Energy intensity and convergence in Swedish industry: A combined econometric and decomposition analysis

Abstract

How to reduce the carbon footprint associated with energy use is still a major concern for most decision-makers. Against this background, a better understanding of energy intensity—the ratio of energy use to output and its convergence could be important in the design of policies targeting the reduction in the carbon footprint related to energy use. This paper analyzes the determinants of energy intensity and tests for energy intensity convergence across 14 Swedish industrial sectors. This analysis builds on a nonparametric regression analysis of an intensity index constructed at the industry sector level as well as indices constructed from a decomposition of this index. The latter isolates two key determinants of changes in energy intensity and convergence patterns: the efficiency channel-fundamental improvement in the use of energy and activity channel-structural shifts in the economy. The empirical analysis relies on a detailed sectorial dataset covering the period 1990–2008. The findings indicate that input prices, including the price of energy, have been significant determinants of energy intensity in the Swedish industrial sectors. This effect can primarily be attributed to the efficiency channel and with a less profound influence from the activity channel. We also find evidence of energy intensity convergence among the industrial sectors, and this primarily stems from the activity channel rather than from the efficiency channel.