Measuring the Energy Efficiency of Developed and Developing Countries: A DEA Model with Undesirable Output

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1 Measuring the Energy Efficiency of Developed and Developing Countries: A DEA Model with Undesirable Output Fang-Yu Yeh Associate Researcher and Dh.D Science & Technology Policy Research and Information Center, National Applied Research Laboratories

2 Introduction (1/3) Since the publication of the Kyoto Protocol Report in 1997, the low-carbon transformation has attracted attention from researchers, policy-makers, and managers (Komor & Bazilian, 2005; Patlitzianas et al., 2008) The development of renewable energy (RE) resources has been recognized as integral to future-oriented policies on the economy, energy, and the environment solar energy technologies have been identified as innovative means of moderating the impact of energy systems on climate change the experiences of many countries show that advances in the research, development and demonstration (RD&D) of solar power require slow, tedious efforts (del Río & Unruh, 2007) the installed renewable generation capacities are far from sufficient to meet post-kyoto targets

3 Introduction (2/3) In an effort to overcome these barriers, many countries have implemented a series of incentives to make solar power more attractive (del Rio & Mir-Artigues, 2012; Zhou et al., 2011) The costs of incentives, energy subsidies, and infrastructure, in all their forms, are heavily dependent on government intervention (Antunes et al., 2004) We address two systemic issues: 1. the extent to which governments can decrease support while maintaining electricity utilization levels 2. the extent to which governments should strive to simultaneously increase solar power generation and decrease emissions of CO 2 The data envelopment analysis (DEA) provide a suitable analytic tool for comparing relative performance across energy markets (Deshmukh, Bharvirkar, Gambhir, & Phadke, 2012; EC, 2009)

4 Introduction (3/3) This study investigates government interventions in 25 national markets by using an extended DEA approach to measure intercountry efficiency The most important contribution of this study are: 1. a clear description of the indicators of the efficiency of government intervention in RE development 2. a detailed evaluation of national performance, and of differences among the sampled countries

5 Methodology (1/2) The greater environmental awareness in recent years, undesirable outputs (e.g. air pollutants) have aroused strong concerns (Guo et al., 2011; Zhou et al., 2008) researchers assume that producing more desirable outputs relative to inputs, and fewer undesirable outputs, are important criteria of efficiency(chiu & Wu, 2010; Fare et al., 1993; Gomes & Lins, 2008) the traditional DEA model of maximizing outputs or minimizing inputs is not well-suited to measuring reductions of undesirable byproducts This study uses extended DEA model by the DEA Solver PRO to evaluate environmental efficiency by considering undesirable outputs (Fare et al., 1993)

6 Methodology (2/2) We assume that the fewer bad (undesirable) outputs are not separable from the corresponding desirable outputs or good inputs (e.g. carbon emissions vs. electrical utilization) The efficiencies of decision-making units (DMUs) in this study obtained by estimating the efficient frontier under the assumptions of the constant returns-to-scale (CRS) which indicates overall technical efficiency the variable returns-to-scale (VRS) which indicates pure technical efficiency

7 Data (1/3) Four approaches are used for evaluating the energy efficiency 1. governments introduce incentives to help establish emergent market mechanisms an annual government expenditure (Zhou et al., 2011; Toke, 2007) 2. the viewpoint of electricity consumption the gross fixed capital formation as a proxy for investment in the national infrastructure for electricity utilization (Oikonomou et al., 2011; Shum & Watanabe, 2010). 3. price indices of the means of electricity production it can be assumed that renewable electricity markets mature as national incomes increase (del Rio & Mir-Artigues, 2012) 4. An electricity utilization output indicator(s) can be defined as economic and/or environmental indicator(s) reflecting performance in the market

8 Data (2/3) Factors Description Unit Inputs Total government energy expenditure (EXP) Gross fixed capital formation (GFCF) Total income per capita (INC) Days required getting electricity (DAY) Desirable Outputs Gross domestic production (GDP) Solar power generation as a percentage of total electricity consumption (PRE) Ratio of total electricity generation (TEG) The governments introduce incentives to help establish emergent market mechanisms A proxy for investment in the national infrastructure for electricity utilization The added cost of purchasing renewable electricity and additional administrative charges levied by the utilities in RE markets It is recognized as a non-separable input for measuring electricity utilization in terms of generation, transportation, and supply, and needs to be taken into consideration when users apply to use electricity. % of GDP % of GDP PPP, current US$ days The most comprehensive measure of national output associated current US$ with the implementation of a renewable electricity policy The average target is 20% by some point between 2020 and % The target is solar power as carbon emissions over the lifecycle of the infrastructure, from manufacturing through to recycling, are nearly zero. A measure of electricity utilization that includes renewable, clean, 103US$/toe and conventional electricity generation. Undesirable Output CO 2 emissions relative to GDP (COE) The undesirable outputs inseparable from the corresponding desirable outputs, and reductions in undesirable outputs as unavoidably accompanied by reductions in desirable outputs. 103US$/tons

9 Data (3/3) We uses country-level data derived from estimating the performance of the solar power policies in 25 countries over the period Developed country (MEDC) Developing country (DC) ID Country ID Country ID Country 1 Australia 11 Italy 21 Bulgaria 2 Austria 12 Japan 22 China 3 Belgium 13 Netherlands 23 India 4 Czech Republic 14 Portugal 24 Malaysia 5 Denmark 15 South Korea 25 Mexico 6 Finland 16 Spain 7 France 17 Sweden 8 German 18 Switzerland 9 Greece 19 Taiwan 10 Israel 20 United Kingdom

