Assessing Provincial Energy Efficiency Considering the Social Cost of Greenhouse Gases: A Three-Level Cross-Frontier Approach in Iran

Document Type : Research Paper

Authors

1 PhD student , Department of Economic Development and Planning, Faculty of Management and Economics, Tarbiat Modares University, Tehran, Iran

2 Associate Professor, Department of Economic Development and Planning, Faculty of Management and Economics, Tarbiat Modares University, Tehran, Iran

3 Associate Professor, Department of Economics, Faculty of Management and Economics, Tarbiat Modares University, Tehran, Iran

Abstract

This study aims to measure energy efficiency and decompose the sources of inefficiency across 31 provinces of Iran during 202 by employing a three-level cross-frontier framework based on the SBM–VRS model. In the model, capital stock, labor, and energy consumption measured in barrels of oil equivalent are included as inputs; gross provincial product is specified as the desirable output; and the social costs of emissions of carbon dioxide, methane, and nitrogen oxides are incorporated as undesirable outputs. Provincial efficiency is calculated at three levels: the climate–economic-sector frontier, the economic-sector frontier, and the national cross-frontier, and overall inefficiency is decomposed into managerial, climatic-regional, and technological-structural components. The results show that average energy efficiency decreases as the reference set expands, from 0.926 at the climate–economic-sector level to 0.742 at the economic-sector level and 0.46 at the national cross-frontier level. Only seven provinces—Ilam, Bushehr, Tehran, South Khorasan, North Khorasan, Khuzestan, and Kohgiluyeh and Boyer-Ahmad—are efficient at all three levels. The national technical energy-saving potential in 2021 is estimated at approximately 885.5 million barrels of oil equivalent, of which 13 percent is attributable to managerial inefficiency, 46.3 percent to the climatic-regional component, and 40.7 percent to the technological-structural component. Therefore, the majority of the potential for improving efficiency is associated with the gap between regional and technological frontiers, and a uniform policy approach for all provinces is not appropriate. Improving energy efficiency requires a combination of better consumption management, development of infrastructure suited to regional conditions, and modernization of production technology and structure.

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Applied Theories of Economics
Volume 13, Issue 3 - Serial Number 50
September 2026
Pages 81-112

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