Impact of EU climate change mitigation policy on total-factor energy efficiency: Evidence from a synthetic control method

Improving energy efficiency is central to achieving the European Union's (EU) long-term climate mitigation goals, yet empirical evidence on the causal impact of EU climate policies on total-factor energy efficiency (TFEE) remains unclear. This paper evaluates the impact of post-2004 EU climate change mitigation policies on energy efficiency. First, TFEE for 28 EU countries from 1996 to 2019 is estimated using a super-efficiency slack-based measure (SBM) model that incorporates capital, labor, and primary energy consumption as inputs, GDP per capita as desirable output, and CO2 emissions as undesirable output. Second, the synthetic control method (SCM) is applied to identify the policy effect by constructing a counterfactual synthetic EU from 14 non-EU OECD countries. The synthetic EU closely reproduces the EU's pre-2004 TFEE trajectory, enabling credible post-policy comparison. Results show an obvious improvement in EU's TFEE relative to its synthetic counterpart after 2004, suggesting substantial efficiency gains attributable to EU climate change mitigation policies. Robustness is confirmed through placebo and sparse synthetic control tests, both of which show that the observed effects are neither driven by random shocks nor sensitive to any single donor country. The sample period ends in 2019 to avoid distortions in energy use and economic activity caused by the COVID-19 pandemic, thereby ensuring that the estimated policy effects reflect structural policy impacts rather than temporary shocks. The findings provide rigorous evidence that the EU's integrated climate policy framework has delivered measurable and sustained improvements in energy efficiency.