Extended Divisia index decomposition of changes in energy intensity: A case of Korean manufacturing industry

This study aims to examine the energy efficiency of the manufacturing industry of Korea by using the extended Divisia index decomposition of Choi and Ang (2012). First, we applied the Sato-Vartia index decomposition to the energy intensity of the manufacturing industry in Korea. Second, we attributed the growth rate of aggregate energy intensity to 10 sub-manufacturing industries through two channels: real energy intensity and structural change. The result of the decomposition illustrates that the aggregate energy intensity index decreased in the period 1981-2010. The index decomposition analysis demonstrates that real energy intensity decreased by 85.85%, whereas structural change increased energy intensity by 69.37% over the same period of time. The negative effect of structural change is partly a result of the increasing portion of energy intensive industry in manufacturing. The result reflects that industrial structure in Korea can be an important aspect for improving energy efficiency.