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Residential energy demand and energy-efficiency of the EU member states: A stochastic frontier approach

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Filippini M., Hunt L., Zoric J., Alberini A.
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In 2010, the EU adopted a new energy strategy Energy 2020 – a strategy for competitive, sustainable and secure energy, where energy-efficiency is listed among the five priorities. Member states are, in comparison with projected trends, expected to achieve 20% energy savings by 2020. However, the latest report by European Commission (2011) suggests that with the present policies the EU will achieve only half of the 20 % target in 2020. This is claimed not to be because of the lack of economic potential but because of market and regulatory failures. In order to close this gap, a new directive on energy efficiency has been proposed. Since the residential sector is identified as being one of the areas with the greatest potential for energy savings (Directive 2006/32/EC), this paper employs stochastic frontier analysis (SFA) to estimate a ‘frontier’ residential energy demand function using panel data for 27 EU member states over the period 1996 to 2009. Following the approach proposed by Filippini and Hunt (2010, 2011) and Evans, Filippini and Hunt (2011), an econometric energy demand model is used to estimate the inefficiency of each member state, which gives an indication of the each state’s potential for energy efficiency improvement. As opposed to the more conventional indicator of energy intensity (i.e., energy demand to GDP ratio), this measure of energy efficiency controls for a range of economic and other factors and is therefore viewed as a more suitable approach to measure energy efficiency.
residential energy, energy-efficiency,