Regional and Sector Environmental Efficiency Empirical Evidence from Structural Shift-share Analysis of NAMEA data

Transcription

1 Fondazione Eni Enrico Mattei Working Paper Regional and Sector Environmental Efficiency Empirical Evidence from Structural Shift-hare Analyi of NAMEA data Maimiliano Mazzanti Univerity of Ferrara & CERIS CNR, Anna Montini Univerity of Bologna, CERIS CNR Follow thi and additional work at: Recommended Citation Mazzanti, Maimiliano and Montini, Anna, "Regional and Sector Environmental Efficiency Empirical Evidence from Structural Shifthare Analyi of NAMEA data" (April 28, 2009). Fondazione Eni Enrico Mattei Working Paper. Paper Thi working paper ite i hoted by bepre. Copyright 2009 by the author().

2 Mazzanti and Montini: Regional and Sector Environmental Efficiency Empirical Evide Regional and ector environmental efficiency Empirical evidence from tructural hift-hare analyi of NAMEA data Abtract Thi paper provide new empirical evidence on regional national diparitie in environmental efficiency, baed on cae tudie of Italy and the Lazio region, which include the city of Rome. Shift-hare analye provide evidence on the driver of environmental efficiency and on ector pecificity. Thi confirm the uefulne of thi method for tudying the environmental economic realm, in order to invetigate tructural and efficiency factor at the level of within country environmental efficiency performance, even in light of the different hare of ervice. Our evidence how that although the Rome region ha achieved higher environmental performance compared to Italy mainly thank to it being le indutry baed, ome critical point in the energy ector and in ome ervice hould be taken into account in haping the future development of the region. Environmental, indutrial and ector-oriented policy making may alo derive valuable information from the evidence provided by our tudy. Publihed by Berkeley Electronic Pre Service,

3 Fondazione Eni Enrico Mattei Working Paper, Art. 271 [2009] Introduction Thi paper develop empirical analye uing NAMEA (National Accounting Matrix including Environmental Account) data for the Lazio region of Italy, which include Rome. The data in our analyi are for 2000, the only year that both regional and national level data are available (national level data are available for the period ). By comparing regional and national environmental ector intenitie, we aim to demontrate the utility of NAMEA and hift-hare analye for environmental and indutrial policy making. NAMEA data are a matrix form tatitical ource, where economic (value added and employment) and environmental (emiion) indicator can be generated and hown at ector level. 1 We focu here on macro ector, obtained by aggregating the 24 available productive branche at regional level to capture the potential main difference in environmental performance and aociated driver - manufacturing indutrie, non-manufacturing indutrie (other indutrial ector) and ervice. In referring to a regional framework, the analyi i very ignificant ince it allow the invetigation to focu on tructural and idioyncratic feature compared to national average, providing ueful inight for regional policy making on environmental, indutrial and economic development dynamic, which i the keytone of economic development. It enable economic policie to be differentiated by region on the bai of the oberved heterogeneity in economic-environmental relationhip. We are aware of ome rare example at international level of regional analye, and alo a few national level tudie, including the work carried out by the Wuppertal Intitute on environmental input-output methodologie (Nanai et al., 2007; Suh, 2005; Huppe et al., 2005) baed on NAMEA-like data, which are mainly focued on emiion but alo include wate and material (Nakamura, 1999; Moll et al., 1999), ome good quality Spanih data (Roca and Serrano, 2007a,b), and ome unpublihed UK tudie uing data for 1995 and We hould highlight that although current NAMEA availability i omewhat irregular in term of country and time period, regional and national NAMEA are becoming increaingly available and being exploited 2 with the aim ultimately of generating a EU NAMEA, covering at leat the main EU countrie. 1 The NAMEA approach originated in a erie of tudie carried out by Statitic Netherland. The firt NAMEA wa developed by the Dutch Central Bureau of Statitic under the uperviion of Steven Keuning (De Boo et al., 1991). Haan and Keuning (1996) and Stauvermann (2007) among other, are example of eminal paper containing long and comprehenive bibliographie of all pat work. Furthermore, De Haan (2004) developed and propagated the NAMEA approach in detail and ha applied the NAMEA for international comparion. The firt Italian NAMEA, referring to 1990 data, wa publihed in ISTAT (2001). The Italian NAMEA include the following 10 air pollutant: carbon dioxide (CO 2 ), nitrou oxide (N 2 O), methane (CH 4 ), nitrogen oxide (NO X ), ulphur oxide (SO X ), ammonia (NH 3 ), non-methane volatile organic compound (NMVOC), carbon monoxide (CO), particulate matter (PM 10 ) and lead (Pb). Beyond the emiion related to productive activitie, national NAMEA data alo include emiion derived from three houehold conumption activitie (tranport, heating, and other, uch a painting and olvent ue); however, we have excluded thee ource of emiion becaue our interet lie mainly in productive activitie (for which the available macro ector are primary, indutry and ervice, diaggregated into 51 ector). For an overview of the methodological iue related to NAMEA, we refer the reader to Femia and Panfili (2005), and the recent tudy by ISTAT (2007), the Italian national tatitic agency that produce and elaborate NAMEA. 2 For an overview of recent development in regional NAMEA (RAMEA) in Italy ee the intitutional ite Stauvermann (2007, p. 73) and Goralzcyck and Stauvermann (2008) preent ome comparative environmental performance from a RAMEA EU project involving Italy (Emilia-Romagna region, coordinated through ARPA, the regional environment agency), UK (SE England), Poland (Malpolka region), Netherland (Noord-Brabant), focuing on greenhoue gae (GHG) per unit of production. Tucany developed a RAMEA at the ame time. Thee region, along with Lazio, will lead the national etablihment of a full Italian NAMEA, which ISTAT hope to publih in

