Regional characteristics of industrial energy efficiency in China: application of stochastic frontier analysis method

Abstract

This paper analyzed regional industrial energy efficiency in China with Total-Factor Energy Efficiency (TFEE). The East region has the best energy efficiency and the Central and the West regions stand as the second and the third respectively. However, it is found that industrial energy efficiency of all regions increased from 1998 to 2006. This result is consistent with level of economic development of every region. The industries of all provinces in China are not yet at the frontier efficiency position, therefore, to the frontier as target, their technology levels and production processes should be adjusted accordingly. Compared with the conventional energy efficiency, the inverse of energy intensity, which is defined as the ratio of actual output to energy input, is regarded as Single-Factor Energy Efficiency (SFEE) index. Although TFEE ranks are not changed for each region, they are different for each province. The comparative result also shows that the substitution among inputs (labor, capital stock, and energy) to produce the output is significant. The SFEE scores could be over-estimated if energy is taken as the single input in the production. Finally, we identified determining factors affecting industrial energy efficiency using Tobit model. The results indicate that an increase of per capita Gross Domestic Product (GDP), the percentage of output value of industry invested by Hong Kong, Macao, Taiwan and abroad, energy price and investment of scientific and technological activities for industry could be possible contributors and drivers to the industrial energy efficiency. However, increasing of heavy industry will lead to worse industrial energy efficiency.