Working Paper Series No.

2018-4

Benefit Evaluation of Benchmarking

Management: Case of Taiwan
Semiconductor Industry

Liou, Je-Liang

Aug. 2018

Chung-Hua Institution for Economic Research

75 Chang-Hsing Street, Taipei, Taiwan, Republic of China
 Working Paper Series, The Center for Green Economy, CIER 1

Benefit Evaluation of Benchmarking Management: Case of Taiwan Semiconductor

Industry

Liou, Je-Liang. Ph.D.

Associate Research Fellow, The Center for Green Economy (CGE)
Chung-Hua Institution for Economic Research (CIER)
Mail: [email protected]
ORCID: https://orcid.org/0000-0002-6470-044X

Abstract
The main purpose of this study is to explore the carbon-reduction environmental
benefits that can be achieved if benchmarking is used when Taiwanese semiconductor
manufacturers are working to improve the technical efficiency of their carbon-reduction
efforts. The evaluation method used is as follows. First, a technical efficiency
measurement method capable of considering both desirable outputs and undesirable
outputs is used to measure the technical efficiency of the carbon-reduction efforts, and
to identify the benchmark firms with the best technical efficiency. Next, an attempt is
made to estimate the greenhouse gas reduction that is realized by the sample if their
carbon-reduction efforts are accompanied by the implementation of a benchmarking
system. Finally, the monetary value of the greenhouse gas reduction is estimated, so as
to develop a better understanding of the carbon-reduction benefits for the adoption of
the process outlined above.

Keywords: technical efficiency, benchmarking, directional distance function, social cost

of carbon

Acknowledgement
The accomplishment of this study funded by the Ministry of Science and Technology through project
MOST 104-2410-H-170-002 is sincerely appreciated.
 Working Paper Series, The Center for Green Economy, CIER 2

1. Introduction
Following the enactment of the Greenhouse Gas Emission Reduction and
Management Act (the “Act” henceforth) in Taiwan, it is anticipated that the general
trend in government policy is toward the implementation of a cap-and-trade system for
emission sources. Assuming that technology levels remain unchanged in the near
future, the imposition of compulsory emission reduction requirements on industry
implies that emission sources across many industries need to bear extra costs in their
production processes in order to reduce greenhouse gas emissions. In other words,
there will be a significant trade-off between production activity and carbon reduction
measures. A key issue that needs to be addressed to reduce the magnitude of this
trade-off between production activity and carbon reduction measures is the question of
how to maintain the steady development of outputs from economic activity when still
meeting carbon reduction targets. Among various approaches to tackling this issue,
the key focus of attention for emission sources in many industries is, increasingly, the
challenge of increasing the technical efficiency (TE) of management in emission source
production processes, so that improvements in TE can be used both to fulfill the
emission source’s responsibilities to the environment and achieve continuous economic
growth.
Conceptually speaking, what the TE indicator measures is the extent of the impact
of the management techniques used by the decision-making unit (DMU) on the
efficiency of production activities. That is, the higher a given DMU’s TE is, the less
factor inputs that DMU will require to achieve a specified level of output (or the more
output can be achieved with a fixed quantity of factor inputs). TE is thus concerned
with the enhanced production efficiency that can be brought about by a DMU’s efforts
in terms of improving its management.
TE measurement is widely used in management studies to address a wide range of
production management related issues. As long as the inputs and outputs of
production activity are defined, then it is possible to use TE measurement to evaluate
whether or not a DMU has succeeded in improving its management. From a
methodological perspective, of the many different TE empirical measurement
techniques that have been developed, the distance function method has been particularly
widely used because it does not require input/output price data (which can be difficult to
obtain); only quantitative data are needed to measure the TE of specific DMUs. As
regards output-oriented TE measurement, this mainly involves setting a fixed level of
DMU inputs and then comparing the outputs of different DMUs; the DMU with the best
performance is defined as the most efficient DMU. With this type of traditional
measurement method, which assumes strong disposability, undesirable outputs like CO2
 Working Paper Series, The Center for Green Economy, CIER 3

