Data Envelopment Analysis Environmental Assessment Research Articles

Performance Assessment of the Semiconductor Industry: Measured by DEA Environmental Assessment

This study measures the unified (i.e., operational and environmental) performance of semiconductor firms in the world by using Data Envelopment Analysis (DEA) environmental assessment. With its promising and expanding electronic applications, many industrial nations have supported the semiconductor industry under their strategic plans, and numerous firms are involved in the global value chain. Drawing on the proposed DEA-based environmental (sustainability) assessment, which uses two disposability criteria (i.e., natural and managerial), this study first compute the unified efficiency scores of semiconductor firms. Then, this study explores how corporate age, business model, and location influence the efficiency scores by employing Tobit regressions and t-tests. The empirical implications obtained from this research indicate that overall, the semiconductor firms look for their economic achievements but are not paying enough attention to environmental sustainability. Corporate age and business model are statistically related with their operational performance measures whereas corporate location is related with their environmental ones.

How the growth rate influences low-carbon sustainable production performance under different disposabilities in China’s manufacturing industries?

An improved understanding of the influence of growth rates under different disposabilities on low-carbon sustainable production performance (LCSPP) can aid China’s manufacturing industries (MIs) to synchronize productivity enhancement and carbon emission abatement. To demonstrate the relationship between the growth rates under different disposabilities and their LCSPP well, this work provides the following contributions: (a) The effects of growth rate on LCSPP under different development models are analyzed using the disposability framework in economics; (b) the data envelopment analysis (DEA) model for estimating industrial LCSPP is explored by incorporating a non-radial and non-oriented directional distance function (NNDDF) into the DEA environmental assessment; (c) the effects of growth rate on LCSPP under different disposabilities are evaluated by applying econometric models in China’s MIs between 2001 and 2015. Results show that growth rates negatively influence the improvement of the LCSPP of China’s MIs. The effect on LCSPP is stronger under natural disposability than under managerial disposability. Low-end MIs and heavy chemical industries exert considerable efforts on their economies, while light industries and high-end MIs provide considerable efforts on environmental performance. Some important policy implications are presented on the basis of theoretical analysis and empirical conclusions.

DEA environmental assessment on US petroleum industry: Non-radial approach with translation invariance in time horizon

This study empirically assesses the performance of the petroleum industry, focusing upon independent companies, in the United States (US). For the empirical study, we use the Data Envelopment Analysis (DEA) that has been widely used for environmental assessment and performance measurement. The conventional use of DEA requests that all observations in the data set should be positive, prohibiting an occurrence of zero and/or negative values. The requirement of non-negative value is inconsistent with the reality of US petroleum industry, because many oil firms recently experience negative shocks in financial performance. To overcome the obstacle, this study discusses the property of “translation invariance” under undesirable congestion (e.g., capacity limit in the transportation pipeline network) and desirable congestion (e.g., green technology innovation) based on the non-radial models. The property implies that the unified efficiency measure should be not influenced even if production factors are shifted toward the same direction by adding or subtracting a specific real number. The property makes it possible that we can evaluate the performance of firms, whose production factors contain zero and/or negative values. This study is empirically concerned with practical implications of translation invariance from energy and environmental perspectives. In addition, this study examines the proposed environmental assessment in a time horizon. For the purpose, this study uses “window analysis” to examine an efficiency change along with a time shift. Our empirical investigation finds the following three implications. First, under the natural disposability, the oil firms' efficiency growth rates have become less than unity, implying the industry-wide difficulty or inability to cut back their drilling and production operations. Second, all firms have been under regulatory and stakeholder pressures on air pollution. Therefore, the efficiency growth rates under managerial disposability have not exhibited a major change during the observed annual periods. Finally, such implications are statistically reconfirmed by regression analysis that examines how the change of energy price influences unified efficiencies under natural and managerial disposability. An exception can be found in the natural disposability where energy prices influence their efficiency growths. Thus, an increase in energy prices is important in maintaining a high level of efficiency growths in the US petroleum industry.

