Impact of factor price distortions on energy efficiency: Evidence from provincial-level panel data in China

The marketization of energy price is not only an important part of factor pricing reforms but also decisive for energy efficiency improvement. Thus, this study aims to measure factor price distortions and estimate their impact on energy efficiency based on an empirical analysis of 30 provinces of China during 2004-2013 using the stochastic frontier analysis framework. Results yielded three important findings: (1) Technical efficiency was the highest in eastern China, which still remains low at around 0.7980, followed by central China and western China, and there were growing gaps among the above areas. (2) Capital price was relatively high while energy price was relatively low compared with labor price, and the relative allocative efficiency of energy got worse over time. (3) Energy efficiency loss among the three regions showed convergence trends. Policy implications are summarized as follows: (1) Measures such as adjusting energy consumption structure and improving production technology and management levels can reverse the trend of declining technical efficiency. (2) The process of energy price marketization needs to be accelerated. (3) It is necessary to expand the depth and breadth of regional technology diffusion and break the barriers of technology transfer among regions in China.