emissions equivalent (CO2 henceforth) can be freely discarded without paying any price
for them, and so they are usually left out of TE measurement with this method. As a
consequence, TE values measured using the traditional distance function cannot reflect
the impact on TE of the cost of dealing with undesirable outputs (Chung et al., 1997;
Färe et al., 2001; Dyckhoff and Allen, 2001; Seiford and Zhu, 2002; Färe et al., 2005;
Yang and Pollitt, 2007; Zhou et al., 2008; Färe et al., 2015; Hampf and Krüger, 2015).
To remedy the weaknesses of the distance function when it comes to measuring TE
with undesirable outputs, previous research has proposed three alternative methods
(Murty and Russell, 2002; Atkinson and Dorfman, 2002). All of these methods seek to
measure the impact of undesirable outputs on TE. Of the three approaches, the
directional distance function approach has emerged in recent years as the main method
for measuring TE with undesirable outputs included, because it avoids the technical
problems outlined above (Färe et al., 2001; Boyd et al., 2002; Lee et al., 2002; Färe et
al., 2005; Arcelus and Arocena, 2005; Picazo-Tadeo et al., 2005; Färe et al., 2006;
Kumar, 2006).
Specifically, the main focus of this study is the use of a TE method based on the
directional distance function approach to measure the technical efficiency of carbon
reduction management in one of Taiwan’s key industries: the semiconductor industry.
In addition, the study estimates the monetary value of the carbon reduction efforts, so
that the results of carbon reduction can be presented in the form of an effectiveness
indicator. This paper is structured as follows: following this Introduction, Section 2
explains the evaluation method used, Section 3 discusses the empirical data sources and
the data processing procedures, Section 4 presents the empirical results and the analysis
of these results, and Section 5 concludes this study.

2. Evaluation Method
2.1 Directional distance function
Within the traditional scope of the production economics field, discussion of output
sets was initially focused on presenting possible relationships between factor inputs and
desirable outputs. However, within a given production process, besides desirable
outputs that create profits for the DMU, there may at the same time be undesirable
outputs, i.e. various types of pollution that may be generated by production processes.
For production decision-making analysis, it is necessary for undesirable outputs to
be incorporated into the analytical framework. The earliest attempt to improve the
research method in this regard was the environmental production technology method
proposed in Färe et al. (1989) to bring undesirable outputs into the output sets for
analysis. The core concept here is the idea that the desirable outputs and undesirable
 Working Paper Series, The Center for Green Economy, CIER 4

outputs within the production process represent a kind of conjoint production; i.e. any
increase in desirable outputs within the production process will inevitably be
accompanied by undesirable outputs. The cost that must be borne in order to reduce
these undesirable outputs may take one of two forms, depending on the actual
circumstances. If the undesirable outputs are readily disposable, then reducing these
undesirable outputs will not impose any significant costs. Taking pollution generated
during the production process as an example, if the producer is located in a jurisdiction
where environmental regulation is weak, then the producer can freely emit pollutants
into the natural environment without paying any significant cost for this; in production
theory, this is referred to as “strong disposability.” The other possibility is that
reducing the undesirable outputs does impose significant costs. For example, it may
be necessary to reduce desirable outputs in order to control the increase in undesirable
outputs, or to reallocate some of the resources that would otherwise have gone toward
generating desirable outputs for use in the reduction of undesirable outputs; this is
referred to as “weak dispensability.”
In order to transform the above concepts into a useable analytical framework,
Chung et al. (1997) proposed the concept of the “directional distance function” to
describe the simultaneous impact of desirable outputs and undesirable outputs on the
technical efficiency of production. As defined in Chung et al., the directional distance
function for the output set P (X) can be expressed as follows:

⃗⃗⃗⃗
𝐷0 (𝑥, 𝑦, 𝑏; 𝑔) = 𝑚𝑎𝑥𝛽 {𝛽: (𝑦 + 𝛽 ∗ 𝑔𝑦 , 𝑏 − 𝛽 ∗ 𝑔𝑏 ) ∈ 𝑃(𝑥)} (1)

