Estimation and determinants of energy efficiency in Japanese regional economies

In response to increased environmental constraints, it has become an important policy issue for Japan to improve energy efficiency for the future, along with the growth of regional economies. This paper uses a stochastic frontier model to estimate the energy demand function and analyse the levels and determinants of energy efficiency. The empirical analysis conducted by using data from 47 prefectures in Japan revealed the following four findings. First, the proposed energy efficiency measure (calculated using the stochastic frontier model) is found to be effective, as its ranking is highly correlated with that of energy intensity. Second, increasing population density is effective in improving energy efficiency. Third, improving regional accessibility by developing a highway network helps to improve the energy efficiency in Japan. Fourth, the level of energy efficiency is deteriorating in areas where raw material industries are clustered. These results indicate that the means to increasing both economic productivity and environmental efficiency are to implement a regional decentralization policy by creating major urban areas across the nation and expand a wide-area transportation network to link these areas. In addition, the promotion of technological innovations through appropriate environmental regulations is important to advance such regional policies.