Energy intensity: A decomposition and counterfactual exercise for Latin American countries

This paper investigates trends in energy intensity over the last 40 years. Based on a sample of 75 countries, it applies the Fisher Ideal Index to decompose the energy intensity into the relative contributions of energy efficiency and economic structure. Then, the determinants of these energy indexes are examined through panel data regression techniques. Special attention is lent to Latin American countries (LAC) by comparing its performance to that of a similar set of countries chosen through the synthetic control method. When analyzed by income level, energy intensity has decreased in a range between 40 and 54% in low and medium income countries respectively. Efficiency improvements drive these changes, while the structural effect does not represent a clear source of change. The regression analysis shows that per capita income, petroleum prices, fuel-energy mix, and GDP growth are main determinants of energy intensity and efficiency, while there are no clear correlations with the activity component. In the case of LAC the energy intensity decreased around 20% which could be interpreted as an under-performance. However, the counterfactual exercise suggests that LAC has closed the gap with respect to its synthetic control.