Where g = (𝑔𝑦 , −𝑔𝑏 ) is the direction vector, denoting the movement of the DMU’s
desirable outputs and undesirable outputs in such a way to achieve enhanced technical
efficiency. 𝛽 represents the rate in which the efficiency of the DMU is improved
through the movement of desirable outputs and undesirable outputs in the direction
vector g = (𝑔𝑦 , −𝑔𝑏 ), where 𝛽 has a value  0. If, for example, DMU 𝛽𝑖 has a
value of 0.4 by comparison with the production boundary, then this indicates that the
output set for this DMU must change to (𝑦 + 0.4 ∗ 𝑔𝑦 , 𝑏 − 0.4 ∗ 𝑔𝑏 ) for it to be an
efficient producer. This means that the larger the value of 𝛽𝑖 is, the further the DMU
is from the efficient production boundary, and the closer 𝛽𝑖 is to 0, the nearer that DMU
is to the efficient production boundary.
Chung et al. (1997) and later studies that make use of the directional distance
function generally assumed that g = (1,-1). In terms of production decision-making
behavior, this implies seeking to maximize desirable outputs from the production process,
rather than seeking to minimize undesirable outputs, with desirable outputs increasing at
 Working Paper Series, The Center for Green Economy, CIER 5

the same rate that undesirable outputs decrease, i.e. 𝑔𝑦 = 𝑔𝑏 = 1. If management

behavior is consistent with this analytical framework, it can be seen that the setting of
the direction vectors 𝑔𝑦 and 𝑔𝑏 is used to delineate the impact of different types of
management behavior on the output sets.
This idea can be explained by Fig. 1 below. Assume an output set 𝑃(𝑥) which
incorporates both desirable output y and undesirable output b, for a certain DMU, the
current output set is (𝑦, 𝑏) = (𝑥). If further assuming strong dispensability, then the
output set should fall within the area outlined by points OEBCD. Regarding the
potential room for increase in production efficiency, the DMU can move up from output
set (𝑥) to output set (𝑥2 ) using direction vector g = (1.0). If, on the other hand,
controlling undesirable outputs incurs a cost, i.e. assuming weak dispensability, then the
output set should fall within the area outlined by points OABCD, and improving TE will
only move the output set from (𝑥) to (𝑥3 ).

E (x2) B
desirable
output C
y (x3)
(x1)
A
g=(gy,0)

g=(gy,-gb) (x)

undesirable output b

Fig. 1 Environmental production technology Output sets and the directional distance
function

To obtain the TE of a DMU, the directional distance value needs to be converted

into a function that can differentiate between b and y. We therefore adopt the method
employed in Färe et al. (2006), using the quadratic approximation function for the
directional distance function, utilizing a parametric estimation method to obtain a
solution. We further use an approximation function that includes a desirable output
(the output value indicator for the semiconductor indus), an undesirable output CO2, and
three factor inputs, as shown in equation (2) below:
 Working Paper Series, The Center for Green Economy, CIER 6

⃗⃗⃗⃗
𝐷0 (𝑥, 𝑦, 𝑏; 𝑔) =
3 3
3 1 1 1
𝛼0 + ∑ 𝛼𝑛 𝑥𝑛 + 𝛽1 y + 𝛾1 b + ∗ ∑ ∑ ∝𝑛,𝑛′ 𝑥𝑛 𝑥𝑛′ + ∗ 𝛽2 𝑦 2 + ∗ 𝛾2 𝑏 2
𝑛=1 2 ′
2 2
𝑛=1 𝑛 =1
3
3
+ ∑ 𝑣𝑛 𝑥𝑛 𝑏 + 𝑢𝑦𝑏 + ∑ 𝛿𝑛 𝑥𝑛 𝑦
𝑛=1
𝑛=1
(2)

To ensure that the translation properties of the directional distance function remain
unchanged after conversion, equation (2) must conform to all the constraints listed in
equation (3) below:

𝛽1 − 𝛾1 = −1, 𝛽2 = 𝛾2 = 𝜇, 𝛿𝑛 − 𝑣𝑛 = 0, 𝛼𝑛,𝑛′ = 𝛼𝑛′ 𝑛 , 𝑛, 𝑛′ = 1,2,3. (3)

where 𝛼, 𝛽, 𝛾, 𝑣, 𝜇, 𝛿, are all unknown coefficients.

