Technological gap, scale economy, and China's industrial energy demand

Abstract

Abstract The industrial sector in China is energy-intensive and accounts for more than 60% of the nation's total energy consumption (demand). Narrating the story behind the growth of China's industrial energy consumption could help us understand the past and prepare for the future. This paper aims to investigate the factors affecting China's industrial energy consumption in the 21st century by using an extended production-theoretical decomposition approach (PDA) with considering the technological gap and scale of the economy effects. The new proposed decomposition framework includes four new factors, namely, the energy technological gap, the output technological gap, energy scale efficiency, and output scale efficiency. The results show that in the 21st century, the energy consumption of China's industry increased by more than one billion tons of standard coal. The expansion of the industrial economy is a dominant driver of China's industrial energy consumption, while potential energy intensity, energy technology, and output technology are the three largest energy-saving factors. In addition to the conventional factors, the newly proposed factors also have important effects on China's industrial energy consumption. Specifically, output scale efficiency is an energy-saving factor, while the energy technological gap, output technological gap, and energy scale efficiency are drivers of energy consumption. This suggests that China's industry is at the stage of returns to scale that is beneficial to output performance but harmful to energy performance. Meanwhile, the widening of the industrial technological gaps has negative impacts on China's industrial energy conservation. The proposed decomposition approach can provide information that cannot be obtained from traditional approaches and it can also be applied to many other cases for investigating feasible paths of energy-saving and emissions reduction.