Factors Decomposition of Energy Intensity: The case of Liaoning province in China

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1 Factors Decomposton of Energy Intensty: The case of Laonng provnce n Chna He Yong-Xu, Tao We-Jun, Zhang Song-Le, L Yan and L Fu-Rong Abstract- Ths paper ntroduces logarthmc mean Dvsa ndex (LMDI) method on calculatng factors contrbuton to energy ntensty (EI) change and ndcates that sector ntensty contrbuton and effcency contrbuton are dfferent. Then ths paper adopts LMDI to analyze the decrease of EI n Laonng Provnce, the heavy ndustry base n northeast Chna. The results show that the sector ntensty declne played a major role to the EI declne n Laonng accordng to the dvson of three ndustres. When consderng the product structure and product energy effcency, the effcency contrbuton share s 22.31%, and the product structure contrbuton share s 77.57% of the total EI decrease durng Ths revealed that structure change played a key role on the EI declne n Laonng provnce. Fnally, Reasonable proposals are gven for Laonng Provnce to acheve the energy-savng target n the 11th Fve-Year Plan perod. Key-Words- Energy ntensty; Sector ntensty; Structure; Effcency; Energy-savng W I. INTRODUCTION th Chna s economy development, energy consumpton (EC) grows rapdly. To keep the sustanable development of economy and socety, Chnese Government takes energy-savng as a basc natonal polcy n the 11th Fve-Year Plan of natonal economy and socety development, and puts forward a target of reducng 20% energy ntensty (EI) by 2010 comparng to The frst and foremost task for Chna s energysavng s to analyze the nfluencng factors of Chna s EI and ther contrbuton to the EI change. Reference [1] employed a unque set of panel data for approxmately 2500 of Chna s most energy ntensve ndustral enterprses ncludng large and medum-szed durng and concluded that rsng relatve energy prces, research and development expendtures, and ownershp reform n the enterprse sector, as well as shfts n Chna s ndustral structure, emerge as the prncpal drvers of Chna s declnng energy ntensty. Reference [2] chose 36 ndustry sub-sectors from 1993 to 2003 of Chna as samplngs to study based on mproved ndex decomposton methods, ADMI and LMDI, the results was got that structure effect whch was less than ntensty effect decreased year by year before 1998 and turned to steady from Ma and Stern used logarthmc mean Dvsa ndex (LMDI) technque to decompose change n energy ntensty durng , they found that technologcal change s confrmed as the domnant contrbutor to the declne n energy ntensty and structural change at the ndustry and sector (sub-ndustry) level actually ncreased energy ntensty durng the perod of [3]. However, reference [4] got contrary results based on factor decomposton method. Ther fndngs showed that ndustry structure factors and ndustry ntensty factors both played sgnfcantly postve role on Chna's EI declne. Reference [5] frstly gave a well-defned defnton of the structure energy-savng and effcency energy-savng, and then concluded that structure contrbuton was over 60% durng and structure factors promoted EI ncrease after Due to the dfferent methods they chose, dfferent defntons of effcent contrbuton, as well as tme-frame, etc., the conclusons on Chna s EI change are not consstent. In ths paper, we put forward the dfference between sector ntensty contrbuton and effcency contrbuton frstly. Then we adopt LMDI to analyze the factors and contrbuton to the EI change n Laonng provnce durng , the heavy ndustry base n Northeast Chna. Fnally, on the bass of the results, some reasonable proposals are gven for Laonng Provnce to fulfll the energysavng goal durng the 11th Fve-Year perod. II. LMDI DECOMPOSITION METHOD Factors decomposton method for EI s a mathematcal method that decomposes the factors nfluence on EI, and calculates ther contrbuton for EI change, whch wll provde decson support for government n energy-savng polcymakng. Factors decomposton method was appled to the energy 56 Paper submtted March 12, 2007; Revsed August 18, 2007

