DEA radial measurement for environmental assessment and planning: Desirable procedures to evaluate fossil fuel power plants

Energy policy depends on a proper use of methodology in guiding a large energy issue such as the global warming and climate change. DEA is one of such methodologies that are often used for preparing environmental policy, which is closely linked to various energy issues. Unfortunately, the use of DEA applied to environmental policy is insufficient, often misguiding policy makers and other individuals who are involved in energy issues. This study provides three guidelines for a use of DEA in preparing environmental assessment. First, it is important to prepare both primal and dual formulations to confirm whether information regarding all production factors (i.e., inputs, desirable and undesirable outputs) is fully utilized in DEA assessment. Second, DEA has model variations in radial and non‐radial measurements. It is necessary for us to examine environmental issues by different models in order to avoid a methodological bias existing in those empirical studies. Finally, DEA environmental assessment needs to incorporate the concept of natural and managerial disposability. The natural disposability indicates that a firm negatively adapts a regulation change on undesirable outputs. In contrast, the managerial disposability indicates that a firm positively adapts the regulation change because the firm considers the regulation change as a new business opportunity.