Market regulation and environmental productivity changes in the electricity and gas sector of 13 observed EU countries

The paper explores the way the environmental technical efficiency and productivity in the electricity and gas sectors of 13 EU countries have changed under the energy market reorganisation fostered by the EU energy reforms between 1995 and 2013. Using a multiple output distance function approach, we find that regulation encouraging privatisation and removing barriers to entry into the market had positive consequences on both environmental technical efficiency and the growth of environmental productivity. We find that the sector has made significant steps in improving its competitiveness and environmental sustainability, showing an annual average potential of 5.9% value-added gains and 5.6% CO2 emissions reductions. However, the improvements in environmental performance differ greatly across countries and, at times, come at the expense of economic benefit whereas environmental productivity change (3.2%) grew slower than the productivity change that did not account for emissions. Regarding improvements in environmental productivity, the main source came from environmental technical change (2.4-2.8%), underlying the role of research and development on energy transition.