What drives the change in Chinaʹs energy intensity: Combining decomposition analysis and econometric analysis at the provincial level

We employ decomposition analysis and econometric analysis to investigate the driving forces behind Chinaʹs changing energy intensity using a provincial-level panel data set for the period from 1995 to 2009. The decomposition analysis indicates that: (a) all of the provinces except for a few experienced efficiency improvement, while around three-fourths of the provincesʹ economics became more energy intensive or remained unchanged; (b) consequently the efficiency improvement accounts for more than 90% of Chinaʹs energy intensity change as opposed to the economic structural change. The econometric analysis shows that the rising income plays a significant role in the reduction of energy intensity while the effect of energy price is relatively limited. The result may reflect the urgency of deregulating the price and establishing a market-oriented pricing system in Chinaʹs energy sector. The implementation of the energy intensity reduction policies in the Eleventh Five-Year Plan (FYP) has helped reverse the increasing trend of energy intensity since 2002. Although the Chinese Government intended to change the industry-led economic growth pattern, it seems that most of the policy effects flow through the efficiency improvement as opposed to the economic structure adjustment. More fundamental changes to the economic structure are needed to achieve more sustainable progress in energy intensity reduction.