Tracking industrial energy efficiency trends using index decomposition analysis

Index decomposition analysis (IDA) has been widely used to track economy-wide and sectoral energy efficiency trends. An integral part of this application is identifying the drivers of energy use for the energy consuming sector studied. In the case of industry, a monetary activity indicator such as value added is often taken as the driver. With the availability of physical production data for some industry subsectors, such as in tonnes or cubic meters, effort has been made by researchers to incorporate physical activity indicators in order to produce results that can better capture energy efficiency trends. We review and consolidate two different approaches to incorporating physical activity indicators in industrial energy studies using IDA. Based on their underlying concept, they are referred to as the intensity refactorization (IR) approach and the activity revaluation (AR) approach. We refine the AR approach, and compare the AR, IR, and the conventional monetary-based IDA approaches. Numerical examples and recommendations are presented.