Conference Agenda

This paper examines the determinants of energy efficiency in the new EU member states, with a focus on the roles of energy prices, energy price uncertainty, and governance. Using sector-level panel data for seven countries over twenty-one years, we estimate a stochastic energy distance frontier model using the consistent true fixed approach. From the frontier analysis, the estimated energy efficiency scores are relatively high and robust across samples. Although heterogeneities exist, eliminating existing inefficiencies will on average provide efficiency gains of up to 21%. From our key findings, higher real energy prices are associated with lower technical inefficiency, consistent with the price-discipline hypothesis. In contrast, energy price uncertainty has a robust inefficiency-increasing effect: sectors exposed to more volatile energy prices exhibit poorer energy efficiency performance. This effect is stronger in the pre-accession period and weakens after EU accession, implying that greater exposure dampens the inefficiency response. Furthermore, we find uncertainty to be more disruptive to energy efficiency in low energy-intensive sectors. Regulatory quality is unexpectedly associated with higher inefficiency, attributed to short-run adjustment costs linked to regulatory tightening. Finally, EU accession and the initial phase of the global financial crisis are associated with inefficiency improvements, while inefficiency rises during the peak crisis year. The study’s findings show that in liberalized energy markets, improving energy efficiency requires more than just the appropriate energy price levels. It also requires stable and credible price signals, consistent with the importance of policy frameworks that reduce price uncertainty and support long-term energy-efficient investment.