Pollution-generating technologies and environmental efficiency

In this paper, we study environmental efficiency (EE) within a pollution-generating technology. Good output and bad output (pollution) are explicitly modeled by imposing technology properties of disposability and null-jointness. With data on firms from Swedish manufacturing, we investigate the potential to reduce emissions, and we take a closer look at the pulp and paper sector. Dividing the firms into 'brown' and 'green' firms, we find that there is significant potential, in both categories, to improve EE, and hence lower emissions, of three air pollutants (CO 2 , SO 2 , NO x ). Generally, the methods and results encourage similar and comparative studies on the manufacturing sector in other countries. If there is a comparable potential elsewhere, such as in major polluting countries like China, there is potential to promote a sustainable society by conducting effective energy and climate policies. We also suggest that treating biofuels as completely carbon neutral, as is common practice when constructing emission data in Sweden (Statistics Sweden), may lead to incorrect EE scores and consequently misleading policy implications.