Data Envelopment Analysis Approach to Compare the Environmental Efficiency of Energy Utilization

Abstract

Due to increasing financial and environmental concerns, governmental rules, regulations and incentives, alternative energy sources are expected to grow at a faster pace than conventional sources of energy. However, the current body of research providing comparative decision-making models for conventional and alternative energy sources is limited. Furthermore, existing literature also falls short in offering a unifying model that benchmarks the technical efficiencies of countries in terms of their energy usage in relation to environmental impact. This paper proposes two sets of Data Envelopment Analysis (DEA) models to calculate and rank the technical efficiencies of (i) conventional and alternative energy sources for the United States, and (ii) energy usage of selected countries depending on various criteria. The first set of DEA models considers both the economics of energy sources and additional environmental criteria such as CO2 emissions and damage cost. The second set evaluates the relative technical efficiencies of the top 25 petroleum consuming countries in the world in terms of the environment. Numerical examples are also included to demonstrate the functionality of the proposed models.