Social sustainability measured by intermediate approach for DEA environmental assessment: Chinese regional planning for economic development and pollution prevention

This study examines the level of simultaneous achievement on economic prosperity and environmental protection, so measuring the level of sustainability by a newly proposed intermediate approach. Conventionally, DEA (Data Envelopment Analysis) for performance evaluation was used to assess various economic activities of organizations that utilized inputs (e.g., the number of employees) to yield desirable outputs (e.g., the number of products). The methodology was usually classified into radial or non-radial category. In an effort of extending it to environmental assessment, DEA needs to incorporate undesirable outputs (e.g., the amount of CO2) into the computational framework. This type of assessment is referred to as “DEA environmental assessment”. The proposed intermediate approach develops a new type of DEA environmental assessment by combining the analytical features of radial approach with those of non-radial approach. The new approach measures the level of unified inefficiency on each production factor and determines the level of total unified inefficiency from the average of the sum of these inefficiency scores. A rank sum test and a mean test are additionally incorporated into the proposed intermediate approach. Such a combination enhances the statistical capability. As an application, this study examines the level of sustainability related to 30 provinces in China from 2003 to 2014. The application finds four policy implications. First, it is important for China to allocate its resources to western provinces at a level that it has used for coastal developments. Second, the government continues to reinforce the policy making effort on environmental protection by paying attention to central and southern regions. The Chinese industries need to transfer toward “green” energy. The transfer should be efficiently executed for their future developments. Third, the government has focused on the sustainability development in urban provinces and then has gradually shifted the policy influence toward rural areas. Finally, the policy implementation needs a time lag until it becomes effective. The time lag on economic policy is longer than that of environmental policy. The economic policy has historically produced a regional imbalance, often leading to educational and income imbalances, among Chinese provinces.

World trend in energy: an extension to DEA applied to energy and environment

This study proposes a use of data envelopment analysis (DEA) to assess the performance of energy industries. The DEA is a nonparametric approach that does not assume any functional form for performance assessment. The purpose of this study is to discuss how DEA can examine the current energy industries and their trends in the world. The energy is separated into primary and secondary categories. The primary energy is classified into fossil and non-fossil fuels. The fossil fuels include oil, natural gas and coal, while the non-fossil ones include nuclear and renewable energies (e.g., solar, wind, biomass, water and others). Energy consumption is essential for developing economic prosperity in all nations. However, a use of various energy resources usually produces many different types of pollutions (e.g., air, soil and water pollutions), leading to a huge damage on our society and human health. Thus, it is important for us to understand a general trend of world energy when we consider various environmental issues. This study discusses electricity as a representative of secondary energy. It is not easy to maintain a high level of social balance, so-called sustainability between economic development and environmental protection. As the initial step for sustainability development, this study summarizes a general trend of energy whose consumption has been increasing along with an economic development and a population increase in the world. Along with discussing the trend of world energy, this study describes why DEA is useful as one of the methodologies to assess a social balance between economic success and environmental protection by identifying a level of efficiency, later referred to as “unified (operational and environmental) efficiency.” Thus, this study conveys the research necessity of DEA environmental assessment on energy and sustainability from a perspective of supply and demand on energy resources in the world.

Damages to return with a possible occurrence of eco-technology innovation measured by DEA environmental assessment

Environmental assessment and pollution protection are important concerns in modern business and policy. Consumers are interested in corporate efforts on not only their products but also environmental protections and pollution preventions. To attain a high level of sustainability (i.e., economic success and pollution prevention), all entities in private and public sectors need to pay attention to green technology innovation. This study considers that eco-technology innovation can combat the global warming and climate change, which the world is now facing as a major policy issue, along with its related business and policy supports. It is clear that any engineering and science efforts cannot attain any policy goal on the climate change without supports from social science perspectives, including business and economics. An important concern discussed in this study is how to identify an effective decision on eco-technology innovation and its influence on sustainability. To discuss the global issue at the world level, this study is first interested in measuring the performance of their operational and environmental achievements and then pays attention to Damages to Return (DTR). The economic concept indicates a level of change of undesirable outputs (e.g., CO2) by increasing one unit of a desirable output (e.g., oil production). To assess the magnitude of DTR, this study proposes a use of Data Envelopment Analysis (DEA). The proposed DEA assessment theoretically provides corporate leaders and policy makers with information regarding how to invest in eco-technology innovation for abatement of undesirable outputs, so enhancing the level of corporate or social sustainability.

