ENERGY USE IN TRANSPORTATION SECTOR & POLLUTION IMPLICATION IN THE MALAYSIAN ECONOMY

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1 ENERGY USE IN TRANSPORTATION SECTOR & POLLUTION IMPLICATION IN THE MALAYSIAN ECONOMY Al-Amin, Chamhuri Siwar 2, Abdul Hamid 3 & Elias Hossain 4 Abstract The rapid expansion of transportation sector in Malaysia at the outset of economic development dedicates the increase of energy demand and the composition of primary fuels to meet the secondary requirements. The dependency transportation immensely increased in recent years and the demand of this sector will rather increase in an accelerated fashion now the days to come. The environmental problem arises since burning of fuels in the transport vehicles producing by-products such as CO, CO 2, SO 2 and NO x so as to contaminate the environment, changing climate and harming ecosystems. This paper presents an empirical application of the energy-transportation-environment interaction of Malaysian economy for the period 99 and 2000 using an environmental input output (I O) approach and emission scenario analysis of transportation sector for 200. JEL Codes: Q43, Q53, C67 Key Words: Energy, Input-Output Analysis, Transportation sector, Environment, Malaysia. Introduction The economic development of a nation results in increased demand for communication throughout the economy. The rapid expansion of transportation sector in Malaysia at the outset of economic development dedicates the increase of energy demand and the composition of primary fuels to meet the secondary requirements for the transport segment. Malaysia, being a newly industrialized fast developing country and the growing Abul Quasem Al-Amin, PhD Researcher, LESTARI, Universiti Kebangsaan Malaysia, amin_cant@yahoo.com Tel: Tel: Chamhuri Siwar, Professor LESTARI, Universiti Kebangsaan Malaysia, csiwar@pkrisc..cc.ukm.my Tel: Dr. Abdul Hamid Jaafar, Asso. Prof, Faculty of Business and Economics, ahamid@pkrisc.cc.ukm.my Tel: Dr. Md. Elias Hossain, Asso. Professor, Department of Economics, Rajshahi University, Bangladesh, elias_eco@yahoo.com Tel:

2 demand of transportation is committing put negative impact on the economy for energy use. The dependency transportation immensely increased in recent years and the demand of this sector will rather increase in an accelerated fashion. Particularly after 990s, the demand of road transportation in Malaysia has increased in a regular fashion. In parallel with Malaysia s rapid economic development, final energy consumption grew at a fast rate of 5.6 percent between 2000 and 2005 to reach 38.9 Mtoe in 2005 (APEC 2006). A substantial portion of the energy consumed was from oil (63 percent) which was mainly utilized in the transport and industrial sectors. The transportation sector of Malaysia is heavily reliant on the road transport subsector. In 2002 for example, energy demand for road transport represented 86 percent of the total transport energy demand. The urban transport heavily dependent on passenger vehicles, since rail infrastructure has not yet been well developed. Energy demand in road transport is projected to grow at an annual rate of 3.5 percent. By type of fuel, gasoline growing at 2.9 percent and diesel at 4.2 percent per year (APEC, 2006). As Malaysia plans to mitigate road induced air quality problems through converting diesel-powered buses to CNG, and promoting natural gas passenger vehicles. However, the natural gas share in the total road transportation energy demand will remain very small at less than percent throughout the 2006 period. As we know, burning of fuels in the transport vehicles producing by-products such as CO, CO 2, SO 2 and NO x that pollute the environment. As the concentrations of pollutants increase, they form a heat-trapping blanket around the earth; absorb radiant energy that contributes to the greenhouse effect causing average temperatures to rise. Over the past decade, the increase of fuels in the transportation sector has released global warming pollutants faster than natural processes can remove it, leading to human-caused warming of the globe. Hence, our objective of this paper is therefore, to investigate the various air emission such as CO, CO 2, SO 2 and NO x from the transportation sector in the Malaysian economy for the period 99 and 2000 using an input output (I O) approach and scenario analysis for the period of 200. The paper is organized as follows: A literature of transport sector is summarized in section 2. In section 3, we present the underlying model, which is based on input- 2

