Multilevel LMDI decomposition of changes in aggregate energy consumption. A cross country analysis in the EU-27

This paper aims at analysing the factors behind the change in aggregate energy consumption in the EU-27, also identifying differences between member states. The logarithmic-mean Divisia index method (LMDI) is applied to multiplicatively decompose, at the country level, the variation in aggregate energy consumption in the EU-27 member states for the 2001-2008 period. We also analyse the sensitivity of the results when several aggregation levels are considered, with energy intensity used as the criterion to aggregate countries. This allows us to check robustness of results, also enabling an improved understanding of both inter and intra-unit effects. Results indicate that improvements in energy efficiency in the EU-27 were not enough to overcome the pressure of European economic activity on aggregate energy consumption. Mediterranean countries, and especially former communist states, increased their energy consumptions, most of them favoured by structural change. The analysis also reveals that the impact of intra-group movements on aggregate energy consumption is partially offset when moving from higher to lower aggregation levels.