Monitoring changes in economy-wide energy efficiency: From energy–GDP ratio to composite efficiency index

Abstract

Since the 1973 world oil crisis, monitoring trends in energy efficiency at the economy-wide level has been an important component of energy strategy in many countries. To support this effort, various energy efficiency-related indicators have been developed. We examine some classical indicators which are often found in national and international energy studies in the 1970s and 1980s. We then describe the recent developments in using the index decomposition analysis to give an economy-wide composite energy efficiency index based on a bottom-up approach. This composite index is superior to the classical indicators as an economy-wide energy efficiency measure and has lately been adopted by a growing number of countries for national energy efficiency trend monitoring.

Introduction

National energy efficiency measurement and monitoring became an important component of energy strategy in many countries, especially the energy-deficient ones, in the aftermath of the 1973 world oil crisis. With substantial increases in world oil prices, many countries recognized the need to understand how effective energy was being consumed in their economies and to increase energy efficiency. To serve these purposes, appropriate energy efficiency indicators were developed and applied so that any efficiency changes that took place could be quantitatively expressed. These indicators were also used in cross-country comparisons to explain differences in energy performance between countries and for international benchmarking.

Since the late 1980s, resulting from the growing concern about global warming caused by the burning of fossil fuels, energy efficiency improvement has become yet another natural step for countries to take to reduce greenhouse gas (GHG) emissions. In particular, at the 1997 third Conference of the Parties held in Kyoto, participating countries agreed to a timetable of GHG emissions reductions for the years 2008–2012 relative to the 1990 levels. A key element of the strategy of most countries to meet their reduction objective is to take steps to increase energy efficiency in all sectors of the economy. It has become necessary for them to assess fulfillment of energy efficiency improvement targets in a rigorous manner. As a result, there has been new emphasis on the development and application of economy-wide energy efficiency indicators both for evaluation and monitoring purposes.

Several examples may be cited to show that energy efficiency indicators development and national energy efficiency monitoring have been attracting growing interest internationally. Started as far back as in 1992 and involving 16 countries, the European SAVE project on energy efficiency indicators with the objective to set up a permanent structure for monitoring national achievement in energy efficiency and carbon dioxide emissions is still an on-going effort (ODYSSEE, 2005). The US Department of Energy began its energy-efficiency analysis in 1993 and published its first comprehensive report on the development of robust energy-efficiency indicators for each of the sectors of the US economy in 1995 (Energy Information Administration, 1995). More recently, the Office of Energy Efficiency and Renewable Energy (2005) of the US Department of Energy has also established a new national system of indicators to track changes in the energy intensity of the US economy and economic sectors over time. The International Energy Agency has been developing energy efficiency indicators since 1995 and its first major publication on the subject appeared in 1997 (International Energy Agency, 1997). In 1997, a special issue of Energy Policy (Volume 25, Issue 7–9) was devoted entirely to the subject of energy efficiency indicators. More than 50 World Energy Council member committees participated in a collaborative process leading to a report on energy efficiency polices and indicators (World Energy Council, 2001). Energy efficiency indicators are the subject of two recent major reports by the Asia Pacific Energy Research Centre, 2001, Asia Pacific Energy Research Centre, 2002. Canada published its sixth annual review of its state of energy efficiency in 2004 (Natural Resources Canada, 2004) and New Zealand published its first in 2003 (Energy Efficiency Conservation Authority, 2003). A recent report on trends in Australian energy intensity (Tedesco and Thorpe, 2003) has been prepared under the auspices of the Australian Ministerial Council on Energy.

Energy efficiency is difficult to conceptualise and there is no single commonly accepted definition. An engineer, economist, environmentalist, etc, may each have a different concept of energy efficiency. Some relevant references that deal with the different definitions include Patterson (1996), Lovins (2004), Huntington (1994) and Boyd (2005). From the literature, energy efficiency is often measured in terms of thermodynamic indicators, physical-based indicators (energy requirements per unit physical output) and monetary-based indicators (energy requirements per dollar output). Each group of indicators tends to serve a certain purpose and the appropriate indicator to use depends on the objective, whether it is concerned with engineering/systems design, economic productivity, the environment, resource depletion, sustainability, national security, etc. Experience shows that none could be claimed to be the best in all situations. Relatively, thermodynamic indicators are not often used in national and international energy policy studies. We shall confine our discussions to physical- and monetary-based indicators. In this context, energy efficiency improvement generally means using less energy to produce the same amount of services or useful output.

We review several classical monetary-based indicators that were widely used in the 1970s and 1980s, namely the energy to gross domestic product (GDP) ratio, energy coefficient and energy elasticity. We then review the index decomposition analysis (IDA) and its application to produce an energy efficiency-related indictor. We explain how the technique of IDA has been incorporated in a bottom-up approach to produce an economy-wide composite energy efficiency index. This approach is the current “state-of-the-art” to produce indices for monitoring national energy efficiency trends and has been adopted by a growing number of countries. Based on this approach, we present the relevant formulae for a specific IDA method, i.e. the logarithmic mean Divisia index method, for the computation of the composite energy efficiency index.