A literature study for DEA applied to energy and environment

This study systematically summarizes previous research efforts on Data Envelopment Analysis (DEA) applied to energy and environment in the past four decades, including concepts and methodologies on DEA environmental assessment. Industrial developments are very important for all nations in terms of their economic prosperities. A problem is that the development produces various pollutions on air, water and other types of contaminations, all of which are usually associated with our health problems and climate changes. Thus, it is necessary for us to consider how to make a balance between economic success and pollution mitigation to maintain a high level of social sustainability in the world. It is widely considered that DEA is one of the methodologies to examine the level of sustainability. This study examines a recent research trend on DEA applications from 1980s to 2010s. Nowadays, many researchers have paid serious attention on how to combat various difficulties in the areas of energy and environment. As a result, the number of articles on DEA applications on energy and environment has dramatically increased, particularly after 2000s. However, it is true that DEA has strengths and drawbacks in the applications. Therefore, it is very important for us to carefully use DEA for guiding large policy issues and business strategies such as the global warming and climate change. An underlying premise of this study is that technology innovation in engineering and natural science may solve various problems by linking it with political and managerial efforts. The use of DEA provides a methodological linkage among them, so enhancing the practicality in mitigating problems due to climate change and environmental pollutions. This literature study, along with a summary on conceptual and methodological developments, provides us with guidelines for our future research works on DEA on energy and environment issues.

Marginal Rate of Transformation and Rate of Substitution measured by DEA environmental assessment: Comparison among European and North American nations

This study discusses the new use of DEA (Data Envelopment Analysis) environmental assessment to measure MRT (Marginal Rate of Transformation) and RS (Rate of Substitution) among production factors (e.g., inputs, desirable and undesirable outputs). To measure the degree on MRT and RS, this study first examines a concept of disposability from the perspective of economic strategies to combat various environmental issues. The strategies are extendable to a policy change for pollution prevention. The underlying concept is separated into natural and managerial disposability. Under managerial disposability, it is possible for us to measure an occurrence of desirable congestion, or eco-technology innovation. Considering the disposability concept, this study discusses how to measure the type and magnitude of MRT and RS. A problem of the MRT & RS measurement is that these measures usually become unstable (e.g., very large or small in these magnitudes) because DEA does not assume any functional form for economic activities. To overcome such a difficulty, this study equips DEA environmental assessment with multiplier restriction by utilizing a unique feature on a proposed data treatment. The multiplier restriction in DEA has been never explored in previous works on environmental assessment. In an application, this study finds three important economic concerns on Europe and North America. First, Western Europe outperforms Eastern Europe and North America in their unified efficiency measures under managerial disposability. This study statistically confirms a difference between Western and Eastern Europe, but not between Western Europe and North America. This result exhibits that Eastern Europe is not yet well developed at the level of the other two regions. Second, Eastern Europe has exhibited MRT estimates that are different from Western Europe and North America. The nations in Eastern Europe have an economic potential for industrial developments because the level of their industrial pollutions is less than that of the other two regions. The potential is also found in their MRT estimates. Finally, an interesting difference can be found in the RS estimate between Eastern Europe and Western Europe from 2008 to 2012. They have statistically exhibited a difference between the two regimes, but not with North America. This is because most nations in both Western Europe and North America have already attained a high level of economic successes so that they have a limited industrial potential under current production technology and eco-technology. The situation of the two regions will be changed along with new technology development. In contrast, Eastern Europe is different from the other two regions in terms of attaining such a level of social sustainability because of limited capital accumulation and limited opportunity for technology innovation.