In the calculation, if we assume that there are k DMUs, then equation (2) can be
solved using the (4-1) to (4-7) program shown below:


min[ D0 xk , yk , bk ;1, 1  1]  (4-1)

 
s.t.: D0 xk , yk , bk ;1, 1  0, k  1,2,3....K (4-2)

 
 D0 xk , yk , bk ;1, 1 / y  0, k  1,2,3....K (4-3)

 
 D0 xk , yk , bk ;1, 1 / x  0, k  1, 2,3....K . (4-4)

 D0  xk , yk , bk ;1, 1 / b  0, k  1, 2,3....K . (4-5)

 2 D0  xk , yk , bk ;1, 1 / yb  0, k  1, 2,3....K . (4-6)

 2 D0  xk , yk , bk ;1, 1 / yy  0, k  1, 2,3....K . (4-7)

2.2 Social cost of carbon

An examination of the methods used in this field shows that, currently, the most
widely used environment/cost benefit indicator for measuring reductions in greenhouse
gas emissions is the social cost of carbon (SOC) (Interagency Working Group on Social
Cost of Carbon, United States Government, 2010). In methodological terms, the SCC
mainly employs a climate module Integrated Assessment Model (IAM) to implement
assessment. The IAM model makes various assumptions with respect to the impact of
climate change on the economy, e.g. assumptions regarding trends in greenhouse gas
emissions, changes in global temperatures, and other possible effects of climate change,
such as rising sea levels, changes in the intensity of precipitation, increased incidence of
extreme weather events, etc. The IAM model can be used to gauge the losses that
 Working Paper Series, The Center for Green Economy, CIER 7

climate change from greenhouse gas emissions causes to society; this in turn can be
used to provide a quantitative measurement of the costs incurred from every ton of CO2
emissions, and the environmental benefits arising from every ton by which CO2
emissions are reduced (United States Environmental Protection Agency, 2015).
As regards to the practical implementation of the SOC concept in relation to
government policy, the U.S. government established an Interagency Working Group on
Social Cost of Carbon (SCC) in 2009. The purpose of this Working Group was to
calculate the monetary benefits for every ton by which CO2 emissions are reduced; the
Working Group published its first SCC Assessment Report in 2010 (Interagency
Working Group on Social Cost of Carbon, United States Government, 2010), followed
by a second report in 2013, and a revised third report in July 2015 (Interagency
Working Group on Social Cost of Carbon, United States Government, 2015). The
Working Group’s reports mainly utilize the world’s three mostly widely used IAM
models – the Policy Analysis of the Greenhouse Effect PAGE) model (Hope, 2013), the
Dynamic Integrated model of Climate and the Economy (DICE) model (Nordhaus and
Sztorc, 2013), and the Climate Framework for Uncertainty, Negotiation and
Distribution (FUND) model (Anthoff and Tol, 2010) – to calculate the amount of harm
caused globally by every ton of CO2 emissions on the basis of a “global yardstick.”
As the basis of calculation is global, and as the effects of CO2 emissions are
non-segmented, the figures given in the Working Group reports for the harm caused by
CO2 emissions are applicable globally (i.e. the impact on the Earth of one ton of
emissions originating in Taiwan is the same as one ton of emissions originating in the
U.S.). This means that “harm” in this case should not be taken to mean harm caused
to any specific locality; rather, it represents the harm caused to the planet as a whole by
excessively high emissions. Similarly, the social benefits deriving from efforts to
reduce emissions are also global in scope, rather than being limited to a specific country.
In calculating SCC, the Working Group first determines the values for SCC obtained
with each of the three IAM models listed above, i.e. DICE, PAGE, and FUND, and then
calculates the average of these values.
Calculation of the environmental benefits from the total amount of emission
reduction is the multiplication of emissions reduction and its corresponding SCC value.
SCC is not only widely used by the U.S. government when calculating the
environmental benefits from emissions reduction policies, but is also used by many
government agencies such as in the U.K. for assessing the effectiveness of government
policies (Paul, 2013).1 The basis of the method outlined above, this study uses the

1
According to Paul (2013), British government agencies that use SCC for policy evaluation include the
Department for Environment, Food and Rural Affairs (Defra), the Department for Transport (DFT), the
 Working Paper Series, The Center for Green Economy, CIER 8

SCC method to evaluate the environmental benefits from carbon reduction from the
implementation of benchmarking in the Taiwanese semiconductor industry.