4 Mazzanti and Montini: Regional and Sector Environmental Efficiency Empirical Evide At international level there are ome academic work, uch a Ike (1999), Vaze (1999), and Keuning et al. (1999), which preent and dicu ome country pecific NAMEA experience from the perpective of tructural change analyi. Steenge (1999) provide a policy-oriented analyi related to the poible policy implication of NAMEA. There are alo ome tudie baed on a proper environmental economic oriented perpective, for example, Mazzanti et al. (2008), which exploit panel data for Italy to ae environmental Kuznet curve dynamic for The paper i tructured a follow. Section 2 dicue recent advance and application of tructural decompoition of energy and emiion trend (via index decompoition analyi and input-output tructural decompoition analyi), in which, pecifically, hift hare analyi can be inerted. Section 3 i devoted to preentation of the hift-hare empirical model. Section 4 preent the empirical evidence. Section 5 conclude by providing ome inight on policy making trategie that may be informed by thi analyi. 2. Structural decompoition analyi and related method: recent tudie on energy and the environment 2.1 Structural decompoition analye, environmental account and NAMEA Decompoition analyi i one of the mot effective and widely applied tool for invetigating the mechanim influencing energy conumption and emiion and their environmental ide-effect. The baic rationale for tructural decompoition analyi (SDA) i plitting an identity into it component; thi repreent a pragmatic alternative to econometric etimation epecially for the kind of data required (not in the form of time erie a in econometric etimation). The central idea of SDA i that change in ome variable are decompoed uually in an additive way in change in it determinant. Depite ome limitation, decompoition ha everal trength one of which i that it provide an aggregate meaure that capture energy or emiion efficiency trend. SDA ha been applied to a wide range of topic (for a detailed urvey ee Roe and Caler, 1996 and Dietzenbacher and Stage, 2006), including the demand for energy (ee, e.g. Jacoben, 2000 and Kagawa and Inamura, 2004) and the emiion of pollutant (ee, e.g. Caler and Roe, 1998 and Wier, 1998). Among the methodologie for decompoing energy and emiion trend, the more prominent are index decompoition technique or analye (IDA), input-output tructural decompoition analyi (I-O SDA) and related method uch a growth accounting and hift-hare analyi. 3 There are two group of IDA method: thoe linked to the Lapeyre index (Lapeyre-linked method) and thoe linked to the Diviia index (logarithmic mean Diviia index method) (Diviia-linked method). In the mot baic form IDA i primarily a decriptive or accounting tool. The reult obtained reveal information that i aggregate in nature and relate to the pat. In ytem modelling and forecating, it i imilar to the well know time erie decompoition methodology where a time erie i decompoed into trend, eaonal, cyclical and irregular 3 Roe and Caler (1996) offer a critical review of the development of SDA and it relationhip to other methodologie. Publihed by Berkeley Electronic Pre Service,

