Nonradial Directional Distance Function for Measuring the Environmental Efficiency of the Chinese Iron and Steel Industry

Abstract

The present article constructs nonradial directional distance function (DDF) methods to measure and contribute to improving the industrial sustainability performance of the Chinese iron and steel industry. For such an energy-intensive industry, environmental efficiency measurement is an important way to implement the “energy-saving and emission-reduction” principle. We reformulate the nonradial DDF in the form of Second-Order Cone Programming in order to transform the traditional DDF into linear programming and provide accurate efficiency results. The new approach is utilized to calculate the performance of 30 major iron and steel makers in China. Both technical efficiency and overall efficiency are calculated to help the managers of inefficient iron and steelmakers find weaknesses. We find that nearly half of the steel makers are environmental inefficient, most of which are increasing return to scale. Furthermore, specific value of desirable output increase and undesirable output reduction are calculated for achieving efficiency. The study concludes with some remarks for energy-environment policy and industrial decision makers based on the empirical analysis and makes comparison study between the policies obtained in this study and the existing government policies.