Sustainable water use and water shadow price in China’s urban industry

Abstract

China is faced with a serious water shortage problem, and industrial sector is a major water consumer. How to improve the efficiency of industrial water use is extremely important for sustainable use of water in China. This paper applies a global non-radial directional distance function (GNDDF) to measure the green use efficiency of industrial water (GUEIW) incorporating undesirable outputs during 2004–2012. We calculate the two components of GUEIW named economic efficiency of industrial water (ECEIW) and economic efficiency of industrial water (ENEIW), and the shadow price of industrial water to explore the bias between the actual prices and the shadow ones. The results show that the GUEIW shows a W type curve over the study period, and its growth is mainly driven by the ECEIW. The regional heterogeneity of the GUEIW is significant. The eastern region of China enjoys the highest GUEIW, while the central region suffers the poorest performance in the GUEIW. The western region has the largest internal gap of the GUEIW. The actual prices of industrial water in all the provinces are much lower than the shadow ones, and appropriate increase in the industrial water price is helpful to raise the GUEIW. Some policy implications are also suggested.