Changing energy intensity in China: a decomposition analysis

This study proposed a decomposition method based on the normalized quadratic shadow unit cost function to explore the determinants of the change in energy intensity in China from 1985 to 2010. The decomposition analysis indicates that (1) the improvement in technical efficiency dramatically reduced the energy intensity, whereas technological change played only a minor role, which could be attributed to a rebound effect; (2) the aggregated allocation effect was small because the change in the allocative distortion between capital and energy significantly enhanced energy intensity but was partly offset by the effect stemming from the change in the allocative distortion between capital and energy; and (3) the substitution of energy for labor increased energy intensity, but the aggregated substitution effect significantly reduced energy intensity because the substitution of capital for energy reduced energy intensity to a great extent. These findings were obtained at the national level and varied at the regional level.