5 Fondazione Eni Enrico Mattei Working Paper, Art. 271 [2009] component (Liu and Ang, 2007). In contrat to many other technique in the toolkit, IDA provide reult that reveal broad, long-term trend. It i therefore ueful for long term energy demand projection for indutry, uch a enviaging different cenario for energy ue. The main advantage of IDA over other method baed on I-O matrice, i the abundance of available data and the eae of performing cro-country comparion due to the uniform aumption in the relevant databae (Diakoulaki and Mandaraka, 2007). According to Roe and Caler (1996, p.34), a firt formal definition of I-O SDA i a way of ditinguihing major ource of change in an economy. It baically involve a et of comparative tatic exercie in which et of coefficient are changed, in turn, and activity level compared to a reference point. I-O SDA i the examination of the component of economic change by mean of a et of comparative tatic variation in key parameter of the I-O table. The I-O SDA require only two I-O table: one for the initial year and one for the lat year of the analyi. I-O tudie of energy ue frequently adopt the o called hybrid table, where the row correponding to energy ector are in energy rather than monetary unit. In the mid-1970, everal analyt began examining change in energy utilization, with mot work being done on a ectoral bai, though not in an I-O framework, and baed on conideration of IDA. Method related to SDA are hift-hare analyi (dicued in Section 3) and growth accounting. Growth accounting i a broad-baed methodology which involve the attribution of economic growth to variou underlying factor, with an emphai on productivity. Application of thi method involve the ue of an aggregate production function in which the effect of changing capital, labour input and productivity are tranlated into change in output growth (Roe and Caler, 1996). Several tudie analye and apply tructural decompoition methodologie. In thi urvey, we confine our cope to tudie applying thee technique while recogniing that there are everal other method (e.g., econometric one) to analye energy and emiion trend (ee Greening et al., 2007 for a general overview). Caler and Roe (1998) analyed the impact of variou influence on CO 2 emiion to decompoe the ource of change in CO 2 emiion in the US in the period , uing hybrid energy/value table for the initial and lat year. The analyi, which incorporate methodological refinement of I-O tructural decompoition analyi, i performed uing a two tiered KLEM (capital, labour, energy and material) production function model, which allow for the etimation of ubtitution and technological change effect within and between input aggregate. Dietzenbacher and Lo (1998) dicu the problem that there i no unique form to decompoe the change in one variable into change in it determinant. An empirical analyi wa carried out for the Netherland baed on the 214-ector I-O table for 1986 and Becaue aggregation doe not how high variability, the author ugget that average effect hould be calculated acro decompoition and that range not jut average hould be preented. The ame author (Dietzenbacher and Lo, 2000) examine the phenomenon that everal determinant are not independent and thu dicu the problem related to the correlation between decompoition factor. A cae tudy of the Dutch economy in 1972 and 1986 (decompoition for value added growth) how that the reult obtained with the new decompoition method may differ from thoe obtained uing the traditional approach. Jacoben (2000) perform an I-O tructural decompoition analyi for Denmark baed on trade factor, for the period He decompoe the change in the Danih energy conumption for 117 indutrie into ix component and find that tructural factor matter le than final demand and intenity of 4 4

6 Mazzanti and Montini: Regional and Sector Environmental Efficiency Empirical Evide energy, with the exception of trade factor which how a relevant effect. In fact, tructural change in foreign trade pattern can increae dometic energy demand. In the oberved period, the effect of trongly increaing export relative to import reult in dominance of the export effect and an increae in energy demand. Wier (1998) explore the anatomy of Danih energy conumption and emiion of CO 2, SO 2 and NO X. Change in energy-related emiion between 1966 and 1988 (22-year period) were invetigated uing I-O SDA. The tudy include emiion from 117 production ector a well a emiion from the houehold ector. Increaing final demand (economic growth) i hown to be the main determinant of change in emiion (CO 2 emiion increaed proportional to energy conumption, NOX emiion increaed relatively more, while SO 2 emiion declined coniderably in the oberved period). The decreae in SO 2 emiion occurred a a reult of change in the fuel mix. De Haan (2001) uing I-O analyi, calculate that the main caue of reduction in pollution can be categoried a eco efficiency, change in the production tructure, change in the demand tructure, change in demand volume. He find that the cale effect are not compenated for by eco efficiency gain and negligible reduction reult from the other two factor, which reulted in a net 20% increae in CO 2 emiion in the Netherland in Thi tudy confirm the complementarity and increaed value in term of the information to be derived from decompoition analyi compared to delinking tudie that calculate the incomeenvironment dynamic elaticity and the driver of delinking uing NAMEA data (Mazzanti et al., 2008, 2007). Kagawa and Inamura (2001) applied an I-O SDA model to identify the ource of change in the energy demand tructure, the non-energy input tructure, the non-energy product mix and the non-energy final demand of embodied energy requirement in Japan for 1985 to The author ued a hybrid rectangular input-output model (HRIO) that i expreed in both monetary and phyical term. The reult how that total energy requirement increaed mainly becaue of change in the non-energy final demand, while product mix change had the effect of energy aving. Another work by the ame author (Kagawa and Inamura, 2004) applie a patial decompoition via the I-O SDA to meaure the effect of change in intra- and inter-country linkage on embodied energy demand in China and Japan. They ue the China-Japan inter-country input-output table for 1985 and 1990 expreed in contant 1990 price. The reult reveal that the effect of the non-competitive input tructural change in China on the primary energy requirement of Japan were negligible, while the contribution of Japanee final demand hift on total change in Chinee primary energy wa 40 time larger than that of Chinee final demand hift in the primary energy requirement of Japan. Dietzenbacher and Stage (2006) how that in SDA, the hybrid approach may induce arbitrary reult which depend on the choice of unit, rather than on change in the economic tructure. Some reult are determined omewhat arbitrarily by the choice of monetary and energy unit rather than being baed on the underlying economic factor being tudied. The author propoe two modification to SDA to remove thi problem: the firt require full information on the price paid for final demand energy; the econd require no information on energy price. Greening et al. (2007) provide a good urvey of different method by conidering the proper tructural decompoition and other method of analyi of energy trend (econometric method, top-down model, Publihed by Berkeley Electronic Pre Service,