Comparison among U.S. industrial sectors by DEA environmental assessment: Equipped with analytical capability to handle zero or negative in production factors

A green image is recently an important component of corporate sustainability in modern business. By extending the two previous works (i.e., Wang et al., 2014; Sueyoshi and Wang, 2014a), this study discusses a new use of Data Envelopment Analysis (DEA) for environmental assessment by incorporating an analytical capability to handle zero and/or negative in a data set. The proposed approach provides us with not only new quantitative assessment on unified (operational and environmental) performance of firms but also information regarding how to invest for eco-technology innovation for abating an amount of their industrial pollutions. According to the previous studies, the energy industry is an attractive investment target if desirable outputs are measured by Return on Assets (ROA) as a short-term concern and an amount of CO2 emission reduction. The selection on a desirable output combination is important in understanding the corporate sustainability of the energy industry because it is the largest emitter among seven industry sectors examined in the previous studies. However, if the ROA is replaced by a corporate value, measured by Tobin's q ratio as a long-term concern, the energy industry is not so attractive because it uses a very large production process so that green investment does not immediately increase the corporate value. An empirical problem of these previous studies is that they have investigated only successful companies with positive ROA or Tobin's q ratios. The analytical feature clearly indicates a methodological drawback of their studies. In contrast, this study pays attention to both successful companies with positive net incomes and unsuccessful companies with negative net incomes, so being able to measure all aspects of their performance in a short-term concern. This study finds that the energy industry exhibits a high level of potential on green investment. However, the energy industry may be not attractive even in the short-term concern (i.e., net income), partly because governmental regulations on their operation and pollution prevention efforts are stricter than the other industrial sectors. This result may be seemingly inconsistent with Wang et al. (2014). Rather, the result indicates that successful energy firms can attain the corporate sustainability by investing eco-technology innovation, but unsuccessful ones cannot attain the sustainability, even in the short-term concern, because they do not have large capital accumulation for eco-technology investment whose importance has been first discussed by Sueyoshi and Goto (2010a). In other words, the eco-technology investment for enhancing a high level of corporate sustainability depends upon an amount of net income generated by each energy firm.

Japanese fuel mix strategy after disaster of Fukushima Daiichi nuclear power plant: Lessons from international comparison among industrial nations measured by DEA environmental assessment in time horizon

On June 1, 2015, the Japanese government has announced that the fuel mix will consist of nuclear generation with a range between 20% and 22% and renewable generation with a range between 22% and 24% of the total electricity generation by 2030. A difficulty in understanding the governmental future energy plan is that it does not contain any scientific evidence concerning why Japan needs to maintain the amount of nuclear generation and that of renewable at the level between 20% and 22% and between 22% and 24%, respectively. To investigate the future energy plan, this study uses Data Envelopment Analysis (DEA) as a methodology. The proposed DEA approach incorporates the property of “translation invariance”. The property indicates that an efficiency measure should not be influenced even if inputs and/or outputs are shifted toward a same direction by adding or subtracting a specific real number. The property makes it possible that we can evaluate the performance of organizations, whose production factors (i.e., inputs, desirable and undesirable outputs) contain many zeros and negative values in a data set. Such an occurrence of zero and negative in production factors is widely observed in many DEA performance evaluations. This study first uses the desirable property for DEA environmental assessment in a time horizon. The proposed DEA environmental assessment identifies that the reasonable ranges for Japanese future fuel mix are (a) combustible fuel generation within the range between 34.5% and 56.1%, (b) hydro generation within the range between 22.4% and 40.5%, (c) nuclear generation within the range between 10.4% and 13.7%, (d) pumped hydro generation within the range between 3.9% and 6.9% and (e) renewable generation within the range between 3.7% and 8.4%, all of which are measured by these generation capacities. It is clearly identified that the future fuel mix proposed by the Japanese government is inconsistent with the estimated one, which we determine by relatively comparing it with the energy structures of 33 industrial nations. The comparison indicates that the Japanese future energy plan will be too ambitious to implement the future goal. It is easily envisioned that the energy plan will have a considerable difficulty in future. It is hoped that the electric power industry can access drastic technological advancements, including eco-technology innovation, and then Japan will be able to change the future direction on fuel mix as the government expects.

