Energy Intensity Developments in 40 Major Economies: Structural Change or Technology Improvement?

Energy efficiency improvements, i.e. a more prudent use of scarce and polluting resources while simultaneously maintaining a certain level of output, are considered one of the most promising measures to meet climate policy targets. In this study we use the novel World Input-Output Database (WIOD), a harmonized and consistent dataset containing time series of input-output tables and accompanying environmental satellite and socioeconomic accounts, to carry out a comparison of energy intensities in 40 countries and 34 sectors between 1995 and 2007.

This paper makes two major contributions to the literature on energy efficiency. In a descriptive analysis, we first examine sectoral and regional energy efficiency developments. We show that heterogeneity within each sector across countries is high. These general trends within the sectors are dominated by large economies, first and foremost by the United States. In most cases, heterogeneity is lower within each country across the different sectors though. This finding suggests that national conditions have a significant influence on energy efficiency developments.

A further contribution of this study is the decomposition of aggregate energy intensity into two components. One component is associated with changes in industrial activity composition (structural effect) while the other component can be attributed to changes in sectoral energy intensity (technology effect). We use a standard index decomposition approach (IDA) to examine global and national energy intensities. To this end, we focus on the multiplicative decomposition methodology and calculate the respective effects by means of the "log mean Divisia index".

In a first step, we present a very aggregate picture of a "global" energy intensity and its development between 1995 and 2007. Subsequently, we examine regional differences by performing the decomposition analysis for each single country in our sample. Hence, we are able to demonstrate the large heterogeneity of the development of energy intensity and its components in the different countries. The extent to which energy efficiency improvements are driven by the technology or structural components is rather country-specific and does not necessarily depend on the level of economic development nor on the initial energy intensity of a given economy. Our main finding is optimistic, as the role of technology improvements was high in many countries, such as Germany, China, Canada, France and India, and is hence replicable, for instance by technology transfers, spillover effiects, economies of scale or learning-by-doing. This is an important result, given that energy consumption in non-OECD countries is expected to increase by 84% until 2035. Energy efficiency improvements of countries such as the US and Japan are on the contrary mainly due to a shift towards less intensive production sectors.

De Cian, Enrica, Michael Schymura, Elena Verdolini and Sebastian Voigt (2013), Energy Intensity Developments in 40 Major Economies: Structural Change or Technology Improvement?, ZEW Discussion Paper No. 13-052, Mannheim.