Changes in CO2 emission intensities in the Mexican industry

A CO2 emission intensity analysis in the Mexican industry from 1965 to 2010 is carried out by taking into consideration four stages: 1965–1982, 1982–1994, 1994–2003, and 2004–2010. Based on the LMDI decomposition methodology, three influencing factors are analyzed: energy intensity, CO2 coefficient, and structure in terms of their contributions of each individual attributes to the overall percent change of them as it was proposed in Choi and Ang (2011). The energy intensity effect was the driving factor behind the main decreases of CO2 intensity, the CO2 coefficient effect contributed to less extent to mitigate it, and the structure effect tended to increased it. It is observed that CO2 intensity declined by 26.2% from 1965 to 2003, but it increased by 10.1% from 2004 to 2010. In addition, the move of Mexico from an economic model based on import-substitution to an export-oriented economy brought more importance to the Mexican industry intended to export, thus maintaining high levels of activity of industries such as cement, iron and steel, chemical, and petrochemical, while industries such as automotive, and ‘other’ industries grown significantly not only as far their energy consumptions and related CO2 emissions but they also increased their contributions to the national economy.

Mexico's economy is the twelfth largest emitter of carbon dioxide (CO2) in the world (IEA, 2011). The 80.0% (average share from 1965 to 2010) of total Mexican CO2 emissions from end-use energy consumption have derived from transport and industrial sectors. The present study focuses in the Mexican industrial sector (MIS); it is the second most important sector as for end-use energy consumption; behind of the transport sector. In 2010, the MIS represented 29.3% of the total end-use energy consumption of the country, but formerly, in 1965, it was the first sector by representing a share of 34.4%. Thereby, the MIS is at present time the second largest CO2 emitter in the country, the CO2 emitted went from 18.5 Mt CO2in 1965 to 81.2 Mt CO2 in 2010 (Mt-Million tons). It represented an average share of 34.7% of total CO2 emitted along the period; the transport sector emitted 46.3%. Additionally, the contribution of the MIS to the national Gross Domestic Product (GDP) has accounted an average share of 26.0% from 1965 to 2010 to become the leading force of the Mexican economy above the housing sector (22.2%), and commercial sector (20.5%).

Factors such as intensive energy use due to population growth, large-scale use of technological products, and higher economic growth, have influenced the increasing of greenhouse gas emissions (GHG) around the world, and have led to substantial changes in CO2 emissions at the middle and long-term trends. In those more than forty years, the Mexican economy has experienced an important change from a closed and protective economy based on import-substituting industrialization to an open economy based on export-led growth, and a free international trading system. That economic change has underlined the role of the Mexican industry not only as a large energy consumer and CO2emitter but also as the main contributor to the national economy. The strengthening of the industrial sector has brought the expansion and adjustment of the industrial activities in accordance with the prevailing economic model to become an essential factor to support the economic development of the country, and consequently, it has contributed to increase the CO2 emissions related to energy consumption. In that regard, reliable information about factors that have performed the CO2 emission trends is essential to assist the authorities and policy-makers to support the development of strategies and policies oriented to mitigate the negative effects of the CO2 emissions on the environment, also taking into account the economic growth that allow the country to go up and establish a sustainable developmentpath.

Therefore, this study analyzes and quantifies the final energy-related carbon intensity in the Mexican industry with the aim of providing reliable information that might help to understand the driving forces behind of industrial CO2 emission growth. The CO2 emission intensity, as well called carbon intensity, is the ratio of carbon dioxide emitted from the combustion of particular fuel to monetary unit of GDP. It is an indicator comparable to energy intensity, which is the ratio of amount of energy consumption per monetary unit of GDP. Both of them are indicators used to comprehend and measure the energy use and the environment impact related to economic development in a country. To understand the changes of CO2intensity in the MIS, the present study will carry out a decomposition analysis in the Mexican industry over the period 1965–2010. The decomposition analysis is a widely accepted policy-tool to discern, identify, measure, and trace the changes among different indicators such as energetic, economic, and environmental indicators related to concentration of greenhouse gas emissions (CO2, CH4, N2O). In addition, it might provide valuable information, support, and guidance for assisting policy-makers, and government authorities to develop and improve effective policies, and programs to help reach the targets that Mexico has agreed on to reduce its GHG, and in particular its CO2 emissions.

