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Measuring unified efficiency of Chinese fossil fuel power plants: Intermediate approach combined with group heterogeneity and window analysis

Sun, Chuanwang, Liu, Xiaohong, Li, Aijun
Energy policy 2018 v.123 pp. 8-18
environmental policy, fossil fuels, power plants, China
As a newly-proposed method, intermediate approach has several unique features, relative to conventional radial and non-radial approaches. This study contributes to the DEA literature by combining intermediate approach with group heterogeneity in a time horizon. This extended methodology has two important advantages, since it can separate inefficiency related to different production frontiers originated from heterogeneity issue and provide steady results of time effects across periods. Empirically, this method is used to examine unified efficiency of Chinese fossil fuel power plants at provincial levels from 2005 to 2015. All provinces are classified into two regional groups. Our main findings are as follows. First, there exists significant group heterogeneity between coastal and inland provinces, where coastal provinces outperform inland provinces. Second, there are considerable differences in unified efficiency measures across provinces. For most observations, best-practice gap ratio is the most important driving factor. Furthermore, the relative importance of three decomposed indicators varies sharply across provinces. Finally, the concept of managerial disposability should attract sufficient attention, when designing environmental policies. Thus, there should be more combined contributions from eco-technology advancements along with managerial efficiency improvements by corporate leaders and policy makers. This can a new direction for China's environmental policy.