This paper suggests that we consider economy-wide carbon performance from a total factor production perspective. Based on the lessons learned from the efficiency analysis literature, this paper proposes a new approach that relies on a Data Envelopment Analysis (DEA)– based model. The paper presents the findings of an empirical study that was conducted using provincial-level data from the People’s Republic of China in 2005. The findings not only contribute to the research methodology, but may also have important implications for national and international climate change policies.

The most commonly used measure of the carbon performance of an economy is carbon intensity (carbon dioxide per gross domestic product [CO2 /GDP]). As an indicator, it is easy to understand and use, but it has serious limitations. First, it is incapable of capturing the multidimensional features of an economy’s carbon performance, as economies are endowed with different natural resources and factors of production. Second, it cannot measure the substitution effects between energy and other factors. It may increase solely because energy is substituting for labor, rather than due to any underlying deterioration in emitting technology. This can happen in any modernization process of any economy. Other factors, such as changes in the energy mix or sectoral changes in an economy, can also cause movements in carbon intensity that do not represent actual changes in carbon performance.

Read the paper here: Carbon efficiency, carbon reduction potential, and economic development in the People’s Republic of China.

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