Energy Efficiency in the Manufacturing Sector of the OECD : Comparative Analysis of Price Elasticities in the Intensive and Extensive Sectors

Energy intensity in the OECD manufacturing sector has been falling since the oil crises in the 1970s. Studies in energy intensity identified that spatial considerations are important, and there exists a great deal of heterogeneity in energy intensities amongst countries and sectors. This paper further explores these recent findings in the OECD manufacturing sector. In this paper industrial energy intensity is decomposed to identify which drivers, technological efficiency or structural change, were contributing to that change. Then applying recent panel time series techniques, which account for heterogeneity and cross-section dependence, estimate the impacts of prices on the factors driving industrial energy intensity. The results from this decomposition tend to support existing findings that the technological efficiency effect is the major driver for reduction in energy intensity. Also the results generally indicated that there is little difference between the intensive and extensive sector efficiencies, with both moving in tandem contributing to improved energy use. Further, the estimation results indicate that rising prices does lead to improved efficiency; however the effects are varied across countries and sectors