*4.2. Control Variables*

A review of the factors affecting energy efficiency in existing literature shows that these are mainly focused on three aspects: technological progress; structural factors including industrial, economic, and energy consumption structures; and system factors including energy prices, the degree of opening up to the outside world, and the government's environmental regulations.

Technological changes: It is generally believed that improvements in energy efficiency are mainly through structural adjustments and technological progress. In the process of economic development, technological progress accelerates the process of eliminating backward industrial sectors, transforming the original industrial sectors, and improving the industry which also promotes establishing new industrial sectors. Progress directly improves energy efficiency through the transformation of traditional technologies, development of new technologies, and adoption of new processes. This paper uses R&D internal expenditure (in 10,000 yuan) of industrial enterprises in each province as a proxy for technological progress. Changes in product mix and manufacturing mix are partially controlled for over time through investments in R&D and education, as well as time variance efficiency.

The government's environmental regulations or environmental protection investments: [33] targeted 14 prefectures in Xinjiang and used three indicators of the government's environmental pollution treatment investments to characterize the government's environmental regulations. Their results showed that the policy on pollution treatment investments and resource tax both generated energy inefficiencies. [34] used Xinjiang as their research subject for measuring the intensity of environmental regulations using the entropy method. Their results showed that the government's environmental regulations had an inhibitory effect on energy efficiency, which was not only reflected in the current period, but also in three periods lagged. [35] showed that environmental protection investments had a negative impact on energy efficiency probably because pollution treatment was not effective and investments in treatment were often passive.

Openness defined as ((export + import)/GDP) characterizes foreign trade. Foreign trade is an important component of economic development. The structure of foreign trade products and the structure of foreign trade itself can affect energy efficiency. [36–39] show that the degree of openness is positively related to energy efficiency. Some scholars have come to different conclusions though. [40] shows that at the national level, economic openness is significantly positively correlated with the development of electrical equipment. At the regional level, economic openness is only significantly positively related to energy efficiency in the middle Yellow River. [14] show that for every 1 percent increase in the value of imports and exports in GDP, energy efficiency will decrease by 0.18 percent, but due to its dual effect, performance will vary in different regions. [41] research on single factor energy efficiency shows that the relationship between openness and energy efficiency in typical provinces is inconsistent, and he believes that the impact of openness on energy efficiency is a sufficient condition and not a necessary condition.

Population and urbanization: [42] show that both endogenous innovations and human development have a positive impact on single factor energy efficiency. [43] examined the impact of urban morphology and transportation modes on national and regional energy efficiency. His results showed that the former had a significant negative impact on regional energy efficiency while the latter had no significant impact. In some previous research the impact of urban agglomeration scale density on urban energy efficiency is examined. The former can improve the latter, but impact on energy efficiency can be heterogeneous. It should be noted that in this research all explanatory variables and determinants of energy use inefficiency are province-specific and some, such as education and R&D investments, have spillover effects. In this research, we do not account for spatial effects of investments across provinces.