Environmental assessment on coal-fired power plants in U.S. north-east region by DEA non-radial measurement

This study discusses a new use of DEA (Data Envelopment Analysis) environmental assessment to measure unified (operational and environmental) and scale efficiencies among inputs, desirable and undesirable outputs. In particular, the measurement of scale efficiency is discussed by two non-radial models. That is a new methodological contribution. To discuss these efficiency measures, this study first examines a concept of disposability from the perspective of corporate strategies to adapt a regulation change on undesirable outputs. The concept is separated into natural and managerial disposability. After discussing how to measure the degree of scale efficiency within the non-radial approach, this study applies the proposed DEA environmental assessment to measure the performance of coal-fired power plants in the U.S. north-east region. The region has been long producing a large amount of coal from the Appalachian Mountains. The coal mining industry has supported U.S. energy utility and other industries. Because of the long history, the quality of coal became worse and the coal-fired power plants have been producing a large amount of undesirable gases. This study has statistically confirmed that there is a significant difference between the two types (BIT: bituminous coal and SUB: subbituminous coal) of coal-fired power plants in terms of their unified efficiency measures, including their scale efficiencies, under the concept of managerial disposability (the first priority: environment performance and the second priority: operational performance). In contrast, under the natural disposability (the first priority: operational performance and the second priority: environmental performance), this study cannot find such a statistical significance between them. The fact, in which BIT outperforms SUB in terms of their unified and scale efficiencies, suggests the policy implication that these power plants need to shift their coal combustions from SUB to BIT in the United States. Besides the empirical finding, this study cannot confirm the other hypothesis on whether coal-fired power plants with small operation (less than 50% in plant capacity factor) outperform ones with large operation (more than 50% in plant capacity factor), and vice versa, in terms of their unified and scale efficiency measures under natural and managerial disposability. An exception is found in environmental performance under variable returns to scale. The rationale is because their plant operations are frequently monitored by regulatory agencies. As a consequence, this study cannot find such a statistical difference between them on operational performance. This result implies that the regulation on coal-fired power plants has been effective on their unified performance but large power plants may have a potential to improve their environmental performance.

China's regional sustainability and diversified resource allocation: DEA environmental assessment on economic development and air pollution

Environmental protection, including the prevention of air pollution and health hazard materials such as PM2.5 and PM10, is now a very serious policy issue in China after attaining the rapid economic growth and development. The PM stands for “Particular Matter”, indicating the size of both solid particles and liquid droplets found in air. Unfortunately, the economic development has produced a serious healthcare problem in not only China and other surrounding nations. To enhance people's healthcare and appeal a good national image to the world, China is recently looking for the new industrial and environmental policy direction to attain social sustainability in terms of economic development and environmental prevention. To discuss policy implications on the new policy direction, this study utilizes Data Envelopment Analysis (DEA) for assessment on its regional performance by incorporating PM2.5 and PM10 as undesirable outputs, along with two disposability concepts (i.e. natural disposability and managerial disposability). No previous DEA study has incorporated the amount of PM2.5 and PM10 in empirical investigation. Using a simulated data set for the period of 2013–2014, this study measures the efficiency of municipality cities under four different types of regional classifications. The empirical results indicate that the Chinese government should distribute its economic resources to cities, which locate in the northwest region (including Lanzhou, Xining, Yinchuan and Urumqi), and reinforce more strict regulation on energy consumptions for environmental prevention in major cities (e.g. Beijing, Tianjin, Shanghai and Chongqing). The industrial policy change from the economic growth to the environment protection is essential for the future of China, which is currently the second largest economic power in the world. The environmental protection can enhance the China's image of contributing in economics, industry and environmental protection to all other nations. It can be envisioned that the new policy effort reduces the regional imbalance and increases the social sustainability in China. The empirical findings and policy implications discussed in this study are applicable to not only China but also other industrial and developing nations and those are useful in guiding their industrial and environmental policy development.

