Importance of Energy Efficiency in Manufacturing Industries for Climate and Competitiveness

The manufacturing industry in Europe is currently enfacing one of its greatest challenges due to the emission reductions needed to reach carbon neutrality by the middle of this century. The European Union's Energy Efficiency Directive and Green Deal will force manufacturing industries to significantly reduce their present energy consumption, but at the same time sustain their competitiveness globally. Here we use the Latvian manufacturing industry as a case to analyse how different macro-level factors have affected its energy use and how the industrial energy efficiency has progressed during the last decade. We apply the Log-Mean Divisia index decomposition method to decompose the energy use in the manufacturing subsectors over the period of the past ten years from 2010 to 2019. The findings unravel the key driving factors of industrial energy consumption, which could serve as a valuable basis for effective energy efficiency policymaking in the future. The results show that energy consumption trends differed across industrial subsectors and the effect of industrial energy efficiency improvements was more pronounced in the period following the entry into force of Energy Efficiency Law in Latvia. Significant increases in energy consumption are observed in the two largest Latvian manufacturing subsectors, such as the non-metallic minerals production sector and the wood processing sector, where the current pace of energy efficiency improvements cannot compensate for the effect of increasing industrial activity, which increases overall industrial energy consumption. The results suggest that the Latvian manufacturing industry is at the crossroads of the sustainability dilemma between economic gains and energy saving targets.