LMDI Decomposition Analysis of Energy Consumption in the Korean Manufacturing Sector

Abstract

The energy consumption of Korea's manufacturing sector has sharply increased over the past 20 years. This paper decomposes the factors influencing energy consumption in this sector using the logarithmic mean Divisia index (LMDI) method and analyzes the specific characteristics of energy consumption from 1991 to 2011. The analysis reveals that the activity effect played a major role in increasing energy consumption. While the structure and intensity effects contributed to the reduction in energy consumption, the structure effect was greater than the intensity effect. Over the periods, the effects moved in opposite directions; that is, the structure effect decreased when the intensity effect increased and vice versa. The energy consumption by each industry is decomposed into two factors, activity and intensity effects. The increase of energy consumption due to the activity effect is largest in the petroleum and chemical industry, followed by the primary metal and non-ferrous industry, and the fabricated metal industry. The decrease of energy consumption due to the intensity effect is largest in the fabricated metal industry, followed by the primary metal and non-ferrous industry, and the non-metallic industry. The energy consumption due to intensity effect in the petroleum and chemical industry has risen. To save energy consumption more efficiently for addressing climate change in this sector, industrial restructuring and industry-specific energy saving policies should be introduced.