Multilevel index decomposition analysis: Approaches and application

With the growing interest in using the technique of index decomposition analysis (IDA) in energy and energy-related emission studies, such as to analyze the impacts of activity structure change or to track economy-wide energy efficiency trends, the conventional single-level IDA may not be able to meet certain needs in policy analysis. In this paper, some limitations of single-level IDA studies which can be addressed through applying multilevel decomposition analysis are discussed. We then introduce and compare two multilevel decomposition procedures, which are referred to as the multilevel-parallel (M-P) model and the multilevel-hierarchical (M-H) model. The former uses a similar decomposition procedure as in the single-level IDA, while the latter uses a stepwise decomposition procedure. Since the stepwise decomposition procedure is new in the IDA literature, the applicability of the popular IDA methods in the M-H model is discussed and cases where modifications are needed are explained. Numerical examples and application studies using the energy consumption data of the US and China are presented.