Sustainability development for supply chain management in U.S. petroleum industry by DEA environmental assessment

Environmental assessment and protection are important concerns in modern business. Consumers are interested in environmental protection. They avoid purchasing products from dirt-imaged companies even if their prices are much less than the ones produced by green-imaged companies. The green image is very important for business survivability in our global market. A business concern associated with the green image is how to attain corporate sustainability where companies can attain both economic success and pollution prevention in their operations. There is tradeoff between economic prosperity and environmental concern. To attain a high level of corporate sustainability, companies need to measure the current performance in terms of their operational and environmental achievements. This study proposes a use of Data Envelopment Analysis (DEA) for such assessment. The proposed DEA assessment provides corporate leaders and managers with not only the measure of corporate sustainability but also information regarding how to invest for technology innovation for abatement of undesirable outputs (e.g., CO2). As an application, this study utilizes the proposed approach to measure the corporate sustainability of petroleum firms in the United States. The petroleum industry is functionally separated into integrated and independent companies. The integrated companies, referred to as “Major”, have their large supply chains for both “upstream” (e.g., exploration, development and production of crude oil or natural gas) and “downstream” (e.g., oil tankers, refineries, storages and retails). Meanwhile, the independent companies focus upon the upstream function, but not the downstream, in their business operations. The empirical comparison between the two groups of petroleum firms identifies that the integrated companies outperform the independent companies because a large supply chain incorporated into the former group provides them with both a scale merit in their operations and an opportunity to obtain consumer's opinions on their business operations. Thus, the large supply chain system, covering business functions for upstream and downstream, enhances corporate sustainability in the U.S. petroleum industry. It is easily envisioned that the empirical findings discussed in this study are useful in preparing business strategy and industrial policy for the petroleum industry of not only the United States but also other nations involved in oil and gas production.

Environmental assessment for corporate sustainability by resource utilization and technology innovation: DEA radial measurement on Japanese industrial sectors

This study proposes a new use of DEA (Data Envelopment Analysis) radial approach to examine the corporate sustainability of Japanese industrial sectors. The concept of corporate sustainability is measured by its subcomponent measures, including UEN (Unified Efficiency under Natural Disposability), UEM (Unified Efficiency under Managerial Disposability), UENM (Unified Efficiency under Natural and Managerial Disposability), UEI (Unified Efficiency for Intermediate measurement) and UENM(DC) (Unified Efficiency under Natural and Managerial Disposability with Desirable Congestion). Among the five measures, the UEI examines a degree of how each firm can efficiently utilize its resources. The UENM(DC) examines a degree of how the firm can reduce an amount of undesirable outputs by technology innovation and/or managerial change. Such a combined use between UEI and UENM(DC) has been never explored in DEA environmental assessment. The empirical results obtained from the proposed approach have identified two important implications. One of the two implications is that the Japanese energy industry has been long under governmental regulation so that energy firms do not have corporate governance capabilities at the level of other industrial sectors which are competing in a global market. In particular, the implication is applicable to Japanese electric power firms. It is necessary for them to change their corporate governances (e.g., by adding new executive board members who have international experience and/or woman executives, as widely found in American and European energy industries) so that they can pay attention to consumers, not regulatory agencies of the Japanese government. The other implication is that technology innovation can more effectively improve the performance of the energy sector. Employing high efficiency and low carbon generation technologies to achieve desirable fuel mix is essential for improving the corporate sustainability of the Japanese energy sector.

