Interfuel substitution and decomposition of changes in industrial energy consumption

Several recent studies have dealt with the methodology of decomposing the change in industrial energy consumption between two years into three separate components. Each component is associated with one of the following three effects: changes in production level, product-mix, and sectoral energy intensity. The component attributable to sectoral energy intensity gives the overall effect of interfuel substitution, changes in the physical efficiencies of fuel use, and factors which are unaccounted for. In this paper, we present a method for isolating the effect of interfuel substitution such that the change in energy consumption is decomposed into four separate components. With this extension, the mechanisms of change in energy use in industry can be studied in depth and with improved understanding. We have applied our method to data of Taiwan and the results are presented. We also discuss the assumptions made and some practical considerations in the use of our method.