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Does there exist energy congestion? Empirical evidence from Chinese industrial sectors

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Abstract

Data envelopment analysis as a nonparametric frontier approach has gained increasing popularity in assessing total factor energy efficiency performance. Earlier studies often assume that production activity lies in the economic area, and energy inefficiency associated with energy congestion has seldom been examined. This paper contributes to energy efficiency assessment by developing a decomposition model to examine the energy inefficiency driven by energy congestion and empirically examining whether the energy use in Chinese industrial sectors shows evidence of congestion. It is found that energy congestion does exist in Chinese industrial sectors but varies across different provinces. The provinces with high energy intensities are more likely to suffer from energy congestion. Our empirical results also show that energy congestion could be a main driving force of energy inefficiency. Some policy implications towards energy conservation in China are finally discussed.

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Notes

  1. In neoclassical economics, the economic area means the area surrounded by the ridge lines, while the non-economic area indicates the area outside the ridge lines where the marginal output of some input becomes negative and the substitution between the factors becomes impossible. It is true that in practise, profit-oriented producers seldom operate their production in the non-economic area. However, Rødseth (2013) has revealed that input congestion might occur at the industry level even if it is often absent at the firm level, which highlights the economically importance of investigating input congestion in the industrial sectors.

  2. Conventionally, non-energy input is treated as a fixed factor on which energy input causes congestion. In real industrial production process, it might be difficult to observe the phenomenon of energy congestion since with the increasing of energy input the non-energy inputs are normally increased as well. As a result, the negative marginal product of energy input would be offset by the positive marginal product of the non-energy input and the output could not decline.

  3. Input congestion indicates that the production frontier bends back. The non-parametric DEA method which requires neither priori weights nor explicit specification of functional form among inputs and outputs has gained popularity in congestion measurement due to its strength in depicting the back-bending frontier.

  4. This approach has been discussed by Ray (2004) and employed by Flegg and Allen (2009) in empirical study.

  5. Since the concept of total factor energy efficiency was proposed by Hu and Wang (2006), many studies have been devoted to enrich it in either methodology or empirical aspect. See, for example, Zhou and Ang (2008), Zhou et al. (2012), Wang et al. (2013) and Goto et al. (2014).

  6. The 17 types of fuels include raw coal, cleaned coal, other washed coal, briquettes, coke, coke oven gas, other gas, crude oil, gasoline, kerosene, diesel oil, fuel oil, liquefied petroleum gas, refinery gas, natural gas, heat and electricity.

  7. The east area includes Beijing, Tianjin, Hebei, Liaoning, Shanghai, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong, and Hainan; the central area includes Shanxi, Jilin, Heilongjiang, Anhui, Jiangxi, Henan, Hubei, and Hunan; the west area includes Inner Mongolia, Guangxi, Sichuan, Guizhou, Yunnan, Shaanxi, Gansu, Qinghai, Ningxia and Xinjiang.

  8. The heterogeneity issue has also been widely discussed in the parametric frontier methods. Examples can be found in Kopsakangas-Savolainen and Svento (2008, 2011), and Filippini and Hunt (2011, 2012).

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Acknowledgments

The authors are grateful to the financial support provided by the National Natural Science Foundation of China (no. 71273005), the Jiangsu Natural Science Foundation for Distinguished Young Scholar (no. BK20140038), the Humanities and Social Science Foundation of the Ministry of Education (no. 12YJCZH039), the Funding of Jiangsu Innovation Program for Graduate Education (CXLX13_170), and the NUAA research funding (no. NE2013104).

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Authors and Affiliations

  1. College of Economics and Management, Nanjing University of Aeronautics and Astronautics, 29 Yudao Street, Nanjing, 211106, China

    F. Wu, P. Zhou & D. Q. Zhou

  2. Research Centre for Soft Energy Science, Nanjing University of Aeronautics and Astronautics, 29 Yudao Street, Nanjing, 211106, China

    F. Wu, P. Zhou & D. Q. Zhou

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  1. F. Wu
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  2. P. Zhou
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Correspondence to P. Zhou.

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Wu, F., Zhou, P. & Zhou, D.Q. Does there exist energy congestion? Empirical evidence from Chinese industrial sectors. Energy Efficiency 9, 371–384 (2016). https://doi.org/10.1007/s12053-015-9370-2

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  • DOI: https://doi.org/10.1007/s12053-015-9370-2

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