The study is organized as follows: Section 2 reviews the literature as for the decomposition methodology applied at international and national levels. Section 3 shows the data by giving a review of the evolution of the main indicators used in this study. Section 4 shows the formulation of the decomposition methodology applied. Section 5 presents the results of the contribution and attribution decomposition analyses. Section 6 exposes some possible policy implications of the study, and finally, some concluding remarks are exposed in Section 7.

2. Literature review

A number of decomposition analyses have been conducted since the late seventies to date, they were firstly used to understand the influencing factors behind energy consumption, and then for knowing the impact on environment due to energy consumption and economic development. For instance, Liu and Ang (2007), Liu (2004), Ang (2004), Hoekstra and Van der Bergh (2003), Ang and Zhang (2000), and Liaskas et al. (2000) among others have conducted reviews on decomposition methodologies applied into different economic sectors by many countries. Furthermore, they have discussed their particular advantages and weaknesses as reference and guidance for an appropriate decomposition methodology selection. To date, the decomposition methodology has evolved since the seventies to offer steady results and explanations in the analyses based on indicators, for instance, Boyd et al. (1987) proposed the Divisia index, Ang and Choi (1997) introduced the logarithmic mean Divisia index I (LMDI-I), Sun (1998) proposed the refined Laspeyres index (RLIM), Ang and Liu (2001) introduced the logarithmic mean Divisia index II (LMDI-II), Boyd and Roop (2004)proposed the chain weighted Fisher Ideal Index as a formula to solve the residual problem, Choi and Ang (2011) extended the methodology of the Divisia index decomposition by introducing an attribution analysis of index to the Index Decomposition Analysis (IDA) in energy related studies.

In the case of Mexico, the decomposition methodology has been applied few times; for instance, Sterner, 1985, Sterner, 1987 studied the energy use in the Mexican manufacturing sector from 1970 to 1981 by means of the Laspeyres and Paasche indexes in terms of five production factors: capital, labor, material, electricity consumption, and fuel mix. Sheinbaum and Rodríguez (1997) based on Schipper et al. (1992) conducted a decomposition analysis of the energy use trends regarding to CO2 emissions in the MIS for the period 1987–1993. Sheinbaum and Ozawa (1998) analyzed the Mexican Cement industry by using the studies presented in Sheinbaum and Rodríguez (1997). Ozawa et al. (2002) analyzed the changes in terms of activity, structure, and energy efficiency effects in the primary energy consumption of the Mexican iron and steel industry by applying the physical production index indicated in Farla et al. (1997). Galindo (2005) conducted an econometric model to analyze the energy consumption as a function of its output and its real price in the Mexican economy, including the industrial sector from 1965 to 2001. Sheinbaum et al. (2010a) used the LMDI to analyze the energy consumption and its related CO2 emissions in the Mexican iron and steel industry by considering its industrial structure and best available technology over the period 1970–2006. Sheinbaum et al. (2010b) conducted a comparative study by means of the LMDI to identify the changes in CO2 emission related to energy consumption among five countries: Argentina, Brazil, Colombia, Mexico, and Venezuela along the period 1990–2006.

The present decomposition study follows the Index Decomposition Analysis (IDA) by applying the Logarithmic Mean Divisia Index (LMDI) technique introduced by Ang and Choi (1997) in its multiplicative form to quantify the contributions of sixteen Mexican industrial branches to the changes in the CO2 emission intensity. As part of the analysis, we take up the extension of the Divisia index methodology proposed in Choi and Ang (2011) to provide their attributions results in terms of energy intensity effect, CO2 emission coefficient effect, and structure effect. Ang, 2004, Ang, 2005, Ang and Liu (2001), Zhang and Ang (2001), and Ang et al. (1998) among others suggest that the LMDI method should be the preferred decomposition method because of its consistency in aggregation, flexibility, and its ease to put into practice. Ang et al. (2009) affirm that LMDI, in its multiplicative version, is one of the preferred Divisia index by researchers and analysts, and it has been widely used, most of all in the last decade because of its desirable properties mentioned above. The Mexican industrial sector is represented by sixteen leading industrial branches: aluminum, automotive, sugar, pulp and paper, cement, beer and malt, construction, fertilizers, rubber, mining, petrochemical, chemical, iron and Steel, glass, tobacco and ‘other’ industrial branches.

