1 Technical change and Environment in Pulp and Paper. Technical change and environment in most polluting manufacturing sectors Implementation of Best Available Technology Technological changes in the Norwegian manufacturing and the role of uniform versus selective environmental policy Annegrete Bruvoll, Torstein Bye, Jan Larsson and Kjetil Telle Research Department, Statistics Norway

2 Technological changes in the Norwegian paper and pulp and the role of uniform versus selective environmental policy Annegrete Bruvoll, Torstein Bye, Jan Larsson and Kjetil Telle Research Department, Statistics Norway ( Environmental policy: incentives to develop and utilize environmentally friendly technologies Productivity measures: - based on conventional inputs and outputs, (C) - including environmental aspects, (E) Working forces: - general technological progress: (C) > (E) - environmental policy: (E) > (C) - the type of policy: uniform versus selective policies influence how technology shifts The aim of this work: - what happens when we take environmental factor into account? - explores the underlying forces

3 Previous works General studies of the changes in front technologies: DEA and SFA analyses: Charnes et al. (1978), Aigner et al. (1977)Meeuse and van den Broeck (1977). Malmquist index: Färe et al. (1994) decompose the Malmquist index into - movement of the frontier - catching up to the frontier Including environmental factors: Pittman(1983), Färe et. al. (1989), Tyteca (1997), Hailu and Veeman (2000), Hetemäki (1996), Reinhard (2000): technological development including environmental indicators differ from conventional measures

4 Method Malmquist index with and without environmental factors: - reveals whether the TFP including environmental factors is greater than the conventional TFP Decomposition of the Malmquist index: - reveals whether the frontier moved or the plants adapted to earlier existing technologies EC: technical efficiency change TC: technical change DEA analyses including environmental factors: - reveals the maximal potential for reductions in factor use and emissions

5 The emissions in focus Emissions per produced unit, 1992=1,00 Policies: - relatively high carbon taxes, several measures to reduce the emissions of methane from landfills and other climate gases - regulation of sulfur content in fuels, fuel oil taxes and direct emission control - maximum emission targets per unit waste water for COD

6 Data The database: DEED - Database for Disaggregated Environmental and Economic data covering the largest and potentially most polluting Norwegian firms over the years 1992 to 2000 The sample: 22 most polluting plants in the pulp and paper industry, cover more than 90 % of the total production in the sector The variables: Inputs: Capital, Labor, Material, Emissions (Greenhouse gases, Acids and COD)

7 The conventional Malmquist productivity index 1992=1.00. Production in the pulp and paper industry, 1980=1.00.

8 The conventional Malmquist productivity index 1992=1.00.

9 Including the environment: Higher or lower technological progress? The Mamquist productivity index including emissions ( TFP env ), relative to the index based on conventional factors ( TFP conv ), 1992=1.00.

10 Possible explanations The Mamquist productivity index including emissions ( TFP env ), relative to the index based on conventional factors ( TFP conv ), 1992=1.00. Low COD abatement costs Substitution between emissions the abatement process produces solid, sulfur-contaminated fuels these fuels may substitute electricity -> emissions of acid increase or fossil fuels -> emissions of Acids unclear, emissions of Greenhouse gases decrease Non-binding regulations for Greenhouse gases and Acids? Economic efficiency concerns fluctuating energy prices influence the use of fossil fuels

11 Frontier movements, or movements to older technologies? Uniform policies: Movements in the frontier, TC Selective policies: Movements behind the frontier, EC Decomposition of the Malmquist index including emissions, technical changes (TC), and technical efficiency changes (EC), 1992=1.00

12 Frontier movements Uniform policies; Carbon taxes and maximum emissions per unit wastewater COD: regulations against relatively inexpensive Acids: - simultaneity between the regulations of COD, BOD, and acid - stable / decreasing taxes - general technological progress has implied increased acid emissions? Decomposition of the Malmquist index including emissions, technical changes (TC), 1992=1.00 Uniform policies: Movements in the frontier, TC Selective policies: Movements behind the frontier, EC

13 Technical efficiency changes A relative increase in the distance to the frontier About the same level as the conventional EC Decomposition of the Malmquist index including emissions, technical efficiency changes (EC), 1992=1.00 Uniform policies: Movements in the frontier, TC Selective policies: Movements behind the frontier, EC

14 The potential emission reductions Greenhouse gases Acids COD 1992: the average firm utilized about percent of the technology potential 2000: percent BAT: - all inputs and the emissions of greenhouse gases could have been reduced by about 8-15 percent without reducing production. - over time, significantly lower and more stable emissions

15 Concluding remarks The conventional efficiency measure might overestimate the overall efficiency gain Implications for e.g. indicators of welfare improvements c.f. European Commission and Eurostat (1999): Towards environmental pressure indicators for the EU. Differing productivity paths for the productivity measures Different effect of uniform policies Simultaneity between emissions - controversies between COD regulations and Acids Low abatement costs for some emissions A substantial potential for further emission reductions DEA efficiency of around 90 percent in 2000 Further works Econometric analyses of the relationship between policy and the productivity measures will reveal the causal relationships

16 TC=(CB/DB*CA/DA) 0.5 EC=DB/CA A (x t, y t ) B (x t+1, y t+1 ) C D Frontier, t Frontier, t+1