Energy Efficiency Measurement: A VO TFEE Approach and Its Application

Abstract

Energy efficiency is crucial to the 2030 UN Sustainable Development Goals (SDGs), but its widely measured indicator, energy intensity, is still insufficient. For this reason, in 2006, total factor energy efficiency (TFEE) was proposed with capital, labor, and energy as inputs and GDP as the desirable output. The later TFEE approach further incorporated pollution as the undesirable output. However, it is problematic to regard GDP (the total value of final products) as the desirable output, because GDP does not include the intermediate consumption, which accounts for a large part of the production activities and may even be larger than the value of GDP. GDP is more suitable for measuring distribution, while VO (value of output) is more appropriate for sustainable production analysis. Therefore, we propose a VO TFEE approach that takes VO as the desirable output instead and correspondingly incorporates the other intermediate materials and services except energy into inputs. Finally, the empirical analysis of the textile industry of EU member states during 2011–2017 indicates that the VO TFEE approach is more stable and convergent in measuring energy efficiency, and is more suitable for helping policymakers achieve the SDGs of energy saving, emissions reduction, and sustainable economic development.