The underlying trend of OPEC energy intensity and the environmental implications

Given the incessant increase in OPEC energy intensity, policymakers need a good understanding of the underlying factors and the environmental impacts when considering future energy policies. An index decomposition analysis is used to decompose OPEC energy intensity for 1971-2013. The link between the decomposed energy indices and CO2 emissions is examined using structural time series and least square dummy variable corrected models. Both models also estimate the underlying carbon emission trend (UCET) which arguably reflects the impact of noneconomic factors. For OPEC as a group, increases in energy intensity are linked to both energy inefficiency and structural shifts toward energy-intensive activities. About 56% of the increases are attributed to the former and the remaining 44% is due to the later. The country-level results also show major contributions from both components to energy intensity. The econometric results show that shifts toward energy-intensive activities and, notably, deteriorating energy efficiency generally go in tandem with substantial increases in CO2 emissions. The estimated UCET is upward sloping indicating carbon-emitting behaviour and lifestyle. Therefore policies aimed at conserving energy and limiting the concentration of energy-intensive activities in the oil-exporting countries should be considered alongside other policies that attempt to influence behaviours and lifestyles.

Keywords: Energy intensity, Index decomposition analysis; Energy (in)efficiency; Structural composition; Structural time series model; Least square dummy variable corrected model; CO2 emissions, OPEC
JEL codes: C22, Q41, Q43