Does Congestion Affect Total-factor Energy Efficiency? A Theoretical Study

The total-factor energy efficiency (TFEE) index has been widely used in literature to estimate sector or economy-level energy efficiency performance. However, almost all of the existing relative studies neglect the congestion effect in production activities. The measurement of energy efficiency ignoring the congestion effect may result in plausible efficiency scores for energy efficiency benchmarking and comparisons. This paper contributes to discuss the impact of congestion on energy efficiency evaluation under two well-known TFEE index frameworks and propose a modified evaluation model to measure energy efficiency under the occurrence of congestion. It is found that when simultaneously adjusting all the inputs, the energy efficiency would not be biased, while if non-energy inputs are kept constant, the energy efficiency might be underestimated when congestion occurs. By conducting an empirical study, it is found that the energy efficiency bias occurred in most provinces, with an average score of 16.6%.