Energy and CO 2 emissions efficiency of major economies: A network DEA approach

Abstract This study extends the analysis of energy and CO2 emissions efficiency of economies from the black box to a network structure analysis realizing the fact that each economy is a network of two divisions responsible for production and distribution of economic outputs. Hence, its economic and distributive efficiencies must be taken into account while analyzing the energy and CO2 emissions efficiency. In order to analyze energy and CO2 emissions efficiency of economies in terms of economic and distributive efficiencies simultaneously, we have innovatively applied network DEA model free link case under free disposability assumption for all undesirable outputs in both divisions of economies. The results are tantalizing as we have found that in aggregate 85% of energy consumption and 89% of CO2 emissions were just because of economic and distributive inefficiencies. Although none of the economies was overall efficient but a few were efficient in one of the two divisions. China was the largest user of excess energy because of economic inefficiency and the USA was the largest user of excess energy because of distributive inefficiency. We have suggested that inefficient economies not only need rightly directed taxation laws, incentives, and penalties but also need reforms in economic structures.