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Factor market distortion, total factor energy efficiency and energy shadow price: A case of Chinese manufacturing industry

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  • Sun, Yuhuan
  • Li, Hui
  • Zhu, Bingcheng

Abstract

The manufacturing industry is responsible for the highest share of energy consumption in China and improving its energy efficiency is important for reducing the dependence of economic growth on the growth of fossil energy consumption and carbon emissions. However, factor market distortion (FMD) has substantially inhibited effective resource allocation. This study proposes a metafrontier parametric linear programming method based on the Shephard energy distance function to measure the total factor energy efficiency (TFEE) of Chinese manufacturing industry. Then, we derive the energy shadow price by cost minimization. Finally, we compare and analyze the impact of different levels of FMD on TFEE and energy shadow price. The results showed that regions with lower FMD had higher TFEE from 2000 to 2021. FMD hindered TFEE mainly by affecting technical efficiency and scale efficiency. The energy shadow price within China's manufacturing industry exhibited a downward trend and regions with low FMD had a higher energy shadow price. This implies that the manufacturing industry in China is progressively diminishing its reliance on fossil fuels for production activities. The efficient distribution of production factors may enhance the actual marginal value of energy inputs.

Suggested Citation

  • Sun, Yuhuan & Li, Hui & Zhu, Bingcheng, 2024. "Factor market distortion, total factor energy efficiency and energy shadow price: A case of Chinese manufacturing industry," Energy, Elsevier, vol. 307(C).
    • Handle: RePEc:eee:energy:v:307:y:2024:i:c:s0360544224025131
    DOI: 10.1016/j.energy.2024.132739
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