A target-oriented data envelopment analysis for energy-environment efficiency improvement in Japan

Abstract

This paper aims to offer a quantitative contribution to energy-environment policy in Japan in the aftermath of the Fukushima nuclear power accident. Since then, nuclear power energy supply has almost entirely been banned, and consequently, an intensive search for alternative forms of energy supply (ranging from fossil fuels to renewable forms of energy, such as solar or thermal power) has started. There is no clear-cut direction for energy policy, as each option involves costs and CO2 consequences; Japan has even withdrawn from the Kyoto protocol. A balanced energy-environment policy is difficult to achieve in the short term, and therefore, there is an urgent need for a comprehensive efficiency and performance analysis of the Japanese energy sector. A popular standard tool to judge the efficiency or performance of a decision-making unit (DMU) is a data envelopment analysis (DEA). The existence of multiple efficiency-improvement solutions has prompted much criticism in recent years. In the meantime, much progress has been made in extending this approach in several directions. An example is the euclidean distance minimisation (EDM) method, based on a generalised distance function, which serves to improve a DMU’s performance by tracing the most appropriate movement towards the efficiency frontier. The EDM model is able to calculate an optimal input reduction value and an optimal output increase value in order to reach an efficiency score of 1.0, even though in reality this may be hard to achieve for low-efficiency DMUs. In contrast, high-efficiency DMUs might find it easier to reach an efficiency score of 1.0, or in the case of a super-efficiency DEA, a score of above 1.0. This paper aims to present a newly developed adjusted DEA model, emerging from a blend of the EDM and the target-oriented (TO) approach based on a super-efficiency model, for generating an appropriate efficiency-improving projection model. The TO approach specifies a target-efficiency score (TES) for inefficient DMUs. This approach can compute an input reduction value and an output increase value in order to achieve a higher TES. The abovementioned TO-EDM model will be applied to an efficiency analysis of the energy-environment interface for 10 regions in Japan. The focus will be on one input cost criterion (viz. expenditures) and two output performance criteria (viz. electricity generation and CO2 emission). Based on an extensive database, a comparative performance analysis of the 10 Japan regions under consideration will be pursued.