Operational and Environmental Efficiencies of Japanese Electric Power Companies from 2003 to 2015: Influence of Market Reform and Fukushima Nuclear Power Accident

Abstract

This study measures operational and environmental efficiencies of nine incumbent electric power companies (EPCos) in Japan and examines an influence of market reform and Fukushima nuclear power plant accident on efficiencies using a data set from 2003 to 2015. This study applies output-oriented radial data envelopment analysis (DEA) model to the measurement of efficiencies. Three inputs and three desirable outputs are used for the measurement of operational efficiency, and one undesirable output besides inputs and desirable outputs is used to measure environmental efficiency. EPCos produce not only desirable output, for example, electricity, but also undesirable output, for example, CO2, for their operations. For the measurement of environmental efficiency, this study uses a unique DEA model that assumes occurrence of ecotechnology innovation. The results reveal that environmental efficiency of EPCos is mostly invariant over the period of this study, while operational efficiency decreases in the same period. In addition, the results present that Japanese EPCos make efforts to reduce CO2 emissions by promoting ecotechnology innovation. The Kruskal-Wallis rank sum test indicates differences in operational and environmental efficiencies among EPCos. Such performance differences might become larger as market liberalization advances, which could lead to further structural changes of the industry.