10 Findings Q: What the conditions of renewable energy development? (ex. solar energy) Overall Technical efficiency (OTE) by country ( ) ID Country MEDC Australia MEDC Austria MEDC Belgium MEDC Czech Republic MEDC Denmark MEDC Finland MEDC France MEDC German MEDC Greece MEDC Israel MEDC Italy MEDC Japan MEDC Netherlands MEDC Portugal MEDC South Korea MEDC Spain MEDC Sweden MEDC Switzerland MEDC Taiwan MEDC United Kingdom DC Bulgaria DC China DC India DC Malaysia DC Mexico Average of TE Developed country (MEDC) appear to be more energy The trend efficient in than average developing of the country overall (DC) Benchmark technical partner efficiency increases significantly Denmark, France, from German, 2009 to Spain, Sweden, Benchmark ATE Switzerland and Japan country perform the best with efficiency scores of 1 indicating that these countries create more valueadded by using the same resources and energy inputs

11 Findings Q: What country comeback victory? ID Country MEDC Australia MEDC Austria MEDC Belgium MEDC Czech Republic MEDC Denmark MEDC Finland MEDC France MEDC German MEDC Greece MEDC Israel MEDC Italy MEDC Japan MEDC Netherlands MEDC Portugal MEDC South Korea MEDC Spain MEDC Sweden MEDC Switzerland MEDC Taiwan MEDC United Kingdom DC Bulgaria DC China DC India DC Malaysia DC Mexico Average of TE Overall Technical efficiency (OTE) by country ( ) Finland Greece South Korea China India Comeback victory Finland, Greece, Italy, South Korea, China and India country perform more efficiency scores from 2009 to 2012 indicating that policy makers in these countries have paid more attention support (e.g. provide more incentives) the domestic solar power market in recent years they can improve scale efficiency that the energy efficiency will be lie on the efficient frontier

12 Findings Q: By how much can input quantities be proportionally reduced without changing the output quantities produced? ID Country MEDC Australia MEDC Austria MEDC Belgium MEDC Czech Republic MEDC Denmark MEDC Finland MEDC France MEDC German MEDC Greece MEDC Israel MEDC Italy MEDC Japan MEDC Netherlands MEDC Portugal MEDC South Korea MEDC Spain MEDC Sweden MEDC Switzerland MEDC Taiwan MEDC United Kingdom DC Bulgaria DC China DC India DC Malaysia DC Mexico Average of TE EXP GFCF INC DAY GDP PRE TEG COE 2009 Australia Belgium Czech Republic Italy Netherlands Netherlands Italy Netherlands Israel Netherlands Israel Some inefficient DMUs which from MEDCs, are caused by inefficient pure technical efficiency Laggard country (latecomer) Israel, Netherlands, United Kingdom and Mexico E.g. Netherlands only should reduce the total income per capita by 1.1 percent, CO2 emissions to GDP by 6.8 percent and days required getting electricity by 7.8 percent, and an increase the solar power generation as a percentage of total electricity consumption by 20 percent are required to become efficient

13 Conclusions and Implications Conclusions 1. Although the pure technical efficiencies of developing countries are, on average, greater than that of developed countries, the overall technical efficiencies of developed countries appear significantly greater than those of developing countries low efficiency scores can be attributed not only to scale size effect but also to related technologies in connection to its economic and environment outputs The policy makers of DCs should promote RE efficiency incentives (e.g. tax subsidies and loan guarantees) 2. The percentages of potential improvements are observed to be mainly due to technology change From the results of examining the average potential improvements, days for getting electricity should be tackled first, and developed to improve environmentally friendly foundation of electricity infrastructure. Second, policy makers should reduce the percentage of total expenditures devoted to subsidizing deployment and generation they should pay particular attention to reducing CO2 emissions during the electricity generation phase

14 Conclusions and Implications Conclusions 3. A large proportion of RE efficiency variance is due to the internal characteristics policy makers should take into account the intrinsic domestic characteristics when formulating RE efficiency measures they should not ignore the importance of the private sector s contribution to the overall economy, as well as promoting productivity gains and environmental protection 4. It can be concluded that the design elements (total government expenditure, gross fixed capital formation, total income per capita and days required getting electricity) of the support mechanisms are by far the most important criteria with respect to the solar power research 5. The policy-makers should modify the original incentives by referring to their contexts and/or referring the similar market to localize the instruments efficiently

15 Conclusions and Implications Policy Implications 1. Renewable energy productivity review periodically the government expenditure is the important short-term indicator to improve the efficiency value of the countries which has inefficient scale efficiency (e.g. Greece) the policy-makers should keep tracking the performance annually and notice the energy policy development of the targeted best practice to modify the national energy mechanisms 2. Liberalization of electricity markets and competition in a regulated-network environment a sound and competitive electricity market would contribute to the efficiency of solar power production and open a window of opportunity for the governments to scale back their subsidies (e.g. Germany and Spain) the task for policy-makers is to enhance the competition of electricity markets, by way of liberalization or other policy tools, with due consideration of their local contexts 3. Complementary service infrastructures in conjunction with incentive mechanisms incentive subsidy and other schemes such as TGCs can be mutually supportive and contribute to the currently cost-ineffective solar power technology to develop and diffuse in the long run (e.g. Italy) the technology advantage of solar equipment production has to be premeditated when the policy-makers plan or revise the existing Renewable Development Act

16 Thank You for Your Attention

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