A stochastic frontier analysis of energy efficiency of China's chemical industry

As an energy-intensive industry, China's chemical industry consumed 347.1 million ton coal equivalent of energy in 2011, which was equal to the sum of the overall energy consumption of Uzbekistan and Czech Republic. Thus, it is crucial to analyze the industry's energy efficiency and energy saving potential. In this paper, we adopt the stochastic frontier analysis to study the average energy efficiency and energy saving potential of the chemical industry based on the assumption of the trans-log production function. The results show that energy price and enterprise scale are conducive for the improvement of energy efficiency while ownership structure has an opposite effect. The average energy efficiency in China was 0.6897 during 2005-2011, with Shanghai having the highest and Shanxi the lowest. In addition, the energy efficiency of East China was higher than that of West and Central China, and the energy efficiency gap between the Eastern and the Western regions was widening. The results also show that China's energy saving potential was 89.42 million ton coal equivalent, with Shanxi having the highest, followed by Inner Mongolia. Moreover, the energy saving potential of East China was the largest. Finally, we provide policy recommendations for energy efficiency improvement in China's chemical industry.