ANALYZING INDUSTRIAL ENERGY CONSUMPTION IN THE CZECH REPUBLIC

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1 The 7 th Internatonal Days of Statstcs and Economcs, Prague, September 19-21, 2013 ANALYZING INDUSTRIAL ENERGY CONSUMPTION IN THE CZECH REPUBLIC Vladmír Hajko Abstract The logarthmc mean Dvsa ndex decomposton method s used to analyze the changes n the energy consumpton of the Czech ndustral sector durng the perod of 1993 to The results show the energy consumpton was manly affected by the mprovements n the energy effcency (whch, however, lost most of ther momentum after 1999). The mpacts of the changes n the structure exhbt two opposng perods: from 1993 to 1999, the energy consumpton was pushed up, up to the overall ncrease of nearly a thrd of the ndustral energy consumpton n However, ths structural consumpton ncrease was almost completely eradcated n the perod 2004 to The change n the consumpton due to the changes n the economc actvty of the ndustry would have contrbuted to the net ncrease of the energy consumpton by 6704 TOE. Wth the combnaton wth other factors, the overall decrease of energy consumpton n the examned perod was over 42% of the ndustral energy consumpton n Key words: LMD1, Energy, Energy consumpton, Industry JEL Code: Q43 Introducton Followng the overthrow of the communst regme and n the followng two decades the ndustral sector n the Czech Republc (and generally n the transformng countres) has gone through sgnfcant changes. The mprovng technology and market adaptaton resulted n decreasng energy consumpton and ncreasng energy and market effcency 1. As the Fg. 1 and Fg. 2 ndcate, the ndustry sector has gone through ntense changes not only n the Czech Republc or transformng countres, but also n most of the European countres. We can also observe the economes are experencng a shft of the energy consumpton from the ndustry to other sectors (manly to transport). Nevertheless the ndustral sector stll represents about a quarter (n EU average) or a thrd (n CZ, see Fg. 2) of the total energy consumpton and remans n 1 By 2011, the energy consumpton decreased by 6155 TOE (from the orgnal TOE n 1993). The energy ntensty ndcator (n the ndustry) has changed from nearly 24 TOE / ml. CZK n 1993 to 7 n

2 The 7 th Internatonal Days of Statstcs and Economcs, Prague, September 19-21, 2013 the lve nterest of many government polces (for nstance the overwhelmng energy conservaton and CO2 reducton scenaros such as the Energy Polcy for Europe (rather well known as the plan)). Fg. 1: Change n the energy consumpton shares from 1990 to 2011, per major economy sectors, n percentage ponts Fg. 2: Fnal energy consumpton (n TOE), overall and n the ndustral sector, Data source: Eurostat's table [nrg100a] Data source: Eurostat's table [nrg100a] Ths artcle ams to nspect the changes n the energy consumpton of the Czech ndustral sector, usng the logarthmc mean Dvsa ndex method, proposed by Ang & Lu (2001). Ths method wll allow us to quantfy how much the energy consumpton has changed due to the changes n the structure of the ndustry (the structural effect), the actvty of the economy (the actvty effect) and the mprovements n the energy effcency (the energy ntensty effect). All the fgures and the tables presented n ths artcle are my own. 1 Data and methodology The man ndcators necessary for the analyss are the fnal energy consumpton and the gross value added (GVA). The data on the energy consumpton are avalable under Eurostat's table [nrg100a], and are measured n thousand tons of ol equvalent (TOE). The data on the gross value added are from the Czech Statstcal Offce table TB0001B1Gc and are n mllons of CZK (n constant prces of 2005). The data were matched accordng to NACE2 classfcaton. The hstory ndex decomposton analyss (IDA) to decompose an aggregate values dates back to 1970s (see Ang a Zhang (2000) for comprehensve revew). Nowadays, the IDA methods ganed a sold poston as an analytcal tool for the polcy makng (Ang, 2004), and are also employed by the renowned nternatonal bodes such as the Internatonal Energy Agency (IEA, 2012). 439

