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| Summary |
| The Department of Resources, Energy and Tourism commissioned ABARE to undertake a study investigating energy intensity trends in Australian industry. The analysis was conducted at the national level for different energy consuming industrial and services sectors over the period 1989-90 to 2005-06. The analysis covers five major sectors of Australian industry including manufacturing, services, agriculture, mining and construction. For the manufacturing and services sectors, the analysis is also undertaken at the subsectoral level. The objective of this study is to distinguish between different factors affecting the amount of energy consumed. This is done by using a ‘factorisation’ technique, a method that decomposes a change in energy use over time into an activity effect, a structural effect and a real intensity effect. These are defined as changes in:  the level of economic activity — activity effect the sectoral composition of the economy — structural effect the energy intensities of sectors — real intensity effect. A change in energy consumption can be expressed as the sum of the activity effect, the structural effect and the real intensity effect. The movements of these effects over time can be examined. In this report the focus is on trends in real energy intensity. This measure provides a good indicator of the progress in reducing energy used to produce goods and services in the economy because it removes the influence of changes in the sectoral composition of the economy. However, improvements in energy intensity can only be reliably measured at the level of individual production processes or plants. In the absence of detailed data at that level, changes in the product-mix or production processes within each subsector are not captured in this report. Energy consumption in the industries covered in this report accounted for 51 per cent of total final energy consumed in Australia in 2005-06, with the remainder consumed in the transport (37 per cent) and residential (12 per cent) sectors. Total energy consumption in Australian industry analysed in this report increased by 48 per cent from 1989-90 to 2005-06. The analysis demonstrates the dominance of economic growth (activity effect) as the major determinant of this increase in energy consumption. If this had been the only factor at work, energy consumption in Australian industry would have been 14 per cent higher than the realised consumption. This is equivalent to a reduction in energy intensity (total energy consumed per unit of industrial output) of 0.9 per cent a year. These savings in energy consumption resulted mainly from shifts to less energy intensive sectors (structural effect). The change in real energy intensity had a relatively smaller effect on overall energy consumption. The trend in energy intensity in Australia is similar to those of other OECD economies, where the 1990s experienced weaker improvements in energy intensity, relative to the 1970s and 1980s (IEA 2007, Tedesco and Thorpe 2003). As part of the APEC Leader’s Declaration in Sydney in September 2007, a target was set for a reduction in energy intensity in member economies of at least 25 per cent by 2030, compared with the 2005 base year. This is equivalent to an annual reduction in energy intensity of 1 per cent. The analysis in this report suggests that, if the trends in energy intensity observed over the past 16 years persist, energy intensity in Australian industry could be reduced by 20 per cent by 2030. However, the introduction of the Carbon Pollution Reduction Scheme can be expected to have significant implications for the pattern of energy consumption in Australia. |
| Key findings |
| Final energy consumption in Australian industry (including the manufacturing, services, agriculture, mining and construction sectors) grew from 1234 petajoules in 1989-90 to 1826 