Impact of regional energy allocation distortion on carbon emission efficiency: Evidence from China

The free flow of energy cannot be fully achieved in China's energy market because of incomplete market-oriented reform, resulting in energy allocation distortion, which has hampered carbon emissions reduction. However, the extent of energy allocation distortion and its role in carbon emission efficiency remain unexplored. Therefore, this study aims to measure energy allocation distortion and investigate its impact on carbon emission efficiency. For this purpose, first, we derive energy allocation distortion based on a production function and carbon emission efficiency using a meta-frontier non-radial Malmquist index. To effectively address the endogeneity issue, we use a generalized method of moments model to estimate the impact of energy allocation distortion on carbon emission efficiency. Second, we further explore the distortionary mechanism of carbon emission efficiency associated with energy allocation and analyze the asymmetric effect of energy allocation distortion on carbon emission efficiency. The results show a certain degree of energy allocation distortion throughout the country, and disparity exists among different regions. The average value of carbon emission efficiency in the eastern region is 1.0286, well ahead of the national average, demonstrating better performance than other regions. Energy allocation distortion negatively affects carbon emission efficiency, with a 1% increase in energy allocation distortion leading to a 0.251% decrease in carbon emission efficiency. Technological progress, the structure of energy consumption, and industrial structure are important transmission channels through which energy allocation affects carbon emission efficiency. The study contributes to uncovering regional energy allocation distortion and its impacts on carbon emission efficiency and providing strategic policy recommendations for improving energy allocation efficiency.