3 The 7 th Internatonal Days of Statstcs and Economcs, Prague, September 19-21, 2013 The so called logarthmc mean Dvsa 1 ndex decomposton method s employed here to analyze the change n an aggregate varable as the contrbuton of the predefned factors. 2 The object of nterest, the change n an aggregate, denoted e.g. V, can be expressed T V ether n the multplcatve or the addtve form,.e. ether as D or V 0 V V V. There are couple advantages of the LMD1 method over other decomposton methods. Probably the most mportant one s that ths method passes the factor reversal test (among others suggested by Fsher (1967)). Ths test can be expressed as D T n E D 0 k for the E k 1 multplcatve form or n V V Vk k1 for the addtve form. the product (for the multplcatve form) or the sum (for the addtve form) of the ndvdual factor contrbutons must equal the observed change n the aggregate hence the decomposton must be perfect, leavng no unexplaned resdual. 3 Furthermore, ths method also passes the so-called tme reversal test as the name suggests, to pass ths test, the ndex number for a change from the perod t 0 to t T must be a recprocal value (for the multplcatve form) or the negatve (for the addtve form) of the change from perod t T to perod t 0,.e. D 1 or D V V. Another useful property s that ths method s zero-value robust wth rather easy modfcaton of the dataset,.e. replacng the zero values by very small number ( 10 descrbed n Ang & Cho (1997). Further methodologcal dscusson of ths ssue can be found n Ang & Lu (2007). Fnally, the LMD1 s consstent n aggregaton (.e. the results (the contrbuton of the ndvdual effects) from the analyses usng detaled classfcaton reman unchanged f the underlyng dataset gets aggregated). Note ths property s not met by the alternatve LMD2 decomposton. For the nterested reader, an extensve comparson of the propertes of the varous decomposton methods can be found n Ang & Zhang (2000). consumpton, The startng pont of descrbng the object of nterest, the change n energy 20 ), as E s to express the energy consumpton E as an dentty E Q. EI. Ths relatonshp can be further rewrtten as: 2 The LMD2 method dffers from LMD1 only n the normalzaton of the weghts so that they sum exactly to 1. 3 The refned Laspeyer s ndex methods (see e.g. Albrecht, Francos & Schoors (1997), Sun (1998) or Dezenbacher & Los (1998)) also provde means of perfect decomposton. However, these generally do not allow aggregaton of the results, easy transformaton from addtve to multplcatve form nor easy extensblty to hgh number of effects. 440

4 The 7 th Internatonal Days of Statstcs and Economcs, Prague, September 19-21, 2013 wth energy ntensty EI equaton and some manpulaton, we wll get: E Q (1) E Q Q EI S QQ E and economc share Q Q Q S. After dfferentatng the ln ln ln T E E w t Q t w t S t w t EI t dt 0 t t t wth w Q t EI t S t dscretzaton of the equaton (2) wll result n:. Snce n practce, we can only observe the dscrete data, T T T * Q * S * EI E E w t w t w t Q S EI ln 0 ln 0 ln 0 (3) * wth several optons for t 0; T 0 LMD1 scheme (where weghts w T L E ; E. However, some weghtng schemes, such as the are gven as logarthmc mean of energy consumpton n tme t T and energy consumpton n tme t 0), exhbt a desrable behavor, namely passng the factor reversal test (n other words, perfect decomposton wthout any resdual). Thus we can wrte: (2) T T T Q S EI E E w ln w ln ln 0 w 0 0 Q S EI Actvty effect Structural effect Intensty effect (4) All of the effects descrbe, how the energy consumpton (n TOE) would change due to a change n the pre-defned factor, f the other characterstcs remaned the same. The actvty effect therefore descrbes the mpact of overall economc actvty n the ndustral sector, whle keepng the energy ntenstes and structure of the ndustry unchanged. Analogously, the structural effect descrbes the change n energy consumpton caused by the observed changes n the economc shares of the ndustral sub-sectors (.e. the changes n the structure of the ndustry) had the overall economc actvty of the ndustral sector and energy ntenstes remaned unchanged. Fnally the energy ntensty effect how would the energy consumpton change due to the actual energy ntenstes mprovements ceters parbus. Note that the multplcatve decomposton can be derved n a smlar fashon. Also, snce wth LMD1 t also holds that V Veffect V total effect V ln ln ln ln 1 2 k Dtotal Deffect Deffect Deffect 1 2 effect k, we 441

5 The 7 th Internatonal Days of Statstcs and Economcs, Prague, September 19-21, 2013 can easly compute the results for the multplcatve decomposton from the results of the addtve decomposton and vce versa. 2 Results The results of the decomposton analyss are summarzed n the followng fgures (the results for the ndvdual sub-sectors are avalable from the author). Fg. 3 shows the chaned yearby-year effects and Fg. 4 the cumulated sums (therefore the values shows how the energy consumpton changed compared to the base year of 1993). We can see that by 2011, the overall decrease of the observed consumpton reached 6155 TOE (.e. approx 41% of the overall ndustral energy consumpton n 1993) and was prmarly the result of energy ntensty mprovements. Contrary to what one would have expected n the transformaton perod, the changes n the structure contrbuted to ncreasng the energy consumpton. Specfcally, up to the year 1999, these changes accounted for rather sgnfcant amount of 4455 TOE. Snce 2000 (though most remarkably n ), however, the story has reversed and we can observe the net effect of only +254 TOE of energy consumpton for the whole perod due to the changes n the structure. Overall, the energy ntensty effect, capturng the actual energy effcency mprovements per se, amount to TOE up to From 1999 to 2011, these savngs only accounted for 2328 TOE. On one hand, the reductons n 1990s were certanly easer to do, not only wth the much hgher base consumpton values, but especally gven the abundance of neffcent dated technologes and demand for upgrades. However, even though the 2000s were rddled wth many energy savngs and energy effcency boostng polces (especally after the EU accesson), t seems they had rather lttle effect. 4 Nevertheless, had the energy ntenstes not mproved, the ncreasng economc actvty n the Czech ndustry n the examned perod would have ncreased the energy consumpton by 6704 TOE. Rather nterestng are also the sgnfcant magntudes of the drops, manly n ths effect, n the perods of crses, namely 1997 (-870 TOE) and 2009 (-1211 TOE) (and wth about a one year lag also n overall change, measured by the total effect). The perods of crss ndeed also worsen the energy effcency (drvng energy ntenstes hgher). 4 Especally f we compare the ndustral energy ntenstes (n TOE / 1000 EUR n value added) across the European averages, n 2009 t was stll about twce as hgh n EU-12 (0.19) or CZ (0.22) than n EU-15 (0.11). Ths shows there s stll vast room for mprovements, though t s queston whether the seemngly not qute well workng, yet publcly fnanced, polces are the best way to acheve hgher energy effcency. 442

