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2001-12-01 | Peer Reviewed

Decomposition of Namibian energy intensity

Stage, Jesper. 2001. “Decomposition of Namibian energy intensity.” South African Journal of Economics 69:4: 698-707.
Download reference Doi:10.1111/j.1813-6982.2001.tb00031.x

This paper uses decomposition methodology to study whether the changes in Namibian aggregate energy intensity have been structurally driven – as in most developing countries studied to date – or whether they have been driven by changes in energy efficiency at the sectoral level.

Since the first oil crisis in the early 1970s, there has been a great deal of interest in studying changes in energy use patterns to see how rapidly, and in what way, economies adapt to changes in energy prices or in energy policy. One common way of doing this is by studying changes in the energy intensity, i.e. changes in the ratio between energy consumption and economic output either in the economy as a whole or in individual sectors. In energy economics, decomposition methods are frequently used to disaggregate (or “decompose”) changes in aggregate energy intensity into effects caused by structural changes in the economy, i.e. changes in the relative sizes of different economic sectors, and effects caused by changes in the energy intensities of individual sectors.

A frequent finding, both in decomposition studies and in other energy demand studies (Park et al., 1993; Velthuijsen and Worrell, 1999), has been that in developing countries sectoral energy intensities change only slowly, which means both that changes in aggregate energyintensity are mainly driven by structural changes in the economy and that there is a close relationship between economic growth and growth in energy demand. In developed countries, on the other hand, sectoral energy intensities fluctuate and have on the whole declined considerably since the 1970s, which means that economic growth is no longer closely coupled to energy demand growth.

 

Two main explanations have been proposed for this difference (Park et al., 1993). One is that in developed countries, more effort has been put into energy conservation, and energy policy encourages firms to install energy efficient technologies as soon as they become available. The other proposed explanation, which is generally believed to be the more important, is that the primary industries which dominate the economies of developing countries are usually highly energy intensive and that the scope for energy conservation in these sectors is limited.

The developing countries analysed in these studies have almost exclusively been South American or East Asian countries. A recent survey of over a hundred published decomposition studies (Ang and Zhang, 2000) did not find a single study of energy use in an African country. The main reason for this is probably that the detailed energy statistics which are necessary for these analyses to be meaningful are rarely available in African countries. However, this does mean that it is difficult to say anything with confidence about probable future developments in the energy use patterns of African economies.

Namibia is one of the few African countries which does have detailed statistics over final energy consumption; moreover, aggregate energy intensity has varied considerably during the past years. Namibian energy policy (Ministry of Mines and Energy, 1998) with regard to commercial energy use is based on the assumption that there is an explicit connection between economic growth and energy demand growth, and the Namibian economy is dominated by primary industries with, supposedly, little scope for improvements in energy efficiency. On the other hand, several of the most important energy sources (petrol, diesel and paraffin) are taxed and cost recovery policies are in place for those energy sources where prices are still being regulated, which should put pressure on firms to improve energy efficiency wherever possible. It is therefore of interest to use decomposition methodology to study whether the changes in Namibian aggregate energy intensity have been structurally driven – as in most developing countries studied to date – or whether they have been driven by changes in energy efficiency at the sectoral level.