Analysis and decomposition of energy consumption in the Chilean industry

With rising energy costs and climate change concerns, energy efficiency will be important in maintaining competitiveness and reducing the environmental impact of industrial activities. In this paper we study the Chilean industrial sector, which is the largest consumer of energy within the country. Energy demand and CO2 emissions in Chile have grown rapidly in recent years while energy supply is mostly imported and subject to disruption. Therefore, it is important to understand energy consumption in this sector and determine which sub-sectors have the greatest potential to reduce energy consumption. We used the Index Decomposition Analysis (IDA), applying the Logarithmic Mean Divisia Index method I (LMDI-I), to quantify the impact of diverse driving factors on energy consumption. Furthermore, a panel data analysis was used to determine whether there are differences in energy intensity across firms with different characteristics. Our results show that energy intensity has risen over time although energy consumption remains stable. This fact supports the idea that energy efficiency policies could play an important role for the industrial sector. Additionally, energy consumption and energy intensity follow different patterns in each sub-sector; therefore we conclude that the application of differentiated sectoral policies is preferable over a single global policy.