of energy use to advancing the pure technical efficiency of energy use.
For the efficiency of CO2 emission control, most of the countries in the sample are located in the declining efficiency of global technical efficiency of CO2 emission control. It suggests that countries at very early stages of development will naturally benefit from the pure technical efficiency of CO2 emission control due to the small scale of their economies. However, this efficiency will then confront the environmental regulations, institutional designs, and various enforcement difficulties when the economy approaches developed country levels at a per capita GDP near 17,000 dollars. This results in the declining CO2 emission control efficiency for large scale emissions, accompanied by large scale production.
Finally, the interrelationship among economic development, energy use efficiency, and CO2 emission control efficiency indicate that the increasing global technical efficiency of CO2 emission control has to be accompanied by the sacrifice of the global technical efficiency of energy use at the early stage of economic development. However, further economic development will make both the global technical energy use efficiency and global technical CO2 emission control efficiency less efficient. If the use of energy is an inescapable product of economic growth, so is the emission of greenhouse gases from the use of energy; thus, for developed countries, the enhancement of the pure technical efficiency in the energy use and the scale efficiency of CO2 emission control are important tasks to pursue. On the contrary, developing countries have to seek the improvement of the pure technical efficiency of CO2 emission control and scale efficiency of energy use.
