Untangling the drivers of energy reduction in the UK productive sectors: Efficiency or offshoring?

The UK has been one of the few countries that has successfully decoupled final energy consumption from economic growth over the past 15 years. This study investigates the drivers of final energy consumption in the UK productive sectors between 1997 and 2013 using a decomposition analysis that incorporates two novel features. Firstly, it investigates to what extent changes in thermodynamic efficiency have contributed to overall changes in sectoral energy intensities. Secondly, it analyses how much of the structural change in the UK economy is driven by the offshoring of energy-intensive production overseas. The results show that energy intensity reductions are the strongest factor reducing energy consumption. However, only a third of the energy savings from energy intensity reductions can be attributed to reductions in thermodynamic efficiency with reductions in the exergy intensity of production making up the reminder. In addition the majority of energy savings from structural change are a result of offshoring, which constitutes the second biggest factor reducing energy consumption. In recent years the contributions of all decomposition factors have been declining with very little change in energy consumption after 2009. This suggests that a return to the strong reductions in energy consumption observed between 2001 and 2009 in the UK productive sectors should not be taken for granted. Given that further reductions in UK final energy consumption are needed to achieve global targets for climate change mitigation, additional policy interventions are needed. Such policies should adopt a holistic approach, taking into account all sectors in the UK economy as well as the relationship between the structural change in the UK and in the global supply chains delivering the goods and service for consumption and investment in the UK.