3. Data

The Mexican industry is analyzed from 1965 to 2010 by dividing it in four stages: 1965–1982, 1982–1994, 1994–2003, and 2003–2010. The data of the indicators used by this analysis are presented separately to facilitate their understanding about their origins. The economic data used by the analysis in the three first stages are based on the Mexican national account system (SCNM 1993), while the four stage data are based on the Mexican national account industrial system (NAICS 2007). From 2003 to date, the SCNM 1993 was replaced by the NAICS 2007. Both accounting systems are linked by a theoretical correspondence at conceptual level; however, the available economic and energetic data come from different accounting methodologies. That issue does not allow constructing reliable and homogeneous indicators in a disaggregate structure for the period 2004–2010 and apply them to the decomposition since it needs data in terms of the same classification methodology to get confidence and guarantee the coherence and reliability of the extended analysis. To develop a consistent decomposition analysis both economic and energetic data must comply with a conceptual and a methodological framework; the current data complies with the first one (data from both methodologies can be linked theoretically), but not the second one (data from both methodologies come from different methodologies). The data from 2004 to 2010 derive from a comparative analysis to express it in aggregate terms of the NAICS 2007. It does not include disaggregate industrial branches since some comparative parts are not available and it will bring loss of quality data.

The development of the industrial sector of any country is in general a consequence of availability of energy resources and its consumption; however, it is also influenced by the system of political economy prevailing in the country and combined with social and geographical conditions that define the future development of a country. Mexico's economy switched its economic model from an import-substitution strategy to an export-led growth strategy from1965 to 2010. The first stage 1965–1982 was characterized by hard protectionism, high subsidies to industry, and fiscal concessions for importing capital goods. In this stage, the oil crisis in 1973 and the economic crisis in 1976 led to the government to devaluate the Mexican Peso, that moderately affected the Mexican economy and the industrial sector because of oil discoveries in 1976; thus the Mexican industry significantly contributed to the economic growth of the country, but increasing CO2 emissions related to energy consumption. The second stage 1982–1994 was strongly affected by economic crises in 1982 and 1986 because of the fall in oil international prices, local rising inflation, the Mexico's earthquake in 1985, among other factors that did not allow the Mexico's economy recovering until early nineties. That situation led the Mexican government to give the first step toward an open economy by signing the General Agreement on Tariffs and Trade in 1986 (GATT), and it started the privatization of stated-owned industries with the aim to balance the finances of the country to face up the upcoming international competitiveness. The third stage 1994–2003 set the Mexican economy on an export-based path and free international trade. In 1994, the North American Free Trade Agreement (NAFTA) entered into force considered as the world's largest free trade area. Thereby, the Mexican government put into practice an industrial policy to promote manufacturing and exporting industries that also help the economy recover from devaluation of the Mexican Peso in 1994. However, the evolution of Mexican exports was stopped by an economic contraction in the U.S.A economy from 2000 to 2003. The fourth stage 2003–2010 shows a Mexican economy clearly oriented to exports, more than 90% of the Mexican trading is regulated by free trade agreements with more than forty countries. As it happened in the third stage, the Mexican industry declined its evolution because of the contraction of the exports to The United States of America, and a global crisis from 2007 to 2009. The trends of end-use energy consumption, CO2 emissions, and industrial GDP in the Mexican industry from 1965 to 2010 are shown in Fig. 1.

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Fig. 1

3.1. End-use energy consumption, 1965–2003

The energy data were taken from the Mexican balance of energy through the Mexican Department of Energy (SENER). In 2003, 64.5% of the total end-use energy consumption by the Mexican industry was consumed by the sixteen major industries. Among them, industries such as iron and steel, sugar, cement, chemical, and mining showed the most significant end-use energy consumptions from 1965 to 2003. The major change in end-use energy consumption took place in the first stage because of large amount of energy available, it went from 326.3 PJ (Petajoules) in 1965 to 1025.7 PJ in 1982; which meant a growth by 7.0% AAGR (average annual growth rate). Industries such as petrochemical, fertilizers, and construction presented relevant energy consumptions. After that, from 1982 to 1994, the Mexican industry showed a fluctuating end-use energy consumption that stated its growth by 0.05% AAGR. Significant energy consumptions were presented by industries such as bottled water, petrochemical, and automotive. From 1994 to 2003, the end-use energy consumption showed 1.1% AAGR, where industries such as automotive, petrochemical and fertilizers were significant in it. Table 1 summarizes the end-use energy consumption in the Mexican industry by industrial branch for selected years, and first three stages.

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