3 output techniques. Scenario analysis and empirical tests for pollution in Malaysia are carried out in Section 4. The conclusions are given in Section Literature of transport sector in Malaysia The significant of transport system in facilitating trade in Malaysia cannot be underestimated. Malaysia has attached significant expansion to the development of an efficient and integrated transportation network. Particularly, after 990 s Malaysia has adopted a supply-driven policy in constructing infrastructure facilities such as seaports, airports and rail links to facilitate trade. According to UNCTAD s study in 2005, transportation by container has grown from zero in 965 to million moves in The traffic is estimated to double to almost 500 million by 200 at an annual growth of 9 percent. Over the past two decades ( ) Malaysian government has allocated around 20 percent of development expenditure to the transport infrastructure. An efficient road and rail transportation system that links the ports or industrial/commercial districts are crucial in supporting a dynamic export-oriented economy such as Malaysia. The government of Malaysia has developed totaling of 6,000 km of road infrastructure in 2005, and this is expected to expend to 65,000 km by 2006/2007. In addition, the Malaysian government privatized major road networks since 983 with the aim of accelerating the construction of major highways. Between 2000 and 2005, it is estimated that privatized roads expended from,200 km to,500 km which represents an increase of 25 percent (UNCTAD, 2005). On the other, according to the road transport department of Malaysia (2005), new registered motor vehicles by type, Malaysia has growing day by day. The heavy reliance on passenger vehicles due to insufficient public transport infrastructure will result in strong demand for transport vehicles. Table indicating the concerning figures. 3

4 Table. New Registered Motor Vehicles by Type, Malaysia, Year Motorcycle Motorcar Bus Taxi Hire & Drive Car Goods Vehicle Others Total ,45 38,765 2,620 4,358 2,545 69,234 30, , ,24 372,343 2,947 5,257,860 65,60 28, , ,776 59, , ,786 6, , , ,76 508,925,724 9,987 8,02 565, , , ,635 2,883 24,36, , ,75 395, ,69,348 25,62 3, , ,685 49, ,446,242 25,45 6,768 69, , ,753,04 5,542,23 29,975 7,04 800, , ,6,290 7,746,797 33,69 8, , , ,900,568 5,002 3,4 33,532 6,440,020,08 Sources: Road transport department 4

5 3. Methodology Towards the achievement of the stated objective, the employed methodology of this paper is based on Leontief s input-output framework (e.g. Miller and Blair, 985 p. 237; Dietzenbacher and Mukhopadhyay, 2004 p. 3-6.) where the structure of an economy is analyzed in terms of interrelationships between production sectors. In our study, the I- O model is used because of several distinctive features of this model. Firstly, the I-O model succinctly discusses the core aspects of its extensions for the consideration of environmental and emission issues. Secondly, the model calculates an emission intensity and multiplier matrix directly and indirectly by energy requirements, followed by level of emission derived from the energy and resources use attributable to given sets of final demand. Generally the input output model describes the relationship among economic sectors are described through the use of a system of linear equations, which represent the identity between the total output produced and the output purchased and consumed by all other sectors of the system. In matrix notation this system of linear equations can be expressed as; x = Ax + f This equation is the fundamental equation of the open Leontief system, which states that the gross output x, is the sum of all intermediate demand Ax and final demand f. The solution of the I-O model can be written as x = ( I A) f, where ( I A) known as Leontief inverse or multiplier matrix, A input coefficients, and I is a nxn identity matrix. 3. The Emission Model An environmental extension of the input-output model can be obtained by incorporating a matrix e which includes for each sector, direct and indirect resources use for one unit of their monetary output. The multiplication of the environmental matrix e 5

6 and the Leontief inverse (I A) and indirect) resources intensity of each sector: gives the multiplier matrixε, which shows the (direct ε = e (I A) To study how much pollution is generated using energy in an economy, we need to multiply pollutants emission factor (shown below), using the guidelines of the Intergovernmental Panel on Climate Change (IPCC) 5. The conversion factors are estimated as follows: Emissions.. per Fuel ' s.. emission Fraction.. of Molecular.. weight = mtoe.. of.. fuel factor pollution.. oxidized ratio.. of.. emission More concretely, the final step is how much input of fossil fuel is required for x (total transportation), therefore is required to satisfy final demand f. Using input coefficients 6 corresponding fuel oil of A and for any exogenously specified final demand of f, the total emission such as carbon, sulphur and nitrogen emission (CO, CO 2, SO 2, and NOx respectively) can be written as: c c = s n c c s n c 2 c 2 ε f s 2 n 2 or c c c = c s s n n c 2 c 2 e ij (I A) f s 2 n 2 5 In the case of crude petroleum (oil), the carbon emission factor equals 0.77 mt of carbon per mtoe of oil, and 99.25% of the carbon oxidized. The molecular weight of CO 2 is 44.0 and that of Carbon (C) is 2.0 thus the molecular weight ratio equals 44.0/ 2.0= 3.66 mt of CO 2 per mt of C. Consequently, the combustion of one mtoe of oil results in generation of (44.0/2.0)=2.80 mt of CO 2 emission. Multiplication of this number by mtoe/(million RM) ratio of oil industry gives mt of CO 2 that is generated by the combustion of one million RM of oil. 6 Total energy use divided by the total output 6

