Measuring and Improving Eco-efficiency

As energy and environmental issues continue to generate social concerns, firms are pushed to alleviate their energy and environmental externalities from economic activities and network operations while pursuing economic interests. A comprehensive performance evaluation involving both productive and environmental factors is therefore desired by firms to aggregate multiple aspects into condensed information to facilitate decision-making. In this study, we develop a new eco-efficiency measure for energy-intensive economic activities, which integrates productive and environmental factors in the presence of undesirable outputs. The proposed measure has the following merits in comparison with a majority of existing ones that have been widely used in energy- and environment-related areas. It guarantees Pareto-Koopmans eco-efficiency because only non-dominated entities are measured as eco-efficient. It also captures any actual fluctuations in inputs, desirable outputs, and undesirable outputs, as it proves to be strongly monotonic in all input and output dimensions. It has a positive significance for promoting undesirable output abatement, because it stimulates scale improvement for entities in pursuit of economies of scale. It also provides great flexibility of improvement for individual inputs and outputs to achieve eco-efficiency. The marginal abatement costs of undesirable outputs are estimated to facilitate managing the potential tradeoff between undesirable output abatement and desirable output production. We also extend it to weighted eco-efficiency measures for specific situations wherever necessary. Its practicability and comparison with existing models are illustrated by an empirical example.