3. Empirical Data Sources and Data Processing

The empirical analysis undertaken here requires data for input and output variables
in the production processes of the Taiwanese semiconductor industry. There are two
types of output variable to be considered. The first is desirable outputs, i.e. an
indicator measuring the value of the products created during the production process that
can provide economic benefits for the producer. This study uses the product sales
revenue of individual semiconductor manufacturers for this indicator. The second type
of output variable is undesirable output, which is defined as the volume of greenhouse
gas emissions generated during the production process by the semiconductor industry.
Past studies have generally used indicators such as capital stock, labor utilization, and
cost of goods sold for input variables. Based on the available empirical data, this study
then used labor factor costs, net capital, and cost of goods sold as the input variables.
As a result of policy planning requirements 2 , the Environmental Protection
Administration (EPA), Executive Yuan in Taiwan used a survey to collect variable data
for firms in five targeted industries (including the semiconductor industry focused on
here) in 2010; the data that firms were required to provide included energy usage data
for different years, CO2 emission volume calculated using the carbon emissions
coefficient method, product output (calculated within the production boundary), etc.
However, it is readily apparent from the data included in this EPA database that the
specifications of the products manufactured by individual semiconductor firms vary
significantly. For example, in the case of IC wafer products, the database records
output of 6-inch, 8-inch, and 12-inch wafers, etc. Some firms may produce only one
product type, while others may produce several. Given the difficulty in implementing
assessment on the basis of a breakdown of product types, it was decided to sum together
the CO2 emissions totals for different product types to provide a single indicator for
undesirable outputs.
Obtaining the data required for desirable outputs (i.e. product sales revenue) and

Department for Trade and Industry (DTI), the Office of Gas and Electricity markets (OFGEM), the
Office of the Deputy Prime Minister (OPDM), and the Environment Agency (EA).
2
To encourage the private sector to implement voluntary emission reductions, the Environmental
Protection Administration (EPA) launched the Early Action Project and Offset Project in 2010.
Through participation in these two projects, firms could obtain emission credits, which could be offset
against voluntary carbon neutralization commitments and greenhouse gas emission reduction
commitments in relation to environmental impact assessments. Initially, the projects targeted firms in
five industries: the cement industry, the iron and steel industry, the electric power industry, the LCD
display industry, and the semiconductor industry.
 Working Paper Series, The Center for Green Economy, CIER 9

for inputs was much more challenging, because there is lack of existing databases. To
overcome this problem, a search of relevant data for stock-market-and OTC-listed
companies available from Taiwan’s Market Observation Post System (The Taiwan Stock
Exchange Inc. & Taipei Exchange., 2016) was taken as the starting point; in addition,
financial data for individual firms were collected for consecutive years, so as to provide
the data needed for the desirable outputs and inputs variables. The main problem for
firms’ financial data is that the data included in the EPA database are structured by
factory, not by company; to ensure consistency with the company-based financial data,
the data for different factories belonging to the same company were added together.
Following this data processing, the empirical data comprised data for nine
semiconductor firms, with a total of 81 observations covering the period 2002 – 2010.
To remove the impact of price fluctuations, data expressed in monetary terms were
deflated using 2010 as the base year. A summary of the basic statistical results
obtained is shown in Table 1 below.

Table 1 Descriptive Statistics for Empirical Variables

Item Net Sales CO2 Emissions Salary Net Fixed Assets Cost of Goods
Revenue (tons/year) Expenses (NT$ thousands) Sold
(NT$ (NT$ (NT$
thousands) thousands) thousands)

Mean 63,772,080 764,782 5,942,103 72,425,693 46,193,426

Standard 85,105,759 846,953 7,513,427 74,004,984 47,390,512
Deviation
Maximum 406,963,312 3,387,736 46,043,721 366,854,299 209,921,268
Value
Minimum 2,704,741 48,714 819,357 1,945,441 2,876,877
Value

Note: Data expressed in monetary terms were deflated using 2010 as the base year.