7 where, c, c, s, n express the vectors of total emissions of CO, CO 2, SO 2, and NO x at the sectoral level, respectively, and c.. n 2 are conversion factors for CO, CO 2, SO 2, and NO x and eij energy intensity of sector i to j Data preparation The study uses an input-output approach based on the input-output tables 99 & 2000 of Malaysian economy and industrial classification system of the energy statistics is used as a base for defining the classification of the present study. The CO, CO 2, SO 2 and NO x emissions from fossil fuel combustion estimated by IPCC, 996 (Inter governmental panel on climate change) guideline. The information of energy balance 99 & 2000 of Malaysian economy is taken from Ministry of energy, water and communications and energy balances of Non-OECD countries ( & ) from OECD publications. The I-O table of 99 contains 92 sectors and 2000 table contains 94 sectors. For our empirical studies, we aggregated both I-O tables 2 2 sectors (one is transportation sector and the other one is rest of other sectors) in order to confirm our desired results. 4. Results and discussion 4. Energy intensity & energy multiplier in the transportation sector In this section we will present the results of the application of the model described in section 3. The input-output model has been used to single out the sectoral energy intensities and energy multipliers for using fuel oil in the transportation sector in Malaysian economy for 99 and Table 2 contains the estimated corresponding figures. 7 For more details of input coefficients and conversion factors, see Dietzenbacher and Mukhopadhyay (2004) 7

8 Table 2. Energy intensity & energy multiplier in transportation sector 99 & 2000 Year Energy intensity Energy multiplier The table shows that both the energy intensities and energy multipliers are higher in 99 than CO, CO 2, SO 2, and NO x emission produced by transportation sector In this section, we quantify the percentage change of technical coefficients and Leontief inverse of transportation sector from Table 3 shows the corresponding figures. The table shows that from the percentage changes of the coefficient of transportation sector more than 30%. This confirms that the contribution of transportation sector is comparatively significant during the time period. Where as the table illustrates that percentage change in the Leontief inverse coefficient between 99 and 2000 is very low share, i.e. below 5%, means the economic structure of the transportation sector was very identical during the 99 to 2000 time period. Table 3. Percentage change (%) of technical coefficient and Leontief inverse of transportation sector from Sectors Coefficients Leontief inverse Rest of the sectors Transportation Although the changes of share of coefficients from not very high, but the total emission in all respects (CO, CO 2, SO 2, and NO x ) higher in 2000 than 99, this is due to higher demand of transportation in The figures of Table 4 illustrate sectoral CO, CO 2, SO 2 and NO x emission of transportation sector for the year 2000 and All emission and emission factors are estimated by the authors according to Revised 996 IPCC Guidelines for national Greenhouse Gas Inventories, IPCC/OECD/IEA Inventory Programme, Paris. 8

9 Table 4 The CO, CO 2, SO 2 and NO x emission of transportation of 99 and 2000 Year CO CO 2 SO 2 NO x From the table, the CO emission was 7.69 mt 9 in 99 and mt in The CO 2 emission was mt in 99 and 4.6 mt in The SO 2 emission was 0.30 mt in 99 and 0.44 mt in 2000 and the NO x was 32 tt in 99and tt in Scenario analysis This section makes use of scenario analysis, based on the I-O model presented in section 3. The scenario analysis focuses on the Malaysian economy for the year 200 (Malaysian development target from the 9 th development plan). The simulation that is carried out does not have not only for forecasting purposes but also for policy purposes of the Malaysian economy Changes in the structure and level of final demand According to the figure published by Malaysian 8 th Development Plan covering the period , Malaysian annual growth rate of oil for the period was 3.6% 0. The total supply of energy (including transportation sector) increased from 2003 PJ (Petajoules) in 2000 to 2526 PJ in 2005, as shown in Table 5. The main sources of supply were crude oil and petroleum products as well as natural gas. Table 5 Commercial energy supply by source (including transport sector), Source Petajoules % of Total Average Annual Growth Rate (%) (T) (T) 8MP 9MP Crude oil and petroleum products Sources: Malaysian 9 th Development Plan, (T)- Target rate 9 mt = million ton, mt = 0 3 thousand tones, tt = thousand ton 0 The Malaysian 9th development plan ( ) target growth rate of crude oil and petroleum products 3.5 9

