Assessing Energy Consumption and Energy Intensity Changes in Pakistan: An Application of Complete Decomposition Model

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1 The Paksan Develpmen Revew 40 : 2 (ummer 2001) pp Assessng Energy Cnsumpn and Energy nensy Changes n Paksan: An Applcan f Cmplee Decmpsn Mdel HATA ALAM and MOHAMMAD ABHUDDN BUTT * Cmplee decmpsn mdel has been emplyed n he presen sudy decmpse he changes n energy cnsumpn and energy nensy n Paksan durng A general decmpsn mdel rases a prblem due resdual erm. n sme mdels he resdual erm s med, whch causes a large esman errr, whle n sme mdels he resdual erm s regarded as an neracn ha mgh creae a puzzle fr he analyss. A cmplee decmpsn mdel s used here slve hs prblem. 1. NTRODUCTON The nanal ecnmy culd be dsaggregaed n w grups ne grup cnsss f lw energy-nensve secrs and he her cnsss f hgh energynensve secrs. 1 f decmpsn mdel apples a hs level, s called snglelevel decmpsn, r decmpsn a level ne, r decmpsn a grups level. f each grup culd be furher dsaggregaed n several secrs, hen decmpsn a secr level wuld be arbued decmpsn a level w (see Char 1). f decmpsn s carred u a mre han ne level, s be called a mullevel decmpsn. Fr he presen analyss, nly a sngle-level decmpsn mdel s used esmae he changes n energy cnsumpn and changes n energy nensy n Paksan. Acually, he decmpsn mdels lead an apprxmae decmpsn. These knds f decmpsn mehds have been prpsed by [Hanknsn and Rhys (1983); Reler, e al. (1987); Byd, e al. (1988); Dbln and Clare (1988); Hwarh (1991); Hwarh and chpper (1992); Park (1992); Park, e al. (1993), ec. The hasa Alam and Mhammad abhuddn Bu are Research Asssan and enr Research Ecnms respecvely a Appled Ecnmcs Research Cenre, Unversy f Karach. Auhrs Ne: Ths arcle s an exensn f he research dne by hasa Alam as an MPhl suden a Appled Ecnmcs Research Cenre, Unversy f Karach. The auhr wuld lke hank Dr Nuzha Ahmad fr her valuable and helpful cmmens n an earler draf f hs arcle. 1 On he bass f nensy used, he agrculure and cmmercal secrs are lw energy-nensve secrs and ranspr, ndusry, and her gvernmen secrs are hgh energy-nensve secrs.

2 136 Alam and Bu Char 1 DAGGREGATON OF THE ECONOM AT VAROU LEVEL NATONAL ECONOM GROUP - 1 Lw Energynensve ecrs LEVEL ONE (Grup Level) GROUP - 2 Hgh Energynensve ecrs Agrculure Cmmercal LEVEL TWO (ecr Level) ndusry Transpr Oher Gvernmen man mperfecn f hese mehds s he resdual erm. The resdual erm n ms sudes was med [Hanknsn and Rhys (1983); Reler, e al. (1987); Byd, e al. (1988); Dbln and Clare (1988); Hwarh (1991); Hwarh and chpper (1992)] and n sme sudes was called he neracn f effecs [Park (1992); Park, e al. (1993)]. The med resdual causes a large esman errr, and s regarded as an neracn ha mgh creae a puzzle fr he analyss. The purpse f emplyng he cmplee decmpsn mdel (CDM) s mprve he relably and accuracy f he analycal mdel [un (1996)]. The am f he sudy s decmpse he changes n energy cnsumpn and he changes n energy nensy n Paksan durng he perd The change n energy cnsumpn s decmpsed n he scale f ecnmc acvy (he acvy effec), he secral echnlgcal level (he nensy effec), and he ecnmc srucure (he srucural effec). Whle he change f energy nensy s decmpsed n secral energy nensy effec and secral srucural effec [un (1998)], he purpse f emplyng cmplee decmpsn mdel s decmpse he change f energy use n Paksan and quanfy he cnrbun f each effec n dfferen energy nensve grups n erms f he change f energy cnsumpn and he change f energy nensy n Paksan durng he perd under cnsderan. n hs sudy, ecnmy s dvded n w grups Grup-1 cnsss f lw energynensve secrs and Grup-2 cnsss f hgh energy-nensve secrs. everal sudes n energy ecnmcs have emplyed he echnque f decmpsn examne he changes f energy cnsumpn and changes f energy nensy. The sudes by Lu, e al. (1992) and Ang and Lee (1994) deal wh a

