In order to decrease the detrimental effects from global warming, the European Union (EU) has started to control CO2 emissions by allocating CO2 emission allowances to 25 member states. In this study we are interested about the effects of CO2 emission allowance on environmental efficiency, operational efficiency, and the unified (operational and environmental) efficiency. We set up a modified RAM (Range-adjusted measure) model and introduce the Truncated regression model. Both of these two models are applied to investigate the relationships among six governance indicators and environmental efficiency, operational efficiency, and unified efficiency. Our results show that greater control of corruption is associated with lower unified efficiency, implying that EU countries are likely to fall into an inefficient regime such as the recent case of the Greek debt crisis. Finally, we emphasize that the modified RAM model in which the input factor is restricted in a fixed amount may be used to model the issue of energy and the environmental. After all, energy storage is limited and energy is always taken as an input factor in the RAM model.
ISSN: 1792-7552 (Online)