Peeling the onion: Analyzing aggregate, national and sectoral energy intensity in the European Union

One of the most promising ways of meeting climate policy targets is improving energy efficiency, i.e., reducing the amount of scarce and polluting resources needed to produce a given quantity of output. Relying upon the World Input-Output Database (WIOD), we investigate the decline in energy intensity in the EU27 countries between 1995 and 2009. Changes in energy intensity can be attributed to two different drivers: changes in the industrial composition of an economy and changes in its sectoral energy intensities. We conduct a series of index decomposition analyses (IDA) to isolate the effects exerted by these drivers. We then take the findings from the index decomposition analysis and subject them to panel estimations. The objective is to control for factors that may have shaped the evolution of energy intensity in the European Union. We estimate the changes in energy intensity as well as the changes in (energy-relevant) structural change and in the sectoral energy intensities. Therefore, we are able to reveal the channels through which factors such as economic growth, capital intensity, and energy prices affect energy intensity.