Total-factor energy efficiency evaluation of Chinese industry by using two-stage DEA model with shared inputs

Chinese industry has developed greatly since China implemented its ‘reform and opening‐up’ policy in 1978. With the rapid development of industry, the problems of growing energy consumption and environmental pollution are drawing increasing attention from government managers and scholars. This paper divides industrial systems into two stages, an energy utilization stage and a pollution treatment stage, for accurately evaluating the total‐factor energy efficiency as well as the overall efficiency. We build a new two‐stage data envelopment analysis model with shared inputs to open the ‘black box’ of efficiency measurement in traditional energy efficiency methods. Applying the model to data for Chinese regions, we can display the advantages and disadvantages of these two stages of industry. The results show that (1) the performance of Chinese industry improved during the years 2006–2010; (2) the energy utilization stage performance was better than that of the pollution treatment stage, but the gaps reduced year by year; and (3) energy efficiency increased during this period. Based on these results, some policy recommendations are given.