2 feld snce late 1970s. In 1987, reference [6] frstly proposed the multplcatve verson of the arthmetc mean Dvsa ndex method (AMDI). Then a large number of relevant lterature appeared [7]-[12]. In 1988, reference [13] proposed the addtve verson of AMDI. In 1998, reference [14] frstly put forward the addtve verson of the logarthmc mean Dvsa ndex (LMDI). Then, n 2001, reference [15] proposed the multplcaton verson of LMDI. In 2004, Ang selected all decomposton methods for comparson, and recommended LMDI method for analyss EI [16]. In 2006, reference [17] recommended usng the analytcal lmts of LMDI terms n cases of zero values. In 2007, Ang provded an analytcal soluton to the problem of negatve values n the data set [18]. Wth the ssue resolved, the LMDI approach can be generally appled to any decomposton stuaton. Factors decomposton model n EI s as shown as formula (1) k E I Y E I = = = = Y Y Y k = 1 k = 1 I S (1) = 1 where I s EI; E s the whole EC; Y s GDP; E s the EC of sector; I s the sector ntensty n sector; S s the value added proporton of sector n GDP; k s the number of sectors. The EI change of the addtve verson of LMDI can be expressed as formula (2) Δ Itot = Δ Istr +Δ Int +Δ Ires (2) where Δ Itot s total EI change; Δ Istr s the EI change caused by structure changes; Δ Int s the EI change caused by sector ntensty changes; ΔIres s the resduals of ncomplete decomposton. t 0 Δ Itot = I I (3) t 0 t E E S Δ Isrt = L, ln t 0 0 (4) Y Y S t 0 t E E I Δ Int = L, ln t 0 0 (5) Y Y I In formula (3) and (4), L(x, y) can be expressed as: ( y x) Lxy (, ) = (6) y ln x It should be emphaszed that, n ths method, EI change s decomposed nto sector ntensty factors and structure factors. Some scholars beleve that sector ntensty change s the result of technologcal advances, so t was drectly called technologcal progress (effcency) factors. However sector EI s a comprehensve factor, whch s determned by technologcal advances, product structure n the sector and other factors. Accordng to the logc of decomposton method, sector ntensty s also determned by sub-sector ntensty, product structure and product energy effcency, etc. In order to get exact contrbuton share of EI change, effcency contrbuton should be dstngushed from sector ntensty contrbuton. III. CASE STUDY Accordng to the annual Laonng Statstcal Yearbook from , we get the date of GDP, value added of three ndustres, value added of each sub-sectors n ndustry sector, EC, etc [19]. To meet the need for analyss, we take 2005 as the base year. GDP and value added are all transferred nto comparable values. A. Trend of EI Change n Laonng Provnce Table 1 shows the EI change of Laonng Provnce durng The total EI (exclude resdents energy consumpton) declned from tce/ (mllon Yuan) n 1995 to tce/ (mllon Yuan) n The prmary ndustry s EI dropped from 26.95tce/ (mllon Yuan) n 1995 to tce/ (mllon Yuan) n 2004, and ncreased to 26.11tce/ (mllon Yuan) n The secondary ndustry s EI dropped from tce/ (mllon Yuan) n 1995 to tce/(mllon Yuan) n The tertary ndustry s EI decreased from 44.83tce/(mllon Yuan) n 1995 to 31.08tce/(mllon Yuan) n 2004 and ncreased to tce/(mllon Yuan) n Table 1 EI of Laonng Provnce n (tce/mllon Yuan) 57

