What is driving energy intensity decline in Swedish manufacturing? A decomposition analysis
Abstract: This paper uses decomposition techniques to analyse factors influencing electricity intensity in Swedish manufacturing over the period 1993-2012. The results of the analysis show that both changes in the composition of the sector (the structure effect) and technological change within manufacturing industries (the technology effect) have contributed to an aggregate decline in electricity intensity. The decomposition results indicate that the technology effect has increased in relative importance over time. In a modified decomposition, I distinguish between two kinds of technological change: technological change that leads to an adjustment of the relative factor employment (the factor mix effect) and technological change in the form of general productivity changes and scale effects (the adjusted technology effect), following Wenzel & Wolf (2014). The results of the modified decomposition indicate that considerable factor substitution from labour to electricity has dominated any energy-saving technological change, and led to a net increase in electricity intensity from the factor mix effect. General productivity improvement and scale effects have instead driven the intensity decline. Combined, the results challenge current energy, climate and environmental policy in Sweden and abroad. In particular, the effectiveness of subsidising research directed at energy efficient technologies may be questioned.
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