7 Fondazione Eni Enrico Mattei Working Paper, Art. 271 [2009] bottom-up or engineering model and indutry-pecific micro-economic analye). 4 They underline the fact that there i no tandard or generally accepted method; o, analyt are confronted not only with the iue of identifying and collecting data but alo with the iue of electing the appropriate method. Among the application propoed, here we conider only thoe related to the index decompoition technique and I-O SDA. Liu and Ang (2007) preent a ueful urvey of application of the IDA technique and underline the fact that tandardiation of IDA analyi i needed. Thi would make international comparion more meaningful. Diakopulaki and Mandaraka (2007) maintain that IDA i better than I-O SDA in the cae of international cro country comparion; in fact, international comparion are difficult with I-O baed methodologie becaue of the different matrice and national ource. Diakopulaki and Mandaraka analye indutrial CO 2 emiion trend for 14 EU countrie in the period (by ditinguihing two time interval, prior and following the Kyoto Protocol) applying a refined Lapeyre model to determine the impact of five explanatory factor: output, energy intenity, tructure, fuel mix and utility mix. They find that mot EU countrie have made a coniderable but not alway ufficient effort to decouple emiion from indutrial growth; finally, no ignificant acceleration wa oberved for the pot-kyoto period. 2.2 RAMEA emerging framework Within the recent tudie exploiting NAMEA data, we hould highlight Stauvermann (2007), who preent a Dutch pilot tudy baed on a regional RAMEA (2003 of the Dutch region Noord-Brabant). Thi work ha many element common to the analyi in thi paper and, moreover, i highly complementary to it, in uggeting future reearch direction. In fact, thi work and the reearch project are highly relevant to and complement our analyi in term of the aim to bring together different European reearch experience on NAMEA and RAMEA, in the interet of etablihing a future EU-baed NAMEA. Standardization of the different experience that have o far developed more or le independently will be eential, at leat for the major countrie, in order to allow comparion of evidence and performance in the income-environment indicator of utainable production and conumption (Waton and Moll, 2008), 5 where trade iue play a major role. A alo argued by Stauvermann (2007. p. 7), the integration in NAMEA of trade flow, by linking different country accounting ytem, i a valuable reearch effort for the future. At the moment, though methodological iue are clear, empirical limitation impoed by data availability limit uch reearch or circumcribe it to national cae tudie for countrie with ufficient data, uch a the UK, Norway and Denmark (Harri, 2001; Muradian et al., 2002). 4 A recent pecial iue of Energy Economic (29 (4), 2007) dicue decompoition methodologie and preent ome application. 5 Thi paper ue environmentally extended I-O analye to invetigate, for 8 European countrie, the difference between the two perpective: a production perpective (baed on national accounting), and the global environmental preure activated by our national demand for good and ervice, that i a conumption perpective,. Thi latter perpective include preure ariing in other countrie to produce our import, but exclude thoe taking place at home to produce export. It argue that the conumption perpective, although more difficult to evaluate and monitor, give a better meaure of utainability on the global cale. It i found that pecialiation of an economy in an impact-intenive indutry can potentially lead to global environmental benefit, even though it may caue the country to appear le utainable than it neighbour uing traditional monitoring mechanim. Policy framework which lead to indutrial pecialiation giving global environmental benefit are identified, along with framework which have the oppoite effect (Waton and Moll, 2008, p. 1)

8 Mazzanti and Montini: Regional and Sector Environmental Efficiency Empirical Evide However, even in thi cae, data contraint make it neceary to make trong aumption regarding the emiion intenity of trading partner, in the abence of real NAMEA data for other countrie. In other cae (Mazzanti et al., 2008), the integration of NAMEA data could be limited to the incluion of trade openne indicator among driver of environmental efficiency, in order to infer whether pollution haven hypothei force or production pecialization in the energy/environment intene ector, prevail. Thee analye refer to the old debate around the Leontief paradox which ha produced recent intereting inight even in the environmental realm (Dietzenbacher and Mukhopadhay, 2006). In addition, uch erie of integrated NAMEA and EU-level evidence may complement EKC-oriented evidence, baed on econometric analyi of the dynamic income-environment relationhip, which i robut in aeing dynamic fact and driver of environmental preure, but often lack comprehenive invetigation of the tructural factor behind increae or decreae in environmental efficiencie. The Dutch RAMEA alo connect to the variou RAMEA experience which ISTAT and ome Italian region have been developing over recent year, with the objective of etablihing a full Italian RAMEA covering all 20 Italian region or mot of them, which would allow more robut hift-hare analyi in the near future and eventually, if a ufficient at leat 2 year - panel dataet were created, even tructural decompoition analyi, robutly rooted in a NAMEA matrix environment. Stauvermann focue on the environmental and economic apect of a region, but propoe future extenion on the ocial dimenion that could be added for a RAMEA. Among the many complementary and interlink between thi work, Stauvermann (2007, p.13) note that the aggregate environmental damage of a country or of a region doe not only depend of the country ize and development tage but alo on it tructure of economic activitie. Thi i a value added that NAMEA, and with increaing detail RAMEA, poee with repect to decoupling 6 analyi, baed on the EKC framework, which often lack aement of the tructural factor of change a additional explanatory factor for the core incomeenvironment relationhip. We highlight that the preent paper, which exploit official ISTAT data for Lazio recovered from a ample of regional local emiion ource, doe not involve the problem pointed out by Stauvermann (2007), which i that, if value added i available at regional and ector level, environmental information on emiion exit only at the national level, o that we mut etimate thee data. Baed on the aumption of within country homogeneity, regional environmental data are derived directly by oberving a country-region comparion regarding economic data. In other word, tranlation of national environmental data into regional data i implemented by uing economic data available at both level. Though limited and critical apect of the analyi, the reliability of the method i tetable from a tatitical perpective. A real regional emiion dataet, though poibly expoed to other etimation biae, i a priority, if feaible. Thi i a key iue in the etablihment of compatible and robut RAMEA data. While the Netherland ha reolved thi problem, to our knowledge the Lazio RAMEA i being contructed by ISTAT uing a bottom-up approach baed on regional inventory ource provided by APAT (the 6 The concept of decoupling (or delinking) ha achieved global recognition a a ignificant conceptualiation of ucceful economy-environment integration. The decoupling of environmental preure from economic growth ha become the deired policy outcome, both in climate policy and in a wider context. Publihed by Berkeley Electronic Pre Service,

