Energy efficiency in Indonesia’s manufacturing industry: a perspective from Log Mean Divisia Index decomposition analysis

Abstract

AbstractThis research discusses energy intensity in Indonesia’s manufacturing sector from 1980 to 2015. The manufacturing sector is the second-largest energy-consumer in Indonesia (after the transportation sector) and one of the largest contributors to Indonesia’s output. Thus, it is important to know the energy usage performance of this sector. This study discusses the factors affecting changes in energy consumption in various subsectors of Indonesia’s industry and investigates the energy intensity across manufacturing subsectors. This paper analyses the specific characteristics of energy intensity in the manufacturing sector in Indonesia from 1980 to 2015. This has not been investigated a great deal in the past, particularly when employing the Log Mean Divisia Index II method.The overall energy intensity of Indonesia’s manufacturing sectors has seen a strong and continuous decline, with a reduction of 65% over the 35 yr, reinforced by some limited changes in industry structure towards lower intensity. Over the entire period, this reduction was dominated by increases in energy efficiency within industries, as indicated by a 62% fall in the within-industry intensive index. By contrast, the effect of moving to a less intensive industry structure was much less important (a 9% fall in the structural index). The greatest rise in energy efficiency within the industry happened before the financial crisis (from 1980 to 97). the shock of the financial crisis saw an unexpected reaction when value-added fell by 13% but energy use remained largely unchanged, implying a rise in energy intensity. From 2000 to 2015 the earlier trends resumed, but at a more subdued pace, where over this period aggregate intensity fell by 23%.