Estimation of the energy efficiency in Chinese provinces

Abstract

China is one of the largest energy consumers and CO2 emitters globally. The growth rate of energy consumption in China is about 6 % per year, and it consumed 21 % of the world’s total energy in 2012. In recent years, the Chinese government decided to introduce several energy policy instruments to promote energy efficiency. For instance, the reduction targets for the level of energy intensity have been defined for provinces in China. However, energy intensity is not an accurate proxy for energy efficiency because changes in energy intensity are a function of changes in several socioeconomic factors. In this paper, we present an empirical analysis on the estimation of the persistent and transient energy efficiency of Chinese provinces by employing a log-log aggregate energy demand frontier model. The model is estimated by using data on 29 provinces observed over the period 2003 to 2012. Several econometric model specifications for panel data are used: the random effects model and the true random effects model along with other versions of these models. Our analysis shows that energy intensity cannot measure accurately the level of efficiency in the use of energy in Chinese provinces. Further, our empirical analysis shows that the average value of the persistent energy efficiency is around 0.81 whereas the average value of the transient energy efficiency is relatively high and shows a value of approximately 0.97. By improving the level of efficiency in the use of energy to 100 %, the total energy consumption in China would decrease by approximately 1000 Mtce, which corresponds to 25 % of total energy consumption in 2012.