3 Year The Prmary Industry EI Declne The Secondary Industry EI Declne The Tertary Industry EI Declne (EI 1 ) (EI 3 ) (EI 2 ) Total EI Declne Fg. 1 shows the EI change n Laonng provnce durng It ndcates that between 1995 and 1999, there s a sustaned, rapd EI declne. After 2000, ths trend slowed down a lttle. The secondary ndustry EI s generally consstent wth total EI, durng , the prmary and tertary ndustres EI kept a slght declne, but n 2005, they rebounded at varyng degree. (2) Durng , the total EI declned rapdly, n whch ndustral ntensty accounted for the major share of contrbuton, whle the ndustral structure had negatve effect durng , Durng , both ndustral EI and ndustral structure promoted the total EI ascendng. After 2000, the total EI declne slowed down, n whch both ndustral EI and ndustral structure promoted the total EI declne durng , and the structural contrbuton was negatve durng Ener gy Intensty(tce/mllon Yuan) EI EI 1 EI 2 EI 3 Fg. 1 Trend of EI n Laonng Provnce B. LMDI Method Analyss of EI LMDI method s appled to decompose the EI of Laonng Provnce, and the decomposton results are shown n Table 2. The calculated results n Table 2 ndcate that: (1) The calculated resdual share by LMDI method s close to zero except for certan years, whch show the effectveness of decomposton. Table 2 Factors contrbutons to EI declne of Laonng provnce durng Year EI changes (tce/mllon Yuan) Structure Share (%) Industry ntensty share (%) Resdual Share (%) (3) As mentoned above, sector ntensty s a comprehensve ndex, whch s determned by technologcal progress, sub-sector structure adjustment and other factors. Sector ntensty contrbuton s not equal to effcency contrbuton. 58

4 Accordng to the decomposton method ntroduced above, the sub-sector structure contrbuton was partly ncluded n the sector energy effcency contrbuton, thus the effcency contrbuton was overestmated, and the structure contrbuton was underestmated. In order to determne effcency contrbuton and structure contrbuton n EI change, we decomposed sector ntensty, and separated EC per unt product from sector ntensty as the energy effcency ndex. Table 3 lsts EC per unt product of sx heavy EC ndustres [20]. C. Results of factor Contrbuton Table 3 Unt Product EC of Sx Heavy Energy Intensve Industres n Industres Unt Electrc power coal consumpton of power supply Declne rate (%) gce/kwh Iron and Steel EC for steel producton kgce/t Nonferrous Metals EC of copper smeltng kgce/t Electrcty consumpton of kwh/t Alumnum EC of lead smeltng kgce/t EC of Electrolytc Znc kgce/t Petroleum EC of ethylene kgoe/t EC of Refnery kgoe/t Chemcals EC of synthetc Ammona (Imported) kgce/t EC of synthetc Ammona (medum) kgce/t EC of synthetc Ammona (small sze) kgce/t Caustc soda (dvde) kgce/t Caustc soda (on-exchange membrane) kgce/t Soda (Ammona Soda) kgce/t Soda (the alkal) kgce/t Buldng Materals EC of cement kgce/t EC of plate glass kgce/t Based on the classfcaton of three ndustry sectors, n whch the ndustry sector s further classfed nto 27 sub-sectors, we get 29 sectors n total. Then we decompose EI nto effcency contrbuton share and structure contrbutons share wth LMDI method. The decomposton results are lsted n Table 4. Table 4 Contrbutons of effcency and structure for EI Changes n Laonng Provnce Year EI changes (tce/mllon Yuan) Structure share (%) Effcency share (%) Resdual Share (%) The calculated results show that among the contrbutors of the EI declne, the structure share s 77.57% and the effcency share s 22.31% durng Durng , structure contrbuton exceeds 70%. After 2003, the proporton of heavy 59