To evaluate the effectiveness of carbon reduction efforts, the SCC method was
used. SCC data was derived mainly from a report prepared by the United States
Environmental Protection Agency (2015). The SCC in the report covers the period
2015 – 2050. The results given for later years in this period have a high degree of
uncertainty. This study then uses the SCC results for 2015 as the basis for calculation.
On the basis of the SCC data shown in Appended Table 1, at discount rates of 5%, 3%,
and 2.5%, the SCC for 2015 is calculated to be US$11, US$36, and US$56 respectively.
Regarding the choice of discount rate, the Environmental Protection Administration,
Executive Yuan (2014) suggested using the interest rate on 20-year government bonds
as the discount rate indicator. The interest rate on government bonds in Taiwan in
2015 was 2.98% (Central Bank, 2015), which is closest to the 2.5% discount rate in the
 Working Paper Series, The Center for Green Economy, CIER 10

SCC data, so it was decided to use the 2.5% discount rate for SCC data. That is, an
SCC is equivalent to US$56 per ton as the basis for evaluation. With the average
US$1 to New Taiwan Dollar NT$31.93 exchange rate in 2015 (Central Bank, 2016), the
SCC is equal to NT$1,788 per ton.

4. Discussions of Empirical Results

The General Algebraic Modeling Systems (GAMS) software was used in
combination with a non-linear algorithm method to estimate the results of equations
(4-1) to (4-7); the coefficient estimation results are then transposed into equation (2) to
estimate the TE value of each DMU. The directional distance function estimation
results are shown in Table 2. Finally, the TE value was used to calculate the carbon
reduction results and increase in revenue that could be achieved if a given firm learned
from the management techniques used by a benchmark firm; a summary of the results is
shown in Table 3.
Regarding the interpretation of the calculation results, the TE value represents the
efficiency of the carbon reduction techniques used calculated by the directional distance
function method. The closer the TE value is to zero, the more efficient the production
techniques used are; the further away the TE value is from zero, the greater the gap
between the performance of the DMU and that of the benchmark firm. This
phenomenon indicates that there is considerable room for improvement. The empirical
estimation results show that 14 of the DMUs had a TE value of zero. This shows that
the DMUs of this study displayed the best performance in terms of the TE of carbon
reduction management for the 81 sampling points and were therefore designated as the
benchmark firms. The TE values for the other DMUs were calculated by comparison
with these benchmark DMUs.
For instance, if a given DMU is calculated to have a TE value of 0.02, then this
indicates that, by comparison with the benchmark DMUs, this DMU has room to
achieve a 2% increase in revenue and a 2% decrease in CO2 emissions. In managerial
terms, if the DMU learns emissions management techniques from a benchmark DMU of
similar size, then it can boost its overall revenue by 2%, at the same time adjusting its
production processes to realize a 2% reduction in CO2 emissions. Based upon the
empirical results obtained in this study, the mean TE value for the sample can be
calculated to be 0.1605. This indicates that, on average, the 81 DMUs that constitute
the sample could achieve an average reduction in emissions of 16.05% and an average
increase in revenue of 16.05%. In absolute terms, each DMU can boost its sales
revenue by about NT$66 billion per year through benchmarking, on average, and at the
same time reduce annual emissions (per DMU) by 88,743 tons of CO2. In terms of the
 Working Paper Series, The Center for Green Economy, CIER 11

total impact, the total increase in revenue deriving from the increased TE value would
be about NT$533.7 billion per year, and the total reduction in CO2 emissions would be
7,188,168 tons per year (it should be noted that, as 14 of the DMUs are designated as
benchmark DMUs, it is only the remaining 67 DMUs that would see an improvement in
TE).

