Measures and Policy Issues

Energy Intensity as a Common Surrogate for Energy Efficiency

Indices as a Measure of Relative Changes

Market-Basket

Comprehensive

Factorial Decomposition

Divisia Index

Best Practice

Energy Efficiency Measurement Discussion

The development of energy-efficiency indictors, for any country, is limited by the availability of data. Data are limited for several reasons.   As the amount of data collected increases so do the costs of collecting, processing, and analyzing the data.  The configuration of certain technologies and processes can also limit the possibility of obtaining microdata. As an example, in the manufacturing sector, some motors are encased in such a way that it is impossible to collect data on the motor unless records have been maintained for the motor.  This leads to another reason data are limited--respondent burden. Care has to be taken so that surveys are not so long that participation is discouraged or inaccurate answers are given due to the difficulty and time it takes to obtain the data. Additionally, when international comparisons are desired, structural, behavioral, and economic differences add to the difficulty of developing comparative indicators.   Data availability is a particular problem when trying to undertake cross-country comparisons. Each country has its own unique survey forms, measures of energy, definitions, etc. that make the comparisons difficult. In many countries and especially in the emerging economies, very limited data are collected in the first place and there are no funds to increase the amount of data collected.  Even a simple indicator such as energy per gross domestic product is difficult to use in cross-country comparisons--countries have different measures of energy, currencies, and income accounting. Defining energy efficiency is a difficult task.   As you can see, measuring changes in energy efficiency is even more difficult. Can we develop an indicator or set of indictors that will truly represent only the changes in energy efficiency? Probably not. What we can do is to decide which indicators are possible within the available resources and adjust these indicators for structural, economic, and behavioral changes where we can.  The indicators that are developed can then be used to compare relative changes that do occur overtime.  Although the indicators might be the best that can be developed within the constraints, they are only estimates.  Supporting information on factors affecting the changes need to be presented in as much detail as possible.

Energy Efficiency Measures and Policy Issues

Measurement of energy efficiency always relates to the specific policy objectives at stake. Otherwise, why should we care how efficient we are? Are we concerned specifically about economic well being, higher productivity, increased employment and incomes, resource conservation, or improved environmental quality? Different answers call for different indicators. Consequently, the appropriate indicator is dependent on the policy objective.  For example, if the policy objective concerned the environment, then the intensity indicator would involve carbon emissions. From the global warming perspective, the absolute carbon emissions are obviously most important, and energy intensity is not relevant.  On the other hand, if economic productivity is the policy objective, then energy expenditures per dollar of GDP might be a more suitable indicator.

Energy intensity measures are often used to measure energy efficiency and its change over time. However, energy-intensity measures are at best a rough surrogate for energy efficiency. This is because energy intensity may mask structural and behavioral changes that do not represent "true" efficiency improvements such a shift away from small cars to sport-utility jeep-like vehicles.

Energy intensity is defined as the ratio of energy consumption to some measure of demand for energy services. The choice of a measure of demand for energy services (a "demand indicator") in efficiency analysis is critical.  As examples, in the transportation sector intensity measures could include gallons per passenger mile or gallons per vehicle mile.  Passenger mile and vehicle miles are the demand indicators in these two examples.

Indicators of energy intensity are useful, but we must remember that the underlying components are critical to interpretation.  Without a structural context, the indicators can be misleading. The structural component of intensity is important because it shows where policy might or might not be directed. Although it is difficult to equate energy efficiency to a single intensity measure, or set of measures, some form of energy intensity is often the best we can do with available data.

Most of what you will find at this web site and in other "efficiency" analysis will be efficiency indicators that are actually energy-intensity indicators that have been adjusted for such factors are product mix, inventory changes, weather, behavior, size, etc.

The central question in the measurement of energy efficiency may really be "efficient with respect to what?" This is why EIA is attempting to develop some type of index or series of indices to measure relative changes. The following are some of the index approaches that are under consideration for implementation.  Each approach has its own specific strengths and weaknesses. These will not be discussed here, but each discussion includes references to other reports where more information may be found.

Market-Basket Approach. The market basket approach estimates energy-consumption trends for a controlled set of energy services (the market basket) with individual categories of energy services controlled relative to their share in the index. This method of indexing is a type of "bottom-up" approach. See Measuring Energy Efficiency in the United States’ Economy: A Beginning for more information.

Comprehensive Approach. The comprehensive approach attempts to take all energy use into account. The comprehensive approach starts the measurement process with the broadest available measures of energy use and demand indicators available. Over time, changes in such measures reflect changes such as changes in behavior, weather, structure, and energy efficiency.  The effects, unrelated to changes in energy efficiency, are then removed.  This approach can be thought of as a "top-down" approach.  It is like peeling away all the effects until energy efficiency is all that remains.   See Measuring Energy Efficiency in the United States’ Economy: A Beginning for more information.