5 ndustry n the natonal economy of Laonng Provnce ncreased. Extraordnary development of the heavy energy-ntensve ndustres serously hampered the EI declne. Durng , though the effcency contrbuton promotes the EI declne, the heavy ndustral structure promoted the EI ncrease. It llustrates that the nfluence of structural change on the EI change n Laonng provnce s sgnfcant. Thus, n order to acheve the 20% energy-savng target, t s of great mportance to adjust ndustry structure, sector structure of ndustry and product structure for Laonng provnce, and enhance energy effcency at the same tme base on technologcal progress. IV. CONCLUSION In ths paper, we dstngush sector ntensty contrbuton from effcency contrbuton, adopt LMDI method to analyze the nfluencng factors n the EI change of Laonng Provnce durng , and get the followng conclusons. Frstly, accordng to the dvson of three ndustres, the sector ntensty declne played a major role n the EI declne of Laonng Provnce durng , whle the adjustment of the ndustral structure played a mnor role, and even plays a negatve part. Furthermore, durng the perod of n Laonng provnce, the contrbuton of structure and effcency to the EI declne are 77.57% and 22.31% respectvely and the contrbuton of structure exceed that of effcency. Ths reveals that structure adjustment play an mportant role n the EI declne. Though the energy statstc data on the level of products s not comprehensve and the calculaton results are to be further mproved, t ndcates the way to fulfl the 20% energy-savng target n the 11th Fve-Year Plan perod for Laonng provnce. And t also puts forward a new dea for research n ths feld n the future. Last but not least, t s key work to adjust the ndustral structure for Laonng Provnce to realze the energy-savng goal n the 11th Fve-Year Plan perod. ACKNOWLEDGEMENT The work descrbed n ths paper was supported by research grants from Humantes and Socal Scence project of the Mnstry of Educaton of Chna (Project number: 07JA790092) and Natonal Scence Foundaton of Chna ( , ). REFERENCES [1] Fsher-Vanden, K., Jefferson, G. H., Lu, H. M.. et al., What s drvng Chna's declne n energy ntensty? Resource and Energy Economcs, Vol.26, No.1, 2004, pp [2] D.L. Zha, D.Q. Zhou, N. Dng, The contrbuton degree of sub-sectors to structure effect and ntensty effects on ndustry energy ntensty n Chna from 1993 to 2003, Renewable and Sustanable Energy Revews, 2007, In press. [3] C.B. Ma, Davd I. Stern, Chna's changng energy ntensty trend: A decomposton analyss, Energy Economcs, No.30, 2008, pp [4] Zhou, Y., L, L.S., The Acton of Structure and Effcency on Chnese Energy Intensty: An Emprcal Analyss Based on AWD, Industral Economcs Research, No.4, 2006, pp [5] Yao Y.F., Shen L.S., Ways, condtons and polcy recommendatons to realze energysavng target n Chna's "11th Fve-Year Plan", Energy of Chna, No.2, 2007, pp [6] Boyd, G., McDonald, J.F., Ross, M., Hanson, D.A., Separatng the changng composton of US manufacturng producton from energy effcency mprovements: a Dvsa ndex approach, Energy Journal, Vol.8, No.2, 1987, pp [7] Lu, X.Q., Ang, B.W., Ong, H.L., The applcaton of the Dvsa ndex to the decomposton of changes n ndustral energy consumpton, Energy Journal, Vol.13, No.4, 1992, pp [8] Ang, B.W., Lee, S.Y., Decomposton of ndustral energy consumpton: some methodologcal and applcaton ssues, Energy Economcs, Vol.16, No.2, 1994, pp [9] Ang, B.W., Cho, K.H., Decomposton of aggregate energy and gas emsson ntenstes for ndustry: a refned Dvsa ndex method, Energy Journal, Vol.18, No.3, 1997, pp [10] Ang, B.W., Zhang, F.Q., A survey of ndex decomposton analyss n energy and envronmental studes, Energy, Vol.25, No.12, 2000, pp [11] Ang, B.W., Lu, F.L., Chew E.P., Perfect decomposton technques n energy and envronmental analyss, Energy Polcy, Vol.31, No.14, 2003, pp [12] Ang, B.W., The LMDI approach to decomposton analyss: a practcal gude, Energy Polcy, Vol.33, No.7, 2005, pp [13] Boyd, G.A., Hanson D.A., Sterner T., Decomposton of changes n energy ntensty-a comparson of the Dvsa ndex and other 60

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