Does energy efficiency increase at the expense of output performance: Evidence from manufacturing firms in Jiangsu province, China

Highlights: • Unique firm-level data are used to evaluate energy efficiency of firms in Jiangsu. • The trade-off between output performance and energy efficiency is analyzed. • Textile firms with high performance can balance energy efficiency improvement. • Energy efficiency improvement targets may impair performance of chemical firms. To mitigate environmental pollution and reduce energy wastes, the Chinese central government has launched a quantitative and binding energy efficiency improvement target since the 11^th Five-year-plan. Specific targets were assigned to manufacturing firms since the manufacturing industry is the largest energy user and pollutant emitter. Thus, it is of great significance for manufacturing firms that energy efficiency is improved, however, without impairing output performance. Thus, we first applied an undesirable-output-based data envelopment analysis method to evaluate the energy efficiency and the output efficiency of 269 textile and chemical firms, and then used regression models to investigate the interaction between energy efficiency and output efficiency. We find that in the case of textile firms, energy efficiency is positively correlated with output efficiency. Conversely, textile firms with high output performance usually have high energy efficiency scores. In other words, textile firms can deal with a good trade-off between energy efficiency and output efficiency. Besides, we observe that increases in tax and operating expenses for textile firms impair output and energy efficiency. Moreover, larger firms benefiting from economies of scale have higher output and energy efficiency scores. In contrast, in the case of energy-intensive chemical firms, no such trade-off is found.