Abstract
Appropriate measurement of environmental and emission abatement efficiency is crucial for assisting policy making in line with constructing a more sustainable society. The majority of traditional approaches for environmental efficiency measures take pollutant emissions as either undesirable outputs or environmentally determined inputs which suffer a limitation of not satisfying the physical laws that regulate the operation of economic and environmental process. In this study, we propose a DEA based approach which is combined with the materials balance principle (MBP) that accounts for laws of thermodynamics to jointly evaluate environmental and abatement efficiency. This approach is along the line of weak G-disposability based modelling but is an extension to existing models that in our approach the identification of possible adjustments on polluting mass bound in inputs and outputs, and potential adjustments on abatement of pollutants are all included. The overall environmental efficiency measured by this approach is decomposed into the measures of technical efficiency, polluting inputs allocative efficiency, and polluting and non-polluting inputs allocative efficiency with the emphasizing of incorporating pollutant abatement activities. Accordingly, new measures of abatement efficiency are proposed which help to identify the pollutant abatement potential that can be achieved from end-of-pipe abatement technology promotion associated with polluting input quality promotion and input resources reallocation. Furthermore, several global Malmquist productivity indices for identifying the changes on environmental and abatement efficiency are proposed. This approach is applied to China's thermal power industry and some empirical results verifying the necessity of introducing the MBP are obtained.