LAUSR

Abstract Dominated by state-owned administrative monopolistic enterprises, China’s power industry faces a dilemma that is being provoked by market-oriented reforms. Regional protectionism makes it more difficult for those more efficient – but non-local – power generators to enter into the local market, thereby causing significant market segmentation (MS). In view of regional technology heterogeneity, a meta-frontier non-radial slacks-based measure model is used to evaluate the environmental efficiency (EE) of China’s thermal power industry. Further, we utilize a panel-data Tobit model and apply counterfactual analysis to explore the impacts of MS on EE. The results show that: (1) Technology gaps exist between the group frontier and the meta-frontier, exhibiting greater potential for improvement. (2) The degree of MS in thermal power industry in most provinces fluctuates within a narrow range from 2006 to 2015, and peaks during the period from 2008 to 2010. (3) MS negatively affects EE performance both significantly and robustly, with up to a 15% loss of thermal power generation due to MS in 2009. (4) Significant regional technology heterogeneity exists, along with a widening technology gap ratio between developed and underdeveloped areas. This study provides insightful policy implications for the sustainable development of China’s thermal power industry.