China experienced a dramatic decline in energy intensity from the onset of economic reform in the late 1970s until 2000, but since then the rate of decline slowed and energy intensity actually increased in 2003. Most previous studies found that most of the decline was due to technological change, but disagreed on the role of structural change. To the best of our knowledge, no decomposition study has investigated the role of inter-fuel substitution in the decline in energy intensity or the causes of the rise in energy intensity since 2000. In this paper, we use logarithmic mean Divisia index (LMDI) techniques to decompose changes in energy intensity in the period 1980–2003. We find that: (1) technological change is confirmed as the dominant contributor to the decline in energy intensity; (2) structural change at the industry and sector (sub-industry) level actually increased energy intensity over the period of 1980–2003, although the structural change at the industry level was very different in the 1980s and in the post-1990 period; (3) structural change involving shifts of production between sub-sectors, however, decreased overall energy intensity; (4) the increase in energy intensity since 2000 is explained by negative technological progress; (5) inter-fuel substitution is found to contribute little to the changes in energy intensity.
Since the start of economic reform in 1979, China has experienced spectacular economic growth. Its gross domestic product (GDP) has increased at 9.5% annually over the past quarter century. Industry and manufacturing grew by an even faster rate, more than 11% p.a. from 1980 to 1990 and more than 13% p.a. from 1990 to 2000 (World Development Indicators, 2002). But, over the same period, commercial energy consumption2 increased by only 4.44% p.a. (China Energy Statistical Yearbook, CESY). By 2000, commercial energy intensity (energy/GDP) had decreased by 65% compared to 1980. Energy intensity declined in every year up till 2000 except for 1989. However since 2000 the decline in energy intensity slowed and energy intensity actually increased in 2003 (Fig. 1, Fig. 2). The aim of this paper is to investigate the causes of this reversal in the trend and to apply a more detailed decomposition analysis to a longer period than any previous study of China's energy intensity.
The causes of the significant decline in China's energy intensity have been investigated by a number of decomposition studies (Huang, 1993, Sinton and Levine, 1994, Lin and Polenske, 1995, Garbaccio et al., 1999, Zhang, 2003, Fisher-Vanden et al., 2003). While most studies find that the most important factor is technological change, there is disagreement on the role of structural change — a shift in the mix of industries. Many found that structural change has played a minor role in reducing energy intensity. However, Garbaccio et al. (1999) found that structural change actually increased energy intensity between 1987 and 1992. Fisher-Vanden et al. (2003) similarly found an intensity-increasing effect at the 1-digit SIC sectoral level from 1997 to 1999.3 We reach the same conclusion as the latter two research teams in our investigation of the entire 1980–2003 period.
Both Sinton and Levine (1994) and Fisher-Vanden et al. (2003) found that the explanatory power of structural change rises as the level of sectoral disaggregation becomes finer. In this paper we carry out a decomposition on a consistent4 set of data at three levels of sectoral disaggregation: among industries — the highest level subdivisions of production5, sectors within each industry, and sub-sectors within each sector. To the best of our knowledge, no decomposition study of China's energy intensity has examined the role of inter-fuel substitution. This study will contribute to examining the substitution effect among coal, oil, natural gas, electricity and other fuels, on the overall energy intensity. Additionally, all previous studies focus on the continuous decline in energy intensity in the period until 2000, though mostly they examine short numbers of years within those two decades. This is the first study to look at the post-2000 period.
The paper is organized as follows. Section 2 briefly reviews the literature and conducts an exploratory analysis of the data. Section 3 describes the method used to decompose the inter-fuel substitution effects, the technological change effect, and the structural effects at three levels of sectoral disaggregation. Section 4 discusses the sectoral disaggregation and data used. Section 5 applies the decomposition method to two sets of data and presents and discusses the results. Lastly, Section 6 concludes.
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