The effect of electricity market reform on energy efficiency in China

Abstract

Since 2015, China has embarked on a new round of reforms to further promote marketization of the power sector. The present study evaluates this reform by exploring its impact on energy efficiency in China using a novel integrated approach. First, to distinguish the heterogeneous impacts of the reform on energy production and consumption sectors, this study identifies energy efficiency into production efficiency and utilization efficiency based on the super-efficiency network slacks-based measure–data envelopment analysis (SBM–DEA) with an undesirable output. Thereafter, we identify the impact of the reform on energy production and utilization efficiencies by applying a multi-period difference-in-differences (DID) method. We find that the energy efficiency of most provinces of China is relatively low, and energy production efficiency is generally lower than energy utilization efficiency. Although energy efficiencies of most provinces show an upward trend after 2015, the efficiency gap across provinces has increased over time. Moreover, the market reform has no significant impact on energy production efficiency. However, the reform significantly improves energy utilization efficiency, and this effect is sustainable after the reform. The study findings extend our understanding of the effects of the reform and suggests that this reform introduces heterogeneity in the energy sector. This study also holds significant policy implications for furthering the power system reform and narrowing the energy efficiency gap across regions in China.