Energy intensity is an important indicator describing the relationship between energy inputs and economic outputs. It represents the amount of energy consumed divided by gross domestic products over a period of time. However, energy intensity is only an overall index. It could be decomposed into several components including pure intensity effect and structural change effect. In order to identify effective methods for reducing energy intensity in the economy, one has to understand the pattern of these components as well as the productivity of the related industry.
This study applies a divisia index approach to decompose the changes of manufacturing energy consumption and energy intensity. Data between 1981 and 1993 from Taiwan manufacturing statistics were used for the estimation. The results indicate that energy intensity effect in the manufacturing sector is very strong and is negative. However, this strong energy conservation effect has been out-matched by the sum of the positive structural effect and output effect.
This implies that the development of the manufacturing sector has been towards the energy intensive industry and the growth of the industry, in turn, has also rapidly increased energy consumption. From the perspective of the whole society, effective reduction of energy intensity is one of the key methods to achieve a friendly environment.
Therefore, apart from the improvement of energy efficiency in the manufacturing sector a proper policy for the industry development and, at the same time, rationalizing the policy for energy pricing to the industry are also important for the curbing of energy consumption in the future.
The results of the total factor productivity analysis show that most of the energy intensive industries in the manufacturing sector in Taiwan have a high and improving productivity since 1981 coupled with a decreasing trend on their energy intensity. This coincides the above implication that other policies such as energy pricing and the adjustment of industrial structure should be applied in unison with the energy conservation measures.