International regulations and environmental performance

Abstract

This article employs the data envelopment analysis (DEA) approach to compute the environmental performance of all but two Organisation for Economic Co-operation and Development (OECD) countries. It is found that although the environmental performance of countries differs over time, Poland and Hungary are the two best performers for all periods while Italy, Japan, Austria and Switzerland are ranked among the worst. The effect of international regulations and some observed characteristics of countries on environmental performance are also investigated. International regulations are reported to have a positive effect on environmental performance.

Acknowledgements

We would like to express our gratitude to Syed Mahmud, Süheyla Özyıldırım, Frank Gollop and Asel Aliyosova. All errors remain ours.

Notes

¹For the derivation of shadow prices for undesirable outputs, refer Färe et al. (1993).

²A comprehensive literature review can be found in Tyteca (1996).

³Data envelopment analysis approach is also employed under different contexts. Sengupta (2002), Womer (2003), and Piot-Lepetit and Vermersch (1997) are the recent examples that appeared in this journal.

⁴For a detailed exposition on the assumptions of production frontiers, one can refer to Chung et al . (1997) or Shephard and Färe (1974).

⁵Carbon dioxide emissions are measured in ‘000kt. Nitrogen oxide emissions are measured in ‘000kt. Organic water pollutant emissions are measured in ‘000kg per day. Interpolation techniques are used to fill the missing values.

⁶See, for example, Färe et al . (2004) and Zaim et al . (2001). Färe et al . (2004) use a lattice approach to create a reference country. However, our approach is let us to evaluate the individual performances of our countries compared to that of an ‘average country’. We thank an anonymous referee for pointing this out.

⁷For further discussion on infeasible solutions on linear programming problems, see Färe et al . (2001).

⁸Country codes are as follows: AUS: Australia, AUT: Austria, BEL: Belgium, CAN: Canada, DNK: Denmark, FIN: Finland, FRA: France, GER: Germany, GRC: Greece, HUN: Hungary, ISL: Iceland, IRL: Ireland, ITA: Italy, JPN: Japan, KOR: Korea, LUX: Luxembourg, MEX: Mexico, NLD: Netherlands, NZL: New Zealand, NOR: Norway, POL: Poland, PRT: Portugal, ESP: Spain, SWE: Sweden, CHE: Switzerland, TUR: Turkey, GBR: Great Britain, USA: United States.

⁹Infeasible solutions are denoted in the tables by INF.

¹⁰Especially in regulated environments, where production units are required to clean up the undesirable outputs, one has to treat undesirable and desirable outputs asymmetrically in terms of their disposability characteristics. Even in the absence of regulations, the same claim may hold because of the increased environmental consciousness in the society.

¹¹UNFCCC is declared to reduce global emissions. The ‘precautionary approach’ the article 3 of UNFCCC calls for a production plan that is least detrimental to environmental quality. That is among many input, output and pollution emission combinations, the production plan that maximizes the desirable outputs while simultaneously minimizing undesirable outputs is more favourable. The building blocks of our environmental performance index are in accordance with this statement.

¹²Yörük and Zaim (2005) and Yörük (2006) show the positive effect of UNFCCC on productivity growth measures that incorporate negative externalities. However, they do not address the effect of UNFCCC on environmental performance.