LMDI decomposition approach: A guide for implementation

Since it was first used by researchers to analyze industrial electricity consumption in the early 1980s, index decomposition analysis (IDA) has been widely adopted in energy and emission studies. Lately its use as the analytical component of accounting frameworks for tracking economy-wide energy efficiency trends has attracted considerable attention and interest among policy makers. The last comprehensive literature review of IDA was reported in 2000 which is some years back. After giving an update and presenting the key trends in the last 15 years, this study focuses on the implementation issues of the logarithmic mean Divisia index (LMDI) decomposition methods in view of their dominance in IDA in recent years. Eight LMDI models are presented and their origin, decomposition formulae, and strengths and weaknesses are summarized. Guidelines on the choice among these models are provided to assist users in implementation.