Structural Change of the Manufacturing Sector in Korea: Measurement of Real Energy Intensity and CO2 Emissions

Abstract

In terms of energy use, it is wellknown that energy intensity in the manufacturingsector is higher than any other sector. In Korea, theenergy intensity of the manufacturing sector hasdeteriorated since the late 1980s. This phenomenonis quite unique compared with the trend of energyintensity in other countries. In this study, weclosely examine the structural composition of Korea'smanufacturing sector from 1981 to 1996, its energyintensity, and its implications for carbon dioxide(CO2) emissions by introducing the measurement ofreal energy intensity.The conventional index of energy intensity is notappropriate for aggregate industries. Since theaggregation of industries in the manufacturing sectorincludes structural change, it would be better toseparate the effect of structural change. Hence, inthis study, we apply a decomposition methodology forenergy intensity based on the `Divisia Index'. Ateach industry level, energy intensity is a mixedmeasurement of pure energy efficiency improvement andfuel substitution. We also calculate real energyintensity at each industry level. Based on ouranalysis, we derive carbon dioxide (CO2) intensity and analyze the factors that affect CO2 emission in this sector.During 1988–1993, the energy intensity of themanufacturing sector in Korea deteriorated. Industrial structural change,the real energy intensity in this sector became evenworse during this period. The primary reason for thisphenomenon was that the share of energy intensiveindustries, such as steel, cement, and petro-chemicalindustries increased. Second, during the sameperiod, liquefied natural gas (LNG) rapidlypenetrated this sector, so that theCO2 intensity improved. We find thatharmonization of economic development strategies andenvironmental consideration is crucial for sustainabledevelopment. Based on our study, we derived somepolicy implications. Integration of industrialpolicies and energy efficiency improving programs isquite important, as well as the acceleration of fuelsubstitution to less carbon (C) intensive ones. Integration of local and global environmental policiesplays an important role for mitigatingCO2 emissions.