Assessing energy efficiency and the related policy implications for energy-intensive firms in Korea: DEA approach

The Korean government has given efforts to reduce green-house gas emissions. In order to avoid the monolithic system that only focuses on reducing the emission without considering operational environments of firms, the government should encourage respective firms to improve their energy efficiency which wastes less energy but produces maximum economic revenue. This paper employed a DEA (Data Envelopment Analysis) model to measure energy efficiency of energy intensive manufacturing firms in Korea. Identifying and comparing the difference in efficiency score by using the simplified single-stage DEA model is not sufficient to give governments and firms meaningful policy implications related to energy efficiency improvement. To compensate for this insufficiency, this study extended the single-stage model into a two-stage model that includes two efficiency measures: pure energy efficiency which is only for energy-related process and economy efficiency which is for the pursuit of profit, to reach the improvement of total energy efficiency. By using the two-stage DEA model, it has identified that the difference from overall energy efficiency is not caused by pure energy efficiency but rather by economy efficiency. In addition, this paper statistically analyzed the effects of environmental variables such as firm size, possession of certified management systems and emission type.