9 Fondazione Eni Enrico Mattei Working Paper, Art. 271 [2009] Italian environment agency). 7 Tucany ha alo ued regional inventory data while, Emilia-Romagna, though poeing a regional inventory, ha encountered regarding the integration of NACE (tatitical claification of economic activitie) ector with emiion SNAP code (developed by the European Environment Agency' European Topic Centre on air emiion), which contitute the origin of ector emiion data. 8 It i intereting to comment on and compare the et of ecological-economic indicator Stauvermann propoe, a an alternative, or perhap better a firt tep embedded in a proper hift-hare analyi, which, in thi cae, compare regional and national data. Firt, ector environmental impact indicator and environmental efficiencie are compared by mean of normaliing to the regional average, to highlight which ector are more or le ecoefficient than the regional average. Thi analyi i firt carried out on emiion-ecological factor and then incorporate economic-environmental indicator (emiion/value added ratio) 9 a in our paper. In all cae the comparion i merely between the regional average of the indicator and the ector pecific value, or eventually regional eco-efficiency and national eco-efficiency per ector. Finally, a ynthetic index can be compiled by relating the emiion hare and the economic hare of a ector, to the repective regional average hare. 10 The ue of uch a relative indicator, which capture the extent to which the ector contribution in term of emiion i more or le proportional to it economic impact (if the emiion hare i lower than the value added, the index i lower than unity), lead the analyi toward conceptual framework which have a trict connection with hift-hare (thi may be an embryonic component of it) and delinking/environmental efficiency oriented dynamic aement. 11 What i lacking from thi, and contitute the core value of our paper, i analyi of the driver from decompoition of the emiion/value added index into it potential ource. The Dutch tudy, however, i baed on the three year, , which make it impoible for u to conduct a decompoition analyi although thi hould become poible with the next evolution of regional NAMEA for Italy. Thu, we conduct a dynamic hift-hare analyi for 2001 and 2003 (following a tatic analyi for 2002) by identifying the three component of national hare, regional hift and indutry mix, in order to account for the regional ecological competitivene. We note both ecological and economic competitivene, given that environmental efficiency, calculated in term of emiion/value added, i a real component of the economic 7 We thank Michele Sanoni (ARPA, regional environmental agency, Emilia-Romagna) for thi comment. See for reference (ee epecially the Contruction manual and the Cae tudie manual ) and the document by Bonazzi and Sanoni (2008), who preent a hift-hare analyi for Emilia-Romagna and a methodological dicuion of RAMEA accounting ytem. 8 The region ued a regionalied national APAT data (top-down approach), in line with Stauvermann analyi. The difference related to the regional poibilitie of uing bottom-up approache contitute the main contraint to achieving a full reliable and robut RAMEA at country and EU level. It would alo be intereting to match RAMEA dataet with real I-O dataet, which in Italy are managed and provided by IRPET (Regional Intitute for Economic Planning of Tucany). Thi would be another fruitful avenue for future reearch. 9 Interetingly, emiion/value added and emiion/employee ratio, both derivable from NAMEA, are ued. For comparion, Mazzanti and Zoboli (2009) exploit the former indicator in order to ae the dynamic ( ) correlation between environmental and economic productivitie in Italy uing NAMEA, while Mazzanti et al. (2008) ue the latter per head indicator, for the ame period and applied to the ame data, which i more in line with the EKC framework which frequently pecifie an emiion per capita ratio a the objective variable. 10 Which alo link to the idea of elaticity between environmental impact and value added if placed in a multivariate tatitical framework. 11 It remain true that the two level regional and national - are interconnected by definition and there may be ome bia depending on correlation, a highlighted again by the author in the concluion

