Outsourcing or efficiency? Investigating the decline in final energy consumption in the UK productive sectors

Abstract

Over the past two decades reductions in the final energy consumption of the productive sectors (industry, public administration, commercial services and agriculture), have made important contributions to overall reductions in UK final energy consumption. This study investigates the drivers of the reductions in final energy consumption in the UK productive sectors between 1997 and 2013 using a decomposition analysis that incorporates two novel approaches. Firstly, it uses results from a multi-regional input-output model to investigate how much of the structural change in the economy has been driven by outsourcing production overseas. Secondly, it utilises energy conversion chain analysis to determine how much increases in the conversion efficiency from final energy to useful exergy have contributed to improvements in final energy intensity. In aggregate all energy savings from structural change are attributed to outsourcing. Improvements in the conversion efficiency produced savings of a similar size. However energy savings from both factors have stalled since 2009. Improvements in useful exergy intensity, the useful exergy used per unit of monetary output, provided the biggest share of energy savings, but these savings are concentrated in a few sectors and rarely lead to absolute reductions in final energy use. All of this suggests that a return to the rates of energy reduction seen between 2001 and 2009 should not be taken for granted and that active policy interventions might be required to achieve further reductions.