Decoupling energy consumption and economic growth: the role of structural effects
Catarina Amarante de Oliveira Neves, Vincent Moreau, François Vuille
École Polytechnique Fédérale de Lausanne, Switzerland
The decoupling between environmental indicators such as GHG emissions and energy consumption and economic growth is at the core of the climate change debate: a successful decoupling is evidence of the green measures can be economically sustainable. This paper aims to further study the nature of this decoupling in 20 European nations and the EU as a whole, across five periods of time between 1990 and 2014. It applies an LMDI index decomposition analysis approach to decompose energy consumption into three key drivers: economic activity, energy intensity and economic structure. The study shows that a significant portion of the reductions in energy consumption can be attributed to structural changes in the economy, such as de-industrialization. The amount to which a change in structure contributed to overall consumption changes can be seen over time and its value, direction and timing for different countries corroborates the idea that much of the decoupling being advertised is virtual: it is largely due to the outsourcing of energy intensive activities. These energy savings are then offset in the form of embodied energy, which is currently accounted for in the country of origin. This evidence suggests that a shift in the dialogue of decoupling is necessary, and further emphasis must be put in devising effective energy efficiency policies for the key economic sectors of the EU. This is also relevant insight for future decarbonization plans in the EU in the context of its recent “Industry 4.0” plan for re-industrialization and the calls for more protectionist measures observed in political debates. These will no doubt change trends in energy intensity in EU countries, which should be met with at least comparable efforts to increase overall energy efficiency in order to balance out any structural effects.