10 Mazzanti and Montini: Regional and Sector Environmental Efficiency Empirical Evide competitivene of a region, and i at the bai of both private (a a component of productivity) 12 and public (non-market) benefit. The utility of NAMEA analyi tand out a a timulu for haping the future effort of both private profit making agent and policy maker. 3. Objective of the tudy and the empirical model The firt empirical objective of thi paper i to meaure the role of the regional productive tructure in explaining the emiion efficiency gap between Lazio and Italy, uing hift-hare analyi. Generally, hift-hare analyi decompoe the ource of change of the pecified dependent variable into regional pecific component (the hift) and the portion that follow national growth trend (the hare). Thi hift-hare methodology emerged in the 1960 a a tool for analying the indicator of regional productivity and employment (Dunn, 1960). It ha been applied ince to other iue, uch a international trade and, more recently, tourim economic, but, to our knowledge, with the exception of Stauvermann (2007) it ha been ued only rarely for environmental economic analyi. The pecific methodology ued here wa introduced by Eteban (2000, 1972). The deciion to ue hifthare analyi wa to determine the effect and factor that ynthetically explain the relative efficiency/inefficiency of the regional ytem compared to the (national) average. Our aim i to examine and tet whether the gap between the region under conideration and the benchmark average depend on an overall higher/lower productivity differential for all ector, and/or on a higher/lower regional pecialization in ector with higher/lower productivity. In our analyi, the primary attention i on the intenity of emiion, in other word, on the indicator of emiion per value added, at ector level, given that thi variable provide inight into the efficiency of the productive ector, which i very ueful information for the formulation of action to upport environmental innovation at ector level. More pecifically, we develop an analyi of the relative environmental efficiency of the Lazio economic ytem with repect to the national average, referring to a vector of ten pollutant, which encompa GHG, regional pollutant and local pollutant, and to the economic ector included and pecified by NAMEA. Our tarting point i the aggregate indicator of emiion intenity, repreented by total emiion on value added, defined a E/VA for Italy - the benchmark, and a E l /VA l for Lazio. Thi indicator i decompoed a the um of (E /VA )*(VA /VA), where VA /VA i the hare of ector value added on total value added, for all ector, with the value of defined from 1 to j (j = 24 - the number of NACE ector included in the regional NAMEA). For clarity, we redefined the index of emiion intenity a X for the national average (X=E/VA), a X l for Lazio (X l =E l /VA l ), and a X for each ector (for Lazio X l =E l/va l, for Italy X =E /VA ). We then defined the hare of ector value added a P =VA /VA for Italy and P l=va l/va l, for Lazio. In other word: 12 See the intereting applied paper by Bruvoll and Medin (2003), and Mazzanti and Zoboli (2009) for an extenive dicuion of market and non-market productivitie aociated with environmental input and output. Publihed by Berkeley Electronic Pre Service,

11 Fondazione Eni Enrico Mattei Working Paper, Art. 271 [2009] X X l = = P P X l X l On thi bai we can eaily identify three effect, a precribed by the hift-hare decompoition. Thee three effect explain the gap in term of aggregate emiion efficiency between Lazio and Italy. The firt effect ( tructural or indutry mix) i given by: m = ( P l P ) X l m l aume a poitive (negative) value if the region i pecialied ( P l P >0) in ector aociated with lower (higher) environmental efficiency, given that the gap in value added ector hare i multiplied by the value X of the national average ( a if the region were characteried by average national efficiency). The factor m l aume lower value if the region i pecialied in (on average) more efficient ector. The econd factor, defined a the differential or efficiency, i: p = P ( X X ) l l p l aume a poitive (negative) value if the region i le (more) efficient in term of emiion (the hift between regional and national efficiency), under the aumption that ( a if ) value added ector hare were the ame for the region, and for Italy ( P l P =0). Finally, the effect of covariance between thee two equation, or the allocative component, i given by: ( a = X X )( P P ) l l l The a l factor i poitive (negative) if the region i pecialied, relative to the national benchmark, in ector characteried by higher (lower) emiion intenity. It aume a minimum value, in our cae if the region i pecialied in ector where it preent the highet comparative advantage (low intenity of emiion), then the covariance factor i between m l and p l. Thu, the total difference in emiion intenity between the region and Italy, for each pollutant, can be decompoed with the um of the aforementioned factor 13 : 13 A a comparion to the Stauvermann approach preented above, we note that, the former element of the Dutch hifthare experiment how which part of the regional emiion decreae or increae i dependent on the repective trend in

