Energy Efficiency and Green Total Factor Productivity in Chinese Iron and Steel Industries: A Parametric Hyperbolic Distance Function Approach
Authors:   Asia-Europe Perspective Association, Chen Bin , Yan Jun , Lee Ki Seong 
Published: December 2024

China has emerged as the world’s second largest economy in 2010 according to continued economic growth since 1979, but has faced serious pollution problems due to lack of awareness of the importance of environmental preservation and loose environmental regulations.
On the other hand, China’s iron and steel industry has rapidly developed into a national infrastructure industry as the industrial advancement continues. In particular, in 1996, China was established as the world’s largest iron and steel producer, but caused excessive amounts of environmental pollutants due to excessive consumption of fossil fuels. At present, China is not only the world’s largest iron and steel producer but also the world’s largest iron and steel consumer. In addition, in the energy consumption structure of the Chinese iron and steel industry, since coal and coke account for more than 89% of the energy, the emission is bound to further increase the serious environmental pollution.
Accordingly, it is a very important issue in the country to improve energy efficiency and maintain competitiveness to save energy and reduce emissions in the iron and steel industry. Therefore, the goal of the sustainable reduction of greenhouse gases in the steel industry is to focus on increasing energy productivity or improving technical efficiency other than setting targets for economic potential reduction.
This paper extends recently developed parametric hyperbolic distance functions to the analysis of energy efficiency for a panel data of 29 provinces in China’s iron and steel industry from 2003-2016, and then decomposes the growth of green total factor productivity into two component measures, namely, energy efficiency change and energy technical change based on the estimated hyperbolic distance functions. We find that firstly, the increase of capital stock, labor and fossil fuel inputs makes industrial output increase significantly. Secondly, the energy efficiency of China’s iron and steel industry was 0.483 on average across the 29 provinces for 2004-2016, and there exists a great dispersion in energy efficiencies across provinces and regions. Thirdly, the growth of green total factor productivity is almost due to the environmental technical change rather than the environmental efficiency change. Moreover, the energy productivity growth in China’s iron and steel industry may be underestimated if CO2 emissions is ignored.
Based on the results of this study, the policy implications are as follows. The iron and steel industry is an industry that emits many environmental pollutants. In particular, carbon dioxide emissions from the iron and steel industry account for 3.1% of global carbon dioxide emissions and 15% of the total industry. In recent years, environmental regulations have been strengthened in earnest, so selecting and developing environmentally friendly facilities and technologies is emerging as an important task for the iron and steel industry. Chinese iron and steel industry is now forced to lag behind in global competition without overcoming its immediate environmental problems. Therefore, the Chinese government needs more intensive investment in developing environmentally friendly technologies and responding to environmental regulations than other industries.