Innovative Applications of O.REnergy and CO2 emission performance in electricity generation: A non-radial directional distance function approach
Highlights
► We propose a non-radial directional distance function to measure energy and CO2 emission performance in electricity generation. ► Several energy and CO2 emission performance indexes are developed. ► The empirical study on 126 countries illustrates the usefulness of the proposed approach and indexes.
Introduction
Electricity generation contributes to over a third of the global energy-related CO2 emissions (Ang et al., 2011). It is therefore worthwhile to benchmark the energy performance of electricity generation and assess its potential for CO2 emission reduction. Several studies, such as Graus and Worrell, 2009, Maruyama and Eckelman, 2009, analyze the emissions reduction potential in electricity generation for various countries based on the assumption that the efficiencies of fossil-fuel electricity generation were to improve to certain levels. Ang et al. (2011) estimates the potential for reducing CO2 emissions arising from electricity generation in over 100 countries through improving generation efficiency and increasing the share of non-fossil fuel generation.
In these studies, it is assumed that the electricity generation efficiency for each fossil-fuel type in a country will reach a certain percentile level calculated based on the world/regional generation efficiencies. In practice, improving electricity generation efficiency nationwide is not straightforward. It requires substantial efforts in technology innovation and financial investments. In addition, these previous studies often consider one indicator at a time while it is clearly more meaningful to consider several indicators simultaneously in the benchmark analysis. Furthermore, for countries that have combined heat and power (CHP) plants, the heat energy produced from CHP plants has to be first converted to its electricity equivalent for estimating generation efficiency and this may bring uncertainty into the benchmark analysis.1
Different from the benchmarking studies introduced above, this paper attempts to model energy and CO2 emission performance in electricity generation from the production efficiency point of view. The relevant indicators will be modelled within a joint production framework of desirable and undesirable outputs, and both energy and CO2 emission performance can be analyzed simultaneously. In addition, heat energy generated from CHP plants can be treated as a separate desirable output, which avoids the need to convert heat energy to its electricity equivalent.
In literature, the production efficiency approach and especially data envelopment analysis (DEA),2 has been widely employed to model energy or environmental performance (Zhou et al., 2008a, Zhou et al., 2008b). Examples of such studies include Zofio and Prieto, 2001, Zhou et al., 2007, Zhou et al., 2010a, Kortelainen, 2008, Camarero et al., 2008, Lozano and Gutierrez, 2008, Picazo-Tadeo and Prior, 2009, Mukherjee, 2010, Sueyoshi and Goto, 2011a, Sueyoshi and Goto, 2011b, Sueyoshi and Goto, 2011c, Sueyoshi and Goto, 2012, Picazo-Tadeo et al., in press. With regards to the electricity sector, the survey by Zhou et al., 2008a, Zhou et al., 2008b provides a number of examples in which DEA has been employed to assess the relative efficiency of electricity generation utilities. Recently, Welch and Barnum (2009) use DEA to analyze the environmental and economic tradeoffs of different fossil-fuel power plants. Yang and Pollitt (2009) assess the performance of Chinese coal-fired power plants by incorporating both undesirable outputs and uncontrollable variables. Sueyoshi et al., 2010, Sueyoshi and Goto, 2011a, Sueyoshi and Goto, 2011b, Sueyoshi and Goto, 2011c develop several novel DEA models for assessing the unified performance of operational and environmental efficiencies in fossil-fuel electricity generation.
Previous studies show that performance measurement of electricity generation sector by separating undesirable outputs from desirable outputs would provide additional insights. For instance, the study by Sueyoshi and Goto (2011a) demonstrates that DEA with output separation can provide an encompassing unified efficient measure for fossil-fuel electricity generation. Through classifying outputs into desirable and undesirable ones, Sueyoshi and Goto (2011c) propose new DEA models for measuring not only the returns to scale (for desirable outputs) but also the damages to scale (for undesirable outputs) in electricity generation. Similarly, this paper also contributes to the modeling of the performance of electricity generation within a joint-production framework of desirable and undesirable outputs. Nevertheless, this study differs from the previous studies in the following aspects. First, it proposes the use of non-radial directional distance function approach to modeling energy and CO2 emission performance in electricity generation. Although there are some previous theoretical contributions related to non-radial directional distance functions, e.g. Fukuyama and Weber, 2009, Fukuyama and Weber, 2010, Färe and Grosskopf, 2010, Mahlberg and Sahoo, 2011, Barros et al., 2012, these studies usually directly provide the non-radial DEA models for calculating the directional slacks-based inefficiency measures without formally defining the function itself. Different from these earlier studies, we start from defining the non-radial directional distance function holding some desirable mathematical properties, which is more consistent with the practice of axiomatic approach on efficiency measurement as followed by the directional distance functions. Second, based on the non-radial directional distance function with various directional vectors, we further define several standardized indexes for measuring energy performance, carbon performance and energy-carbon performance of electricity generation separately. This is more consistent with the composite indicator approach to assessing energy efficiency or environmental performance that has been widely adopted in the literature of energy economics and policy (Zhou et al., 2010b). Third, while previous relevant studies mainly focus on the performance measurement of electricity generation at plant/company level, this study assesses the energy and CO2 emission performance of electricity generation at the economy level with non-radial directional distance function and DEA models.
Technically, we first divide all the countries into two groups, one without and the other with CHP plants.3 For the first group, energy use, electricity and CO2 emissions are modeled in a joint-production framework of desirable and undesirable outputs. For the second group, heat generated from CHP plants is treated as another desirable output. Based on the environmental production technologies specified, we propose two non-radial directional distance functions and several energy and CO2 emission performance indexes, and apply them to the dataset used in Ang et al. (2011). The directional distance functions as well as the energy and CO2 emission performance indexes are derived through solving several DEA type models.
The rest of this paper is organized as follows. In Section 2, we first introduce the environmental production technologies for countries with and without CHP plants. We then propose the non-radial directional distance functions and develop energy and CO2 emission performance indexes. The DEA models for solving the non-radial directional distance functions are also proposed. Section 3 presents an empirical study using the proposed approach to modeling the energy and CO2 emission performance in world electricity generation. Section 4 concludes this study.
Section snippets
Environmental production technology
We first model electricity generation within a joint production framework of desirable and undesirable outputs. For the group of countries without CHP plants, assume that F, E and C are respectively fossil fuel consumption (input) in electricity generation, the electricity generated from fossil-fuel power plants (desirable output) and the total CO2 emissions from these plants (undesirable output).
Data
The recent study by Ang et al. (2011) on the potential for reducing CO2 emissions from electricity generation covers 129 countries and is based on the data for the year 2005. In this study, we use the same dataset but excluding three countries with very little electricity generation from fossil fuels. The remaining 126 countries accounted for 97% of the global electricity generation from fossil fuels in 2005.
Conclusion
This paper presents a non-radial directional distance function approach to modeling energy and CO2 emission performance in world electricity generation. We first define and construct the environmental production technologies respectively for countries without and with CHP plants. This grouping allows the construction of the frontier of best practice from homogenous countries and makes the comparison of energy and CO2 emission performance more consistent. The non-radial directional distance
Acknowledgements
We are very grateful to the Editor Robert G. Dyson and three anonymous reviewers for their constructive comments on an earlier version of our manuscript. P. Zhou is also grateful to the financial support provided by the National Natural Science Foundation of China (Nos. 70903031 and 41071348), the Program for New Century Excellent Talents in University (No. NCET-10-0073), the Scientific Research Foundation for the Returned Overseas Chinese Scholars, China Ministry of Education and the Jiangsu
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