Technical efficiency of the urban gas industry in china

China’s Paris Agreement Pledge and recent introduction of an Emissions Trading Scheme have created a need for information on where it makes the most economic sense to use different sources of energy. With lower carbon dioxide emissions, natural gas and liquefied petroleum gas provide cleaner sources of energy relative to coal. Although it is practically crucial to investigate the use of these two sources, empirical studies are limited due to lack of data. To fill the research gap, this paper studies the efficiency of natural gas and liquefied petroleum gas sector in China by using data from 24 major province-level divisions over the years 2006–2015. Efficiency is defined as the utility’s ability to produce the highest output given fixed inputs. We find that: (1) GDP per capita and high customer density are associated with higher levels of efficiency and (2) utilities that serve higher proportions of households (as opposed to industry and firms) are associated with lower levels of efficiency. Policy makers can use this information to address China’s energy needs due to rapid urbanization while also pursuing Paris Agreement goals.