Table 2 Coefficient Estimation of Directional Distance Function

Coefficient Variable Coefficient Estimation

0 Constant term 0.328

1 Salary expenses ( x1 ) 0.059
2 Net fixed assets ( x2 ) -0.013
3 Cost of goods sold ( x3 ) 0.207
1 Real GDP( y ) -0.650
 1  1  1 CO2 emissions ( b ) 0.350
11 x12 -0.130
12 x1 x2 -0.039
13 x1 x3 -0.086
 22 x22 0.061
 23 x2 x3 -0.049
 33 x2
3 -0.018
2     2 y 2 , yb, b2 -0.081
1  1 x1 y, x1b 0.166
2  2 x2 y, x2b 0.023
3   3 x3 y, x3b 0.030

Having completed the calculations outlined above, it is now possible to determine

the reduction in annual CO2 emissions that semiconductor firms can obtain through
benchmarking. Using an estimated value of the benefits from carbon reduction per
unit of SCC under the baseline year 2015, the benefits from carbon reduction (in
monetary terms) resulting from the raising of the TE of each DMU can thus be
estimated. Since the SCC per ton of CO2 is NT$1,788, using this magnitude together
with the reduction in CO2 emissions deriving from the improvement in TE achieved
through benchmarking, it is possible to calculate the benefits from carbon reduction.
On the basis of the estimation results shown in Table 3 above, if each DMU uses
benchmarking to learn superior emission management techniques from the benchmark
 Working Paper Series, The Center for Green Economy, CIER 12

firms, then on average the resulting improvement in the efficiency of carbon reduction
techniques will provide each DMU with carbon reduction benefits that, in monetary
terms, equate to about NT$1.6 billion per year. Overall, the combined benefits to the
36 DMUs that achieve an increase in TE will total about NT$12.9 billion per year.

Table 3 Summary of TE Estimation Results

Value of Reduction in CO2
Increase in Revenue
Reduction in CO2 Emissions from Emissions from TE
Item TE Vale from TE Improvement
TE Improvement (tons / year) Improvement (NT$
(NT$ thousands / year)
thousands / year)
Mean 0.1607 6,588,383 88,743 158,672
Standard
0.1325 6,655,098 95,476 170,712
Deviation
Maximum
0.68 24,537,944 363,046 649,126
Value
Minimum
0 0 0 0
Value
Note: Data expressed in monetary terms were deflated using 2010 as the base year.

5. Conclusion
Utilizing the directional distance function method to measure the technical
efficiency (TE) of carbon reduction, this study seeks to measure carbon reduction TE in
the Taiwanese semiconductor industry. With measurement of TE, the study goes on to
integrate the social cost of carbon (SOC) methodology in calculating the monetary
terms of carbon reduction benefits from the improvement in carbon reduction TE.
On the basis of the estimation results obtained in the study, 14 of the 81
decision-making units (DMUs) included in the sample are selected as benchmark
DMUs. This indicates that these 14 DMUs have technical efficiency superior to that
of the other 67 DMUs. By performing estimation of the directional distance function,
it is possible to calculate the efficiency gap between these 67 DMUs and the benchmark
DMUs. From a policy-making perspective, the significance of this is that there is
significant room for these 67 DMUs to improve their management techniques and
methods (as opposed to their level of production technology) by bringing them up to the
level of the benchmark DMUs. Assuming that there is no significant disparity
between the DMUs in terms of the achievable level of production technology, then if
benchmarking is performed for the 67 DMUs with lower TE, once the TE of their
carbon reduction management has been raised to a level comparable to that of the
benchmark DMUs, it should be possible to realize both a significant increase in revenue
and a significant reduction in CO2 emissions.
Based on the empirical estimation results obtained in this study, it can be seen that
using benchmarking to raise the TE of carbon reduction management would, on average,
 Working Paper Series, The Center for Green Economy, CIER 13

boost the annual sales revenue of each DMU by about NT$66 billion, while also
reducing the average annual CO2 emissions per DMU by 88,743 tons. Overall, the
combined increase in revenue for all the semiconductor firms included in the study
would total NT$533.7 billion per year, and the combined reduction in CO2 emissions
would total 7,188,168 tons. As regards the benefits from carbon reduction, the average
carbon reduction benefits for each DMU would amount to approximately NT$1.6
billion per year; overall, the combined carbon reduction benefits for all 36 DMUs
included in the sample would be about NT$12.9 billion per year.
 Working Paper Series, The Center for Green Economy, CIER 14

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