Technology gap and China's regional energy efficiency: A parametric metafrontier approach

This paper analyzes the energy efficiency of China's 30 administrative regions during the period from 1997 to 2010. Most existing studies ignored the variation of production technologies among regions in China. Taking this factor into account, we introduce a parametric metafrontier approach based on the Shephard energy distance function. For further analysis, regions in China are divided into three groups using cluster analysis. We find that the regions in group 1 (mainly the regions in the east area of China) not only have the highest energy efficiency score, but also take the lead in terms of technology gap ratio. Meanwhile, due to their backward technology levels, the average energy efficiency score of the regions in group 3 (mainly the regions in the west area of China) is particularly low. Moreover, the pooled estimation, which ignores the technology gap among the groups, tends to underestimate the energy efficiency. - Highlights: • A new approach is used to account for heterogeneous technologies. • The pooled estimation is biased. • China still has large potentials for energy savings. • In the long run, reducing technology gap is the key to improve energy efficiency