DEA environmental assessment on U.S. Industrial sectors: Investment for improvement in operational and environmental performance to attain corporate sustainability

Environmental assessment has recently become an important business concern because consumers are interested in environmental protection. They try to avoid purchasing products from dirt-imaged companies, which do not pay attention to environmental protection, even if their prices are much less than the ones produced by green-imaged companies. Thus, a green image is very important for corporate survivability in a global market. This study considers “corporate sustainability”, indicating that companies need to consider both economic prosperity and pollution prevention in their operations. To discuss the issue from corporate strategy for modern business, this study discusses a use of Data Envelopment Analysis (DEA) for environmental assessment by focusing upon Research and Development (R&D) strategy as well as technology innovation and selection for reduction of undesirable outputs (e.g., CO2 emission). This type of research has never been explored in previous studies. It is easily envisioned that the proposed DEA environmental assessment will guide corporate leaders in identifying how to invest for technology innovation to reduce an amount of undesirable outputs. To discuss the practicality, this study applies the proposed approach to 153 observations on S&P 500 corporations in 2012 and 2013. The empirical investigation confirms that investors pay more serious attention to company's green image and the reality for a long run sustainability than profitability in a short run concern. Furthermore, the energy sector is the best investment target among seven industrial sectors examined in this study. The measurement of corporate sustainability can serve as an empirical basis in selecting what type of technology is fitted for a specific industry.

A comparative study among fossil fuel power plants in PJM and California ISO by DEA environmental assessment

This study compares among fossil fuel power plants in PJM and California ISO by their unified (operational and environmental) performance. DEA (Data Envelopment Analysis) is used as a methodology. For comparative analysis, DEA incorporates strategic concepts such as natural and managerial disposability into the computational process. This study explores both how to measure Returns to Scale (RTS) under natural disposability and how to measure Damages to Scale (DTS) under managerial disposability. This empirical study obtains two implications on US energy policy. One of the two policy implications is that California ISO outperforms PJM in terms of the three unified efficiency measures. The result implies that strict regulation on undesirable outputs, as found in California, is important in enhancing the performance of US fossil fuel power plants. Thus, it is necessary for federal and local governments to regulate the fossil fuel power plants under the strict implementation of environmental protection. Under such a policy direction, it is possible for US fossil fuel power plants to attain economic prosperity (by enhancing their operational efficiencies) and to satisfy environmental regulation (by enhancing their environmental efficiencies). The other policy implication is that coal-fired and gas-fired power plants in PJM and California ISO need to reduce their operational sizes or introduce technology innovation on desirable and undesirable outputs and/or new management for environmental protection within their operations. Meanwhile, oil-fired power plants may increase their operational sizes if they can introduce technology innovation and new management on undesirable outputs.

DEA environmental assessment: Measurement of damages to scale with unified efficiency under managerial disposability or environmental efficiency

This study proposes a use of Data Envelopment Analysis (DEA) for environmental assessment. Firms usually produce not only desirable but also undesirable outputs as a result of their economic activities. The concept of disposability on undesirable outputs is separated into natural and managerial disposability. Natural disposability is an environmental strategy in which firms decrease their inputs to reduce a vector of undesirable outputs. Given the reduced input vector, they attempt to increase desirable outputs as much as possible. Managerial disposability involves the opposite strategy of increasing an input vector. The concept of disposability expresses an environmental strategy that considers a regulation change on undesirable outputs as a new business opportunity. Firms attempt to improve their unified (operational and environmental) performance by utilizing new technology and/or new management. Considering the two disposability concepts, this study discusses how to measure unified efficiency under managerial disposability and then discusses how to measure environmental efficiency. The proposed uses of DEA can serve as an empirical basis for measuring new economic concepts such as “Scale Damages (SD)”, corresponding to scale economies for undesirable outputs, and “Damages to Scale (DTS)”, corresponding to returns to scale for undesirable outputs.