12 Mazzanti and Montini: Regional and Sector Environmental Efficiency Empirical Evide X l -X = m l + p l + a l Thi decompoition in three factor allow a quantitative and ynthetic meaure of the underlying reaon for the difference in emiion intenity. It allow aement of the aggregate differential we oberve. For example, it may be that a higher value for regional emiion intenity depend only on productive tructural motivation, on which environmental and energy policy can have no direct impact. Such policy would be more effective in altering the dynamic if the gap were due relatively more to a pecific ector inefficiency, attributable to technological factor or/and inadequate organiational and regulatory framework. 4. Empirical evidence Firt, we look at the evidence for the aggregate efficiency indicator (X l -X) 14. It i clear that Lazio emerge a being relatively more efficient for all the pollutant and emiion conidered (Table 2). The ector decompoition alo how the extent to which the comparative advantage in efficiency i derived from ervice (G-P branche), and ome manufacturing branche (DE, DF-DG, DJ, and the aggregate DK-DL-DM), which do not how a gap which i unfavourable to the region for any emiion. Thi empirical information i not ufficient, however, to identify the main driver of the efficiency differential, or to provide major implication for policy. Therefore, we next analyed (Table 3) the factor and component (m, p and a) that contribute to explaining the (X l -X) differential. We note that, in eight out of ten cae, including GHG and the main regional acid rain and local pollutant, the primary finding from the hift-hare analyi i the efficiency factor (p), which favour Lazio. It relevance i aociated to a weight that i often more than the 50% of the difference we oberve between the region and Italy. Finally, ome comment on the reult of the hift-hare analyi on the aggregate of the manufacturing ector (D), ervice (G-P) and other indutrial ector (C,E,F). Note that thi invetigation doe not affect the regional comparative advantage for all NAMEA emiion. The difference (X l X) are negative for all macro ector and all pollutant. Alo, we can verify whether thi higher efficiency i higher or lower in the three macro ector with repect to the average benchmark related to the region-italy comparion. In other word, the analyi by macro aggregate how the extent to which they contribute to the average advantage of the region. Thi comparative aement, which wa made by comparing the reult in Table 3 and 4 (the table howing the actual comparion i omitted here, but i available upon requet), indicate quite clearly that there are very few the national economy, the latter how how much emiion depend on the regional indutry mix, which capture the influence of regional feature. The indutry mix element i preent in both approache, while in our model the firt factor i an efficiency factor, and the third i the covariance between efficiency and the indutry mix. Neverthele, thi how the high flexibility of SDA and hift-hare analye, which may be haped according to reearch objective and data availability. 14 Table 1 how the variable P l for Lazio and P for Italy, which i the decompoition for value added by each productive branch. Table 2 how the variable X l (Lazio) and X (Italy), which refer to emiion on value added, by each pollutant. Thee four variable are the bai of the hift-hare analyi following the approach decribed above. Publihed by Berkeley Electronic Pre Service,

13 Fondazione Eni Enrico Mattei Working Paper, Art. 271 [2009] cae where the gap favouring the region in the overall analyi of the economic ytem, emerge a higher for manufacturing and ervice: four pollutant for manufacturing (CO, N 2 O, NH 3 and, with minor emphai, CH 4 ), and one for ervice (PM 10 ). Service, in comparative term, are the aggregate ector that i le efficient than the regional average, although we would emphai that G-P ector are alway le intenive for emiion with repect to national average. Thu, it can be aid that the Lazio region environmental comparative advantage i mainly driven by other indutrial ector (extraction of material, production and ditribution of energy, contruction). A before, we oberve that the main driver explaining the differential (p) i related to ectoral efficiency. We note the heterogeneity acro macro ector: factor (p) in ix cae i the main driver of manufacturing, while for ervice and other indutrie it i the main driver in nine and ten cae repectively. 5. Concluion and policy inight Our hift-hare analyi aimed to demontrate the relative performance of Lazio region and Italy, in term of environmental efficiency, a defined in the paper. We ummarie ome key critical outcome and ome policy conideration linked both to the current analyi and to extenion for future reearch uing updated NAMEA dataet. We howed that for all emiion included in NAMEA the um of the three hift-hare factor indicate that Lazio i comparatively more environmental efficient than the national average. For mot emiion, we can claim from our knowledge of the Italian framework (ENEA, 2006) 15 that the main ource of thi difference i lower energy conumption per capita and lower energy intenity (electrical energy) on GDP, compared to the national average. Lazio in 2003 had a value of 99.7tep/million GDP, the third lowet value in Italy (Italian average i 126, with Lombardy, the mot indutrialied and richet region, at 121). Electricity intenity wa around MWh/Million GDP, the lowet in Italy (288.4 i the average, with Lombardy regitering 301). Finally, energy and electrical energy intenity in Lazio manufacturing ector i the lowet in Italy. However, tarting from relative efficiency and baed on dicuion of ome tructural factor behind thi evidence, if we analye pecific component more deeply, ome criticalitie emerge for the region. We yntheie thee element in two main categorie: the role of energy intenity and the role of ervice. Firt, if we conider ector compoition, thi doe not favour Lazio for CO 2, SO x e NOx, the main environmental pollutant at upranational level. In other word, the ituation regarding thee three environmental externalitie in the regional economic ytem i not favourable. Thi may be due to the trong role and weight of regional production of electricity baed on foil fuel ource, which compenate for the low energy intenity. The region i highly dependent on oil (59%), with natural ga at 21%. Renewable energy, including hydroelectric power, where Italy ha a comparative advantage (two-third of total renewable energy in Italy come from hydroelectric power tation, mainly located in the north), play a very minor role. Thi may point to a rather negative future cenario in term of GHG emiion trend. 15 ENEA i an Italian public agency operating in the field of energy, the environment and new technologie to upport competitivene and utainable development (

