Measuring energy economic efficiency: A mathematical programming approach

The widely used measurement for energy efficiency are in form of physical quantity, thus neglecting the economic cost and the imperfect substitution among energy and other production factors such as capital and labor. In the real world, least energy input does not always leads to optimal factor combinations in production processes. The goal of producers is to minimize the total factor cost or maximize the profit instead of minimizing the physical input. The optimum factor combination is constrained not only by the available technology but also by the relative prices of factors. Based on the production theory and mathematical programming, the “energy economic efficiency (ee)” is constructed to calculate energy efficiency which connects energy productivity and economic efficiency (Ee). In this paper, we have a further discussion on the properties of the energy economic efficiency diagrammatically and mathematically and measure the efficiency in electricity generation sector of 23 International Energy Agency (IEA) countries. Compared with traditional energy efficiency indicators (in physical form), we develop a more proper way of evaluating energy efficiency with better performance.