Environmental　efficiency　of　electric　power　industry　(EEE)　is　crucial　to　sustainable　development.　Among　all　the　factors　affecting　the　efficiency,　there　lacks　enough　knowledge　of　the　role　of　governments　and　institutions　in　it.　The　purpose　of　this　study　is　to　explore　the　effect　of　market　segmentation　(ME)　on　environmental　efficiency　of　electric　power　industry　and　its　influencing　mechanism　from　the　perspective　of　technological　innovation.　The　empirical　results　generated　by　the　system　generalized　method　of　moments　(GMM)　approach　indicate　that　market　segmentation　has　significantly　negative　effect　on　environmental　efficiency　of　electric　power　industry.　As　evidence　we　find　shows,　market　segmentation　hinders　technological　innovation,　which　is　an　important　factor　affecting　environmental　efficiency　of　electric　power　industry.　Additionally,　the　inhibiting　effect　of　market　segmentation　on　environmental　efficiency　of　electric　power　industry　is　more　significant　in　provinces　with　weak　institutional　quality.　The　conclusions　share　insights　in　how　to　improve　environmental　efficiency　of　electric　power　industry　in　China　by　weakening　market　segmentation.　(C)　2018　Elsevier　B.V.　All　rights　reserved.