14 Mazzanti and Montini: Regional and Sector Environmental Efficiency Empirical Evide Thi unfavourable ituation hould be targeted by environmental policie aimed at integrating the region into the national effort toward achieving the EU policy target of a 20% decreae in GHG by 2020 and a minimum 20% threhold for the renewable content of energy production. Thi i challenging for the region, given that innovation dynamic in ervice are on average low, and EU policy doe not directly target ervice with environmental regulation that could be the driver of innovation. Alo, the low performance in renewable energy mean that, on the one hand the region ha trong incremental poibilitie, but no pecialiation, given the almot total abence of hydro and wind power generation ite. Second, although Lazio i relatively more pecialied than Italy on average in ervice, it eem that ervice are relatively le efficient compared to the performance of other branche within the region, although they till benefit the region in comparion with Italy. Evidence on energy intenitie could provide ome explanation for thee tructural fact. Service intenity in 2003 wa on a level with the average for Italy (18.6 tep/million GDP), a wa electrical energy performance. The relevant ervice orientation of the region, and of Rome in particular, i on the one hand helpful in term of environmental performance (productive pecialiation effect), but on the other hand i partially balanced by a relatively high (at leat not lower than the average) energy intenity of the ector 16. Thi reflect an important point, motly for local (regional, municipality of Rome) policy action: the high energy intenity of tranport ytem, which i related to the high ratio of car/per head. Uing ENEA (2006) data, a above, we note that the region in 2003 had an intenity of 50.7 tep/million GDP, one of the highet in Italy (33.4 for Lombardy). Environmental and tranport policie hould incorporate complementary action to tackle the relative low performance of the tranport ector and poor houehold behaviour toward tranport, epecially in the critical hot pot of Rome. Thu, regional environmental performance doe not depend trongly on the bia toward ervice, which i hitorically typical of the region and of Rome, and on which the region recent trong economic growth, compared to Italy, i mainly baed. For the majority of pollutant, in fact, it i the econd factor in hift-hare, the differential/ector efficiency component, that quantitatively dominate firt effect of ector compoition. The hift-hare analyi diaggregated for the three macro ector highlight additional intereting inight. Total efficiency differential till favour the region for all pollutant and for all ector. Neverthele, relative to the gap oberved in the aggregate analyi, we note that the ranking of macro ector for their contribution to regional environmental performance i a follow: (1) other indutrial ector (C,E,F); (2) manufacturing; (3) ervice. Service do not preent cae of emiion where their efficiency i higher than the average regional efficiency, compared to Italy. Within the region, and thi i a omewhat counterintuitive reult with repect to qualitative at firt ight aement, environmental performance i not primarily driven by the tructurally trong weight of ervice, and the dynamic evolution that produced an increaing hare of the ector that characterie Lazio more than Italy. Thi evidence may have implication for a region uch a the one invetigated here, where the City of Rome play a crucial role in economic and environmental performance. 16 In addition, the analyi how that while the region i pecialied in ervice, thi pecialiation occur in thoe ub ector with higher emiion intenitie. Publihed by Berkeley Electronic Pre Service,

15 Fondazione Eni Enrico Mattei Working Paper, Art. 271 [2009] Overall, then, relative environmental efficiency with repect to Italy i primarily explained by an actual lower emiion intenity per unit of value added, more than by ector compoition and pecialiation. Thermo-electric production fuelled by oil, an energy intenive tranport ector, and a ervice ector which on average i not performing below the Italian average level in term of emiion intenity are the hidden negative element, which national and epecially local policy maker hould be tackling to achieve future emiion reduction and environmental efficiency increae in the broader context. Thi paper thu how that even with a ingle regional NAMEA and a national average NAMEA, it i poible to identify a erie of fact that help our undertanding of the tructural bai of the income-environment relationhip, with a focu on energy iue, to help to define future national and regional policie. Panel data would provide a better bai for uch an analyi, although we note that tructural difference will be affected in the medium to long run. Our analyi would provide further value added with either very long panel data, which are unlikely to be available in the near future, or the extenion of cro ection analyi to more region. A cro regional panel dataet could offer the poibility of more detailed invetigation regarding the dynamic of the three pillar of the hift-hare analyi. Thi could create link with the policy making framework and might allow a ditinction between the evolution of (tructural) production factor, the target of development-oriented regional policie, and pure efficiency effect, which have a tricter link to technological aet and to the et of environmental regulation exiting at national and regional level. Future reearch hould aim at producing and analying NAMEA for mot (all) Italian region. Thi hould be enabled by ISTAT data to be publihed in , 17 which will allow more robut hift-hare and other tructural decompoition analye. The complementary ue of bottom-up approache, relying on regional emiion inventory ource, and top-down approache which regionalie national emiion data might contitute a good compromie for the etablihment of a robut framework allowing decompoition and (dynamic) hift-hare analyi. 17 See where the joint ISTAT-Minitry of Economic development reearch project environmental accounting and development i decribed. The main aim i to develop a RAMEA national framework for all or mot Italian region tarting from the conolidated NAMEA experience regional emiion hould be available for all region by 2009, covering the uual 10 NAMEA emiion matched to value added and production

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