The determinants of energy efficiency and energy saving in the residential sector of the European Union

Current estimates indicate that Member States are not on track to achieve the 20% energy efficiency target by 2020. The objective of this study is to estimate the technical efficiency of the electricity and gas demand in the residential sector of the European Member States from 1995 to 2010, to provide an alternative measurement of efficiency (by comparing the results of the estimated electricity and gas efficiency with electricity and gas savings, and electricity and gas intensity), and to calculate the CO2 potential savings of electricity and gas in the residential sector of the European Member States if they were efficient. In order to estimate the technical electricity efficiency of each country, we use price, GDP per capita, average household size, population, heating degree days, cooling degree days and policy measures as controlling variables, while technical gas efficiency of each country is measured by price, GDP per capita, average floor area of dwellings, population, heating degree days and policy measures. Stochastic frontier analysis, which provides a measure of the shortfall of the observed output from the frontier (the maximum feasible output), is applied to present the technical electricity and gas efficiency score for each country. This instrument gives the minimum level of electricity and gas consumption necessary for households to produce any given level of electricity and gas services, such as electrical appliances and lighting, cooking, space heating, water heating and air cooling. The gap between the frontier and the technical efficiency scores represents the inefficient use of electricity and gas (“wasted and misused” energy). The smaller the gap, the more efficient the state is. The analysis suggests that for most of the countries, the electricity and gas savings and the electricity and gas intensity are not proper indicators for estimating the improvements in efficiency. In terms of CO2 emissions, if the European Member States operated at an efficient level, 14.5% and 23.8% of CO2 emissions of electricity and gas energy, could be saved respectively