Changes in energy efficiency in Australia: A decomposition of aggregate energy intensity using logarithmic mean Divisia approach

This paper provides an empirical estimation of energy efficiency and other proximate factors that explain energy intensity in Australia for the period 1978–2009. The analysis is performed by decomposing the changes in energy intensity by means of energy efficiency, fuel mix and structural changes using sectoral and sub-sectoral levels of data. The results show that the driving forces behind the decrease in energy intensity in Australia are efficiency effect and sectoral composition effect, where the former is found to be more prominent than the latter. Moreover, the favourable impact of the composition effect has slowed consistently in recent years. A perfect positive association characterizes the relationship between energy intensity and carbon intensity in Australia. The decomposition results indicate that Australia needs to improve energy efficiency further to reduce energy intensity and carbon emissions.

► This study decomposes various factors that explain aggregate energy intensity in Australia.
► Driving forces behind the decrease in energy intensity are efficiency and composition effects.
► The efficiency effect is found to be more prominent than the composition effect.
► The favourable impact of the composition effect has been slowed down in the recent past.
► Energy efficiency needs to boost further to reduce CO2 emissions.