Energy consumption associated with urbanization in China: Efficient- and inefficient-use

The scale of urbanization in China has more than doubled in the last two decades, with important consequence of transforming the landscape of energy. While the relationship between urbanization and energy use has been examined extensively, the question of whether urbanization affects energy efficiency receives less attention. In this study, we seek to provide new empirical evidence on the effect of urbanization on energy use and efficiency in China. We extend the stochastic frontier approach to model the demand for energy while measuring energy efficiency by distinguishing between efficient- and inefficient-use. Using data from a variety of sources during 2005–2015 to generate an eleven-year province-level panel, we estimate a simultaneous-equation model through a random effects panel data specification. We find that urbanization in China during our sample period is associated with a significant increase in energy consumption, but there is little evidence of improvement in energy efficiency. In particular, our results from our preferred specification suggest that the inefficient-use accounts for approximately 23% of the total energy consumption.