Factorial Decomposition Approach. The factorial decomposition approach applies Laspeyres indices to decomposing changes in energy use to produce growth rates of change in energy use for a particular effect. Energy use is decomposed into an activity effect, structural effect, and an intensity effect. Each of these effects is measured by holding the other two constants. As an example, this approach measures the relative change to a base year in the use of energy that would have occurred due to the intensity effect if there had been no changes in the activity or structural effect.

This approach is widely used. A good example of its use is in Indicators of Energy Use and Efficiency published by the International Energy Agency. The decomposition approach is described in detail in the publication’s appendix. Another example of the use of this approach is in Energy Efficiency Trends in Canada 1990 to 1996 published by Natural Resources Canada, Office of Energy Efficiency.

Divisia Index Approach. The Divisia index approach may be used to decompose time trends into the different factors such as structural and intensity. The results may measure energy savings over time and uses time trend data.  The article "Separating the Changing Composition of U.S. Manufacturing from Energy Efficiency Improvements: A Divisia Index approach written by Gale Boyd, J.F. McDonald, Marc Ross, and D.A. Hanson is a good source for information on the Divisia index approach. The article may be found in the April 1987 issue of The Energy Journal. This is the method used for most of the analysis in Energy Conservation Trends (DOE/PO-0034) published in 1995 by the U.S. Department of Energy, Office of Policy and the Office of Energy Efficiency and Alternate Fuels.

Other Approaches

Best Practice Approach. According to this approach, the difference between the current or average practice of producing e.g. a ton of steel and the "best practice" of producing e.g. a ton of steel allows you to look at what is possible.  Different types of "best practices" can be used as the reference case depending on what type analysis is being undertaken. It can be used to compare a single establishment or a single process within an establishment.  More can be learned about this approach in the Handbook on International Comparisons of Energy Efficiency in the Manufacturing Industry published by the Department of Science, Technology and Society, Utrecht University in April 1998.  

Other Measurement Issues 

Site Energy Versus Primary Energy.  The energy measure used can either be in terms of primary energy or site energy.  Primary energy is the amount of energy delivered to an end user (e.g., residential housing unit) adjusted to account for the energy that is lost in the generation, transmission, or distribution of the energy.  Site energy is the amount of energy delivered to an end user without adjusting for the energy lost in the generation, transmission, and distribution of the energy.  When developing energy use, efficiency, and CO₂ indictors, is site energy the measure to use or primary energy?  It depends.

Primary energy is better than site energy in the construction of aggregate indicators.   Also, from an environmental perspective, primary energy is useful to show the ultimate resource impact of sectoral energy demand with respect to CO₂, for example, e.g. attributing the amount of CO₂ created from the generation of electricity due to the demand for electricity by the residential sector.

For the residential, industrial, commercial building, and transportation sectors, if the analytical interest is at the disaggregated levels, such as at the end-use level, e.g., space conditioning,  we may be interested in using site energy.   Included in the analysis, may be an additional analysis of energy-efficiency changes in the utility sector.

This primary versus site debate centers on electricity, but losses are associated with other energy sources.  For example, one could take distillate fuel oil all the way back to the refinery, even factoring in energy losses in the fuel delivery trucks.

From an economist's perspective, using expenditures instead of primary or site energy may be preferable. This way it does not matter if there is a shift from electricity to natural gas or vice versa because when the site energy declines relative to primary, the expenditures would remain relatively level.

Physical Units Versus Economic Units.    In the development of energy-efficiency indicators for the manufacturing sector, from an engineering perspective, efficiency indicators should use physical measures of output, not economic value as the demand indicator.   However, limited data are available only for some industries, such as the aluminum or lumber industries.  Physical output data are not available for most industries. In the manufacturing sector, the diversity of processes and ways in which energy is consumed makes it difficult to single out characteristics that drive energy consumption activities for all industries.  Even at the two-digit SIC level, there are no consistent physical units that can be used to measure demand, e.g., tons could be used for the steel industry, but horsepower may be used in another industry.

In December 1996, a study comparing physical output and different economic measures was undertaken by the U.S. Department of Energy--Measuring Industrial Energy Efficiency: Physical Volume Versus Economic Value.  Although this study advocates the use of physical output wherever feasible, it states that the value of production demand indicator is the most desirable and should be used in energy-efficiency indicators when physical output measures are not available.  The value of production measure is the value of shipments adjusted for changes in inventories.

Energy-Efficiency Definition

Greenhouse Gas