Energy Intensity: Prices, Policy, or Composition in US States

Abstract

This project uses the historical experience of US states to ask why energy intensity has declined in some places more than in others, and whether that difference can help provide guidance for other states and countries to pursue less energy-intensive (and therefore less pollution-intensive) economic growth. There are several advantages to studying US states. The variation in energy intensity across states has been similar to the changes across countries, and some states – notably California – have been held up as models for the rest of the world by international organizations such as the World Bank. More importantly, the industrial composition of US states can be studied at a highly disaggregated level. The 473 six-digit NAICS codes in the manufacturing sector are measured comparably across states, ameliorating concerns about industry definition or aggregation bias. And finally, if California, Texas, New York and Florida were independent countries, they would rank among the world’s top twenty largest economies. What happens in individual US states matters not just for local and US national policy but for the climate across the globe. I show that US energy intensity fell by 40 percent between 1982 and 2007; that much of that decline was in the industrial sector; but that the decline is not explained by the decreasing industrial share of the US economy or the changing composition of the industrial sector. Across US states, prices and policies are correlated with the decreasing share and composition of manufacturing, but not with the technique of production, which appears to be the most important source of US energy intensity gains.