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

Seyed Hamid reza Zakeri, Sajjad Faraji Dizaji, Abbas Assari Arani and Hoseein Sadeghi Saghdel
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Seyed Hamid reza Zakeri: PhD student , Department of Economic Development and Planning, Faculty of Management and Economics, Tarbiat Modares University, Tehran, Iran
Sajjad Faraji Dizaji: Associate Professor, Department of Economic Development and Planning, Faculty of Management and Economics, Tarbiat Modares University, Tehran, Iran
Abbas Assari Arani: Associate Professor, Department of Economics, Faculty of Management and Economics, Tarbiat Modares University, Tehran, Iran
Hoseein Sadeghi Saghdel: Associate Professor, Department of Economics, Faculty of Management and Economics, Tarbiat Modares University, Tehran, Iran

Quarterly Journal of Applied Theories of Economics, 2026, vol. 13, issue 3, 81-112

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.

Keywords: Total-Factor Energy Efficiency; SBM–VRS; Super-SBM; Three-Level SBM-Based Cross-Frontier Model; Social Cost of Greenhouse Gas Emissions (search for similar items in EconPapers)
JEL-codes: C61 D24 Q52 R11 (search for similar items in EconPapers)
Date: 2026
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