Returns to scale and damages to scale on U.S. fossil fuel power plants: Radial and non-radial approaches for DEA environmental assessment

This study proposes a new use of Data Envelopment Analysis (DEA) for environmental assessment, paying attention to a methodological bias (i.e., different methods produce different results). DEA is analytically classified into radial and non-radial approaches. The radial approach determines the level of unified (operational and environmental) efficiency by measuring an inefficiency score. The score indicates the distance of a projection from an observed performance to an efficiency frontier. In contrast, the non-radial approach determines the level of unified efficiency by measuring a total amount of slacks because each slack indicates inefficiency. To avoid the methodological bias, this study considers the use of radial and non-radial approaches. In this study, we consider a production process where all organizations produce not only desirable (good) but also undesirable (bad) outputs as a result of their business operations. To unify the two types of outputs, this study discusses the concept of disposability, which is separated into natural and managerial disposability. The natural disposability indicates negative adaptation to a regulation change on undesirable outputs. In contrast, the managerial disposability indicates corporate strategy by which a firm considers the regulation change as a new business opportunity. A firm attempts to improve its unified efficiency by utilizing new environmental technology and/or new management. This type of strategy indicates positive adaptation to the regulation change. Under the two disposability concepts, this study discusses how to measure RTS (Returns to Scale) under natural disposability and DTS (Damages to Scale: corresponding to RTS on undesirable outputs) under managerial disposability. The two scale measures are analytically discussed by the proposed radial and non-radial approaches with SCSCs or without SCSCs, where SCSCs indicate strong complementary slackness conditions. An illustrative example on U.S. fossil fuel power plants indicates a policy implication that they need to introduce new technology for environmental protection. This study also discusses a necessity of examining a methodological bias in energy studies. Empirical findings identified in this study document the practicality of the proposed approaches to measure RTS/DTS.

Returns to Scale and Damages to Scale with Strong Complementary Slackness Conditions in DEA Assessment: Japanese Corporate Effort on Environment Protection

This study proposes a use of Data Envelopment Analysis (DEA) for environmental assessment. All organizations in private and public sectors produce not only desirable (good) but also undesirable (bad) outputs as a result of their economic activities. The proposed use of DEA determines the level of unified (operational and environmental) efficiency of all the organizations. A contribution of this study is that it explores how to measure not only RTS (Returns to Scale) on desirable outputs but also a new concept regarding “DTS: Damages to Scale” (corresponding to RTS for undesirable outputs). This study discusses how to measure RTS under natural disposability and DTS under managerial disposability by DEA. The measurement of RTS and DTS is formulated by incorporating “Strong Complementary Slackness Conditions (SCSCs)”. As a result, this study can handle an occurrence of multiple reference sets and multiple projections in the RTS/DTS measurement. The incorporation of SCSCs makes it possible both to restrict DEA multipliers in a specific range without any prior information and to identify all possible efficient organizations as a reference set. Using the unique capabilities of SCSCs, this study discusses the use of DEA environmental assessment by exploring how to classify the type of RTS/DTS with SCSCs. Such analytical capabilities are essential, but not previously explored in DEA environmental assessment for energy industries. As an illustrative example, this study applies the proposed approach for the performance evaluation of Japanese manufacturing industries. This study finds that these firms need to introduce technology innovation to reduce an amount of greenhouse gases and wastes. The empirical result confirms the importance of measuring RTS/DTS in DEA environmental assessment.

Returns to Scale, Damages to Scale, Marginal Rate of Transformation and Rate of Substitution in DEA Environmental Assessment

This study discusses a new use of DEA (Data Envelopment Analysis) environmental assessment to measure MRT (Marginal Rate of Transformation) and RS (Rate of Substitution) between desirable and undesirable outputs. To discuss MRT and RS, this study first examines a concept of disposability from the perspective of corporate strategies to adapt a regulation change on undesirable outputs. The concept of disposability is separated into natural and managerial disposability. Then, this study explores the computational framework of RTS (Returns to Scale) and DTS (Damages to Scale). The type of RTS is measured within the natural disposability, while the type of DTS is measured within the managerial disposability. Considering the two types of disposability, this study discusses MRT and RS between desirable and undesirable outputs. As an illustrative example, this study applies the proposed approach to evaluate the performance of US coal-fired power plants. This study finds that the regulation policy on NOx and SO2 has been effective on their emission controls under US Clean Air Act (CAA). The regulation on CO2, or a major source of the global warming and climate change, is still insufficient in the United States. Therefore, this study recommends that US federal and local governments should regulate the amount of CO2 emission under the CAA.