Energy Efficiency: A Sectoral Analysis for Kerala

One positive impact of the 1973 oil crises has been the concerted effort across the world to reduce energy consumption through energy use efficiency improvements. Improving energy efficiency ensures the objective of conserving energy and thus promoting sustainable development. Recognition of this fact has now appeared in terms of including the aim of improving efficiency as an important component of electrical energy policy in all the countries across the globe. A large number of studies have demonstrated that the aggregate energy efficiency inherently encompasses a number of factors that affect energy intensity, viz., a structural effect, representing the effect of changes in economic structure, an activity effect, representing the changes in the levels of aggregate activity, a wealth effect, representing changes in GDP, and an underlying energy efficiency effect, including a technical effect and an energy quality effect. This new light has in turn led to the development of the techniques of factorization or decomposition. Energy efficiency research in general has opened up three avenues of enquiry, namely, the measurement of energy productivity, the identification of impact elements (such as the three factors mentioned above) and the energy efficiency assessment. The traditional interest in energy efficiency has centred on a single energy input factor in terms of productivity that has become famous through an index method proposed by Patterson (1996). The enquiry that has proceeded from the problems associated with this method has led to identifying the effect source of variation, in terms of some decomposition analysis. Almost all the earlier studies have in general employed the method of indicators pyramid, based on which energy efficiency changes have been decomposed from other factors at each level of disaggregation using factorization method. The Laspeyres index decomposition approach was in vogue earlier that has now been replaced with methodologically superior Divisia approach, in terms of Logarithmic Mean Divisia index (LMDI). Finally, a new energy efficiency estimation method, criticizing the single factor energy efficiency method, has come up utilizing a multi-variate structure. Here we have a parametric (econometric) approach, in terms of frontier production function analysis, and a non-parametric approach, in terms of data envelopment analysis (DEA)