6 The 7 th Internatonal Days of Statstcs and Economcs, Prague, September 19-21, 2013 Fg. 3: Indvdual year-by-year effects, addtve decomposton, n toe, ,00 Fg. 4: Cumulated effects, addtve decomposton, n toe, ,00 1,00 4,00-1,00-4,00-2,00-8,00-3,00-12,00-4, , Industry - actvty effect Industry - structural effect Industry - ntensty effect Industry - total effect Industry - cumulated actvty effect Industry - cumulated structural effect Industry - cumulated ntensty effect Industry - cumulated total effect Data source: own computatons Data source: own computatons Concluson The results show the rather sgnfcant 42% energy consumpton reducton n the examned perod. Ths was predomnantly affected by the mprovements n the energy effcency, though the majorty of these changes happened up to year 1999 (wth of the overall TOE savngs acheved n ths perod). Wth roughly twce as hgh (n 2009) ndustral energy ntensty ndcator (compared to the EU-15 countres), t s somewhat questonable whether the sgnfcant energy effcency polces (most of them takng place after the year 2000) had reasonable mpact, and represents a vable objectve for further research focused on the energy ntensty development (especally, gven the fact that wthout these mprovements (bear n mnd, ths would mean no mprovements only n the ndustry), the Czech Republc s (!) energy mports would need to ncrease by nearly 62% compared to the current state. The structural effect shows two dstnct perods up to 1999, when, contrary to what we mght expect n what presumably stll was a transformaton perod, the energy consumpton was pushed up by the structural changes. On the other hand, almost all of ths ncrease was elmnated by the negatve structural effects, especally durng the perod of Nevertheless, the hgh values show two sgnfcant structural transformaton perods that have taken place n the Czech ndustry, and more so, ths clearly shows the transformaton perod had not stopped n the 1990s (at least n the ndustral sector). As for the remanng actvty effect had none of these two effects taken place, the ncreasng economc actvty of the Czech ndustral sector would mean the necessty of ganng addtonal 6704 TOE (n other words, roughly 74% of the energy exports of the Czech 443

7 The 7 th Internatonal Days of Statstcs and Economcs, Prague, September 19-21, 2013 Republc n 2011) of energy to cover ts needs, nstead of what we actually observed,.e. reducton of the consumpton by 6155 TOE. References Albrecht, J., Francos, D., & Schoors, K. (2002). A Shapley decomposton of carbon emssons wthout resduals. Energy Polcy, 30, Ang, B.W. (2004). Analyss for polcy makng n energy: whch s the preferred method? Energy Polcy, 32, Ang, B.W. & Cho, K.H. (1997). Decomposton of aggregate energy and gas emsson ntenstes for ndustry: a refned Dvsa ndex method. The Energy Journal, 18, Ang, B.W. & Lu, F.L. (2001). A new energy decomposton method: perfect n decomposton and consstent n aggregaton. Energy 26, Ang, B.W. & Lu, N. (2007). Handlng zero values n the logarthmc mean Dvsa ndex decomposton approach. Energy Polcy 35, Ang, B.W. & Zhang, F.Q. (2000). A survey of ndex decomposton analyss n energy and envronmental studes. Energy 25, Dezenbacher, E. & Los, B. (1998). Structural Decomposton Technques: Sense and Senstvty. Economc Systems Research 10, Fsher, I. (1967). The makng of ndex numbers; a study of ther varetes, tests, and relablty. Augustus M Kelley Pubs. IEA (2012). World Energy Outlook Pars: IEA PUBLICATIONS. Sun, J.W. (1998). Changes n energy consumpton and energy ntensty: A complete decomposton model. Energy Economcs 20, Contact Vladmír Hajko Masaryk Unversty Department of Economcs, Faculty of Economcs and Admnstraton, Masaryk Unversty, Lpová 507/41a, Brno, Czech Republc vladmr.hajko@mal.mun.cz 444