Evaluation of Cost Efficiency in Hydropower-Related Biodiversity Restoration Projects in Sweden - A stochastic frontier approach

Various restoration projects intended to mitigate the adverse ecological effects of hydropower plants, e.g., restoration of fish habitats and spawning grounds, have been implemented in different parts of Sweden. However, it is unclear whether these projects are economically in line with least-cost principles. Therefore, we estimated the cost frontier function of the projects and predicted the corresponding efficiency level by a stochastic frontier analysis. The estimates are based on a survey data from 245 projects in Sweden that are carried out between 1986 and 2015. This dataset contains expert judgments on the effects of each projects in terms of different ecological indicators. The results indicated an evidence of cost inefficiency in the projects, which had an average efficiency score of 55%, suggesting potential to minimize cost efficiency loss by 45%. Factors such as project duration, project management class, and restoration measure type were statistically significant determinants of the cost inefficiency score. Notably, projects owned by private and non-government principals showed better performance than projects owned by municipalities and national authorities such as the Swedish Forestry Agency and the Swedish Transport Administration.