Uneven Progress Towards Sustainability: Assessing Carbon Shadow Prices and Convergence in EU Economic Sectors

ABSTRACT

The European Union has committed to ambitious decarbonisation targets, necessitating a deep understanding of sectoral environmental performance. This study assesses the carbon intensity, environmental inefficiency, and carbon shadow prices of the agriculture, manufacturing, and transport sectors across 22 EU countries from 2008 to 2021. We employ a non‐parametric Data Envelopment Analysis (DEA) with a weak disposability assumption to model carbon dioxide emissions as an undesirable output. This approach allows for the estimation of environmental inefficiency and the shadow prices of carbon, reflecting marginal abatement costs. The findings reveal a decline in carbon intensity for manufacturing and transport, while agriculture's intensity remained stable. Manufacturing is the only sector showing convergence in carbon intensity. Environmental inefficiency was highest in manufacturing, though it improved over the period. Shadow prices for carbon increased in agriculture and transport, indicating rising abatement costs, while manufacturing experienced a sharp decline and subsequent divergence among countries. The divergent performance across sectors highlights the need for tailored policy interventions. While manufacturing has seen progress in decoupling, the increasing disparity in shadow prices suggests inefficiencies in policy implementation. Agriculture and transport require targeted strategies to accelerate decarbonisation and foster convergence towards best practices, ensuring the EU meets its sustainable development goals.