10 To maintain of this growth rate until 200 seems possible as well as from the Malaysian 9 th Development Plan we get the growth rate for the specific sectors as: Agriculture, Forestry, Livestock and Fishing -3.0% Manufacturing 4.% Services 6.% Electricity, Gas and Water 5.6% Transport, Storage and Communications 6.6% Finance, Insurance, Real Estate and Business Services 8.% We can expect that the figure of transportation sector is accordance with the general trend for a shift away from the primary sectors of the economy, towards large and rapidly expanding other sectors. It is general that in the modern era with the development activities living standard also increases and the demand of transport sector also increase with economic development and the trends are expected to continue for upcoming periods. Therefore for our forecasting purposes, we shall postulate that from the demand of transportation sector for will increase or decrease at the corresponding rates presented above Forecast for future demand (FD) According to the Malaysian 8 th and 9 th Development Plan, we can forecast Malaysian FD t from as 2000 holding the base year as following: FD t = FD 2000 ( + r FD ) t t =,2,3,4,5... where, r FD is the annual demand growth rate The CO, CO 2, SO 2 and NO x Emission Scenario for 200 The scenario allows us to realize that CO, CO 2, SO 2 and NO x emission will increase in all aspects. This is indeed general for all first developing countries like as Malaysia due to Because Malaysian latest I-O table 2000 and we must go with it for emission calculation. 0

11 increase standard of living, increase demand for industrialization towards large and rapidly expanding economy. Table 6 shows the scenario analysis for 200. Table 6 Scenario of CO, CO 2, SO 2, and NO x emission in transport sector in 200 Year CO CO 2 SO 2 NO x The calculation indicating that CO emission was mt in 2000 which will be mt in 200 that means that 29. % higher than 2000, CO 2 emission was 4.6 mt in 2000 which will be 58.7mt in 200, SO 2 emission was 0.44 mt in 2000 which will be 0.63 mt in 200 and NO x was tt in 2000 which will be tt in 200. The emission in all aspects will be increased because in 200 the demand of transportation sector will be increased with the development activities. 5. Conclusion In the modern era, for all kinds of economic activities in the industrialized economy like in Malaysia, one important factor which can not be ignored off is energy use in the transportation sector. However, the environmental issues do appear as energy like fossil fuel (oil, natural gas) is used for power in the vehicles. As Malaysia greatly relies on oil in the transportation sector (i.e. especially road), there is an urgent need for the economy to improve its public transport system subsequently reducing oil consumption as well as emissions in the transport sector. Taking into account the growing energy consumption and domestic energy supply constraints, Malaysia should set optimal policy in the fast growing economy to sustain economic growth as well as should introduce of biodiesel for the transport sector to achieve sustainable energy development through diversification of fuel sources. Otherwise the air emission will increase with economic development and the trends are expected to continue for upcoming periods.

12 References APERC (2005). APEC Energy Overview. Tokyo. APEC enrgy demand and supply outlook, 2006, Malaysia. Dietzenbacher, Erik and Kakali Mukhopadhyay, An Empirical Examination of the Pollution Haven Hypothesis for India: Towards a Green Leontief Paradox?, Presented in Input- Output and General Equilibrium: Data, Modeling and Policy Analysis, Brussels, Belgium. IEA (99). Energy statistics and balances of non OECD countries, IEA (2000). Energy statistics and balances of non OECD countries, IPCC (996). Revised 996 IPCC Guidelines for National Greenhouse Gas Inventories, IPCC/OECD/IEA Inventory Programme, Paris. Miller, Ronald and Blair, Peter, 985. Input-output analysis: foundations and extensions, Englewood Cliffs, New Jersey, Prentice-Hall. National energy balance (2000). Ministry of energy, water and communication, Malaysia. National energy balance ( ). Ministry of energy, water and communications, Malaysia. Ninth Malaysia Plan (2006). Ministry of Energy, Water and Communications and Planning Unit, Malaysia. 2