Energy intensity: A decomposition exercise for Pakistan

Abstract

In this study an attempt has been made to decompose the change in energy intensity into changes in efficiency and activities. The study, covering the period from 1972 to 2011, uses the decomposition method of Fisher Ideal Index. Our analysis shows that energy intensity has increased by 45 percent on average between 1972 and 2011. The major impetus for the increase is inefficiency in its use, i.e. 52 percent of the increase is caused by the inefficiency. Alternatively, for the same unit of output we are using more energy now as compared to 1972. Most of the inefficiencies persist in the consumption of electricity, followed by gas. The oil sector is relatively efficient as the oil price hikes have been improving efficiency consistently. However, structural changes have intensifying effects on the oil intensity. The main deriver of the increase in aggregate energy intensity is electricity with its average intensity index of 1.75. The aggregate intensity of oil and gas is falling, following the recent price and supply crisis. Whereas in countries like U.S, China, France and India efficiency improvement has played major role in reducing aggregate energy intensity; in Pakistan, the worsening of efficiency is a dominant factor in increasing aggregate energy intensity.