Using a new generalized LMDI (logarithmic mean Divisia index) method to analyze China's energy consumption

Abstract

As one of the largest energy consumer in the world, China has been facing great pressure to guarantee energy supply security. Investigating the driving forces dominating China energy consumption levels and their evolution may help to institute energy saving policy. Nowadays, the LMDI (logarithmic mean Divisia index) method has become a popular tool to find the nature of the factors that influence the changes in energy consumption. But the LMDI method does not study such factors as fixed asset investment and labor. Combined C-D production function and LMDI method, a new LMDI method is generalized, and that method can be utilized to study many factors. Finally, the new generalized LMDI method is utilized to analyze the driving factors dominating China's energy consumption over the period 1991–2011. Since 1992, China has become a net energy importer. Energy intensity effect played the dominant role in decreasing energy consumption during the study period. However, the investment effect and labor effect were the critical factors in the growth of energy consumption.