3 Energy Cnsumpn and Energy nensy Changes 137 decmpsn echnque ha we shall refer as he energy cnsumpn apprach,.e., decmpsn ver me n cnrbuns frm changes n aggregae prducn (prducn effec), prducn srucure (srucural effec), and secral energy nenses (nensy effec). everal analyss have prpsed a mehd usng he energy nensy apprach, where decmpsn s carred u n changes n aggregae energy nensy. 2 n he energy nensy apprach, changes n aggregae nensy are decmpsed n cnrbuns frm srucural and nensy effecs nly. Examples f such sudes are Jenne and Caell (1983) and Bendng, e al. (1991). The energy nensy apprach has been used n a large number f emprcal and cunry-specfc sudes [Bssany, (1979); Jenne and Caell (1983); Ang (1994); L, e al. (1990); Gardner (1993); Huang (1993)]. 2. METHODOLOG: COMPLETE DECOMPOTON MODEL (CDM) 3 T sudy he mpac f srucural changes (.e., shfs n he cmpsn f al upu) and energy cnsumpn n aggregae energy effcency mprvemen, he nanal energy nensy wll be decmpsed wh he help f he cmplee decmpsn mdel (CDM). The general decmpsn mdel leads an apprxmae decmpsn because has a resdual erm. The resdual nfluences he accuracy f he mdel. n sme sudes he resdual was med and hs caused a large esman errr; he resdual was regarded as an neracn ha sll leaves a new puzzle fr analyss. The cmplee decmpsn mdel has slved hs prblem. The cmplee decmpsn mdel fr explanng he relanshp beween energy cnsumpn and he change f he energy nensy culd be wren as fllws: 2.1. The Energy nensy Mdel (EM) where, Aggregae energy nensy: Change n aggregae energy nensy: = Aggregae energy nensy n year ( =E / ). = (1) = (2) = Oupu share f grup (where =1,2) n GDP n year ( = / ). = Energy nensy f grup (where =1,2) n year ( = E / ). 2 Aggregae energy nensy s defned as he ra f al energy cnsumpn al upu. 3 We have largely drawn n un (1998) n hs secn.

4 138 Alam and Bu The changes n aggregae energy nensy are arbued he secral energy nensy effec ( effec ) and he secral srucural effec ( effec ). Therefre, he decmpsn mdel fr he change n energy nensy wuld be: = effec effec (3) where, effec = effec = (4) (5) Thus cnrbun f he change f grup (where =1,2) he al change f energy nensy wuld be: grup = (6) The frs erm f he abve equan ndcaes he cnrbun f change he energy nensy f grup. The secnd erm represens he cnrbun f changes n he prducn share f grup, whle he hrd erm ndcaes he neracn beween bh facr changes n grup The Energy Cnsumpn Mdel (ECM) Fnal energy cnsumpn: The change n energy cnsumpn: where, E = Energy cnsumpn n year. E E = Energy cnsumpn n base year (=0). = Energy nensy f grup n year. = Oupu share f grup n year. = Aggregae upu n year. = (7) E = E E (8) nce energy cnsumpn and he change n energy cnsumpn are nfluenced by he acvy effec (E effec ), srucural effec (E effec ), and nensy effec (E effec ), he decmpsn mdel fr he change n energy cnsumpn wuld be: E = E effec E effec E effec (9)

5 Energy Cnsumpn and Energy nensy Changes 139 Ths s an exac decmpsn, where E effec = 3 1 ) ( 2 1 (10) E effec = 3 1 ) ( 2 1 (11) E effec = 3 1 ) ( 2 1 (12) Where he frs erm f he abve hree equans represens he cnrbun f he change f facr (Prducn), (Grup share n al prducn), and (nensy) respecvely he al change n energy cnsumpn. The secnd erm represens he cnrbun f change f ne facr wh he sum f he paral changes f he her w facrs wh respec grup. The hrd erm s he resdual n he general decmpsn mdel. culd be arbued eher (Prducn), (nensy), r (Grup share f al prducn) by equal mpac. Tha cnrbun s dependen n all f he hree changes and f nly ne f hem ges zer, he her effecs dsappear. When here s n reasn assume he cnrary, s dvded equally beween s, s, and s cnrbun. = Aggregae upu n base year (=0). = nensy f grup (=1,2) n base year (=0). = Oupu share f grup (=1,2) n base year (=0). = Change n aggregae upu (GDP). =. = Change n nensy f grup (where =1,2). =. = Change n upu share f grup (where =1,2). =. Therefre, he cnrbun f he change f grup he al change f energy cnsumpn wuld be: E grup = ) ( (13)

6 140 Alam and Bu The frs erm represens he cnrbun f change n (Tal prducn). The secnd erm ndcaes he sum f changes n (nensy) and (Grup share n prducn), wh he her w facrs a base year. The hrd, furh, and ffh erm represen he cnrbun f changes w facrs u f hree, wh he hrd facr a base year and he las erm arbued changes n all hree facrs. 3. DATA The annual daa f Grss Dmesc Prduc (GDP), beween 1960 and 1998, n lcal currency and a 1981 prces, are clleced frm he Ecnmc urvey f Paksan and 50 ears f Paksan ascs (Federal Bureau f ascs). ecral energy cnsumpn daa are cmpled frm Energy Daa Bk and Energy earbk (Mnsry f Perleum and Naural Resurces, Gvernmen f Paksan). All are cnvered n nnes f l equvalen. 4. EMPRCAL FNDNG AND DCUON The cmmercal energy cnsumpn, GDP, and aggregae energy nensy n Paksan fr varus benchmark years are repred n Table 1. The cmmercal energy cnsumpn n Paksan durng he perd ncreased nnefld, whch s greaer han he GDP grwh durng he perd. The aggregae energy nensy f he nanal ecnmy n he same perd ncreased by 3.9 TOE*/mlln rupees a cnsan prce frm TOE/mlln rupees n TOE/mlln rupees n The energy cnsumpn n Grup-1 (lw energynensve secrs) was ncreased by 1.35 MTOE** frm 0.16 MTOE n MTOE n 1998, whle n Grup-2 (hgh energy-nensve secrs), was ncreased by 14.6 MTOE, frm 1.87 MTOE n MTOE n Whle GDP ncreased by Rs blln, frm Rs 46.5 blln n 1960 Rs blln n 1998 n Grup-1, GDP f Grup-2 ncreased by Rs 238 blln, frm Rs 22 blln n 1960 Rs 260 blln n There are sme neresng resuls abu energy nensy fr bh grups. The energy nensy f lw energy-nensve grup ncreased apprxmaely wfld frm , whle he energy nensy f hgh energy-nensve grup decreased gradually by 25 percen f he nensy f Grup-1 cnrbues nly 8.5 percen al change f energy cnsumpn, whle Grup-2 cnrbues 91.5 percen durng he perd Decmpsn f he Change n Energy nensy Table 2 reprs he facr analyss f he change f energy nensy. Fr he al nensy change, he srucural effec s fund be psve and he nensy effec s negave n all sub-perds and durng he whle perd ( ). Ths mples ha energy nensy ncreased by 9.42 TOE/mlln rupees due he * Tnnes f l equvalen. ** Mlln nnes f l equvalen.

7 Energy Cnsumpn and Energy nensy Changes 141 Table 1 Fnal Energy Cnsumpn, GDP, and Energy nensy n Paksan Paksan EC GDP Lw Energy-nensve ecrs (Grup-1) EC GDP Hgh Energy-nensve ecrs (Grup-2) EC GDP urce: Paksan Ecnmc urvey and Paksan Energy earbk. Un: Energy cnsumpn n mlln TOE, GDP n bllns Rs , and energy nensy n TOE/mlln Rs. Table 2 Facr Analyss f he Change f Energy nensy Cnrbun he Tal Change by Tme Perd rucural Effec nensy Effec Tal Change (130.80%) 0.69 ( 30.80%) (390.32%) (128.47%) ( %) (240.92%) Un: TOE /mlln Rs ( %) 0.39 ( 28.47%) 1.73 (274.60%) 5.51 ( %)

8 142 Alam and Bu srucural effec and decreased by 5.51 TOE/mlln rupees due he nensy effec durng he perd under cnsderan. As a resul, he ncrease n aggregae nensy was 3.91 TOE/mlln rupees n he same perd. The resuls ndcae ha he ncrease n aggregae energy nensy was due manly he srucural effec because, n Paksan, he srucural changes appeared be sgnfcan durng he same perd. Cnsequenly, appears ha aggregae energy effcency decreased due he srucural change n he cunry (ee Fgure 1). Cnrbuns f grups he al change n energy nensy are repred n Table 3. The resuls ndcae ha he hgh energy-nensve grup (ndusry, ranspr, and her gvernmen secrs) cnrbues 87.5 percen change n aggregae energy nensy change, durng he whle me-perd cnsdered. n all sub-perds, he hgh energy-nensve grup shws a large change and he lw energy-nensve grup shws a small change n al energy nensy changes. Ths culd be a resul f mprved effcency f energy use f he relavely hgh energy-nensve grup Tnnes f l equvalen / Mlln Rs rucural Effec nensy Effec Fg. 1. Facr Analyss f he Change f Energy nensy.

9 Energy Cnsumpn and Energy nensy Changes 143 Table 3 Cnrbun f Grups he Tal Change n Energy nensy Cnrbun he Tal Change by Tme Perd Lw Energy-nensve Grup Hgh Energy-nensve Grup Tal Change (17.86%) 1.84 (82.14%) (37.63%) ( 5.84%) (28.57%) (12.53%) Un: TOE /mlln Rs (62.37%) 1.45 (105.84%) 0.45 (71.43%) 3.42 (87.47%) Decmpsn f he Change n Energy Cnsumpn Facr analyss fr he change f energy cnsumpn s presened n Table 4, and graphcally by Fgure 2. The energy cnsumpn ncreased by MTOE and 3.37 MTOE by he acvy effec and he srucural effec, respecvely. Hwever, he energy cnsumpn decreased by 2.24 MTOE by he nensy effec (mprvemen f energy effcency) durng he perd under cnsderan. Fnally, he al energy cnsumpn ncreased by MTOE n he same perd. n all sub-perds energy cnsumpn ncreased by he acvy effec and he srucural effec whle aggregae energy cnsumpn decreased by he nensy effec, fndngs whch als renfrce earler resuls ha he srucural effec appeared mre prnunced fr he mpac f energy effcency n he cunry durng he perd under cnsderan. Cnrbun f grups he al change n energy cnsumpn s repred n Table 5. The resuls shw ha he hgh energy-nensve grup cnrbues a large ncrease and he lw energy-nensve grup cnrbues a small ncrease n he al ncrease f aggregae energy nensy durng he perd under cnsderan. Frm al ncreases n aggregae energy nensy were 16 percen, whch he hgh energy-nensve grup cnrbues 91.6 percen and he lw energynensve grup cnrbues nly 8.4 percen. These resuls recnfrm he prevus fndngs ha he hgh energy-nensve grup s manly respnsble fr mprved effcency f energy use n he cunry, durng he perd under cnsderan.

10 144 Alam and Bu Table 4 Facr Analyss fr he Change f Energy Cnsumpn Cnrbun he Tal Change by Tme Perd Acvy Effec rucural Effec nensy Effec (87.10%) (17.05%) ( 4.15%) (93.75%) (92.06%) (107.58%) (96.30%) Un: Mlln TOE (28.31%) 0.65 (10.32%) 0.62 (13.05%) 2.41 (15.12%) 0.60 ( 22.06%) 0.15 ( 2.38%) 0.98 ( 20.63%) 1.82 ( 11.42%) Tal Change Mlln nnes f l equvalen Acvy Effec rucural Effec nensy Effec Fg. 2. Facr Analyss f he Change f Energy Cnsumpn.

11 Energy Cnsumpn and Energy nensy Changes 145 Table 5 Cnrbun f Grups he Tal Change n Energy Cnsumpn Cnrbun he Tal Change by Tme Perd Lw Energynensve Grup Hgh Energynensve Grup Tal Change (9.22%) 1.97 (90.78%) (11.03%) (7.94%) (7.16%) (8.40%) Un: Mlln TOE (88.97%) 5.80 (92.06%) 4.41 (92.84%) (91.60%) CONCLUON The cmplee decmpsn mdel prvdes a mehd fr facr analyss f aggregae energy nensy and aggregae energy cnsumpn. The presen sudy has been cnduced n he facr analyss fr he change f energy nensy and energy cnsumpn n Paksan n The resuls shw ha ncrease n aggregae energy nensy s manly due he srucural effec whle ncrease n aggregae energy cnsumpn s due bh he acvy effec and he srucural effec. Ths may lead he cnclusn ha here was neffcen use f energy n he cunry due he change n ecnmc srucure and ecnmc acves n he cunry. These resuls furher ndcae ha mprved effcency f energy use culd be due he effcen use f energy by he relavely hgh energy-nensve grup as cmpared he neffcen use f energy by he lw energy-nensve grup n he cunry. Hwever, we d n knw he reasns fr neffcency f energy use; here may be sysem lsses, lack f sysem relably, neffcen managemen, pr nsunal framewrks, and neffcen manpwer. The man plcy mplcan fr he mprvemen f energy effcency s he adpn f explc cnservan plces ha g beynd he seps nvlved n ranal energy prcng, publc awareness effrs, auds f energy use, ec. Oher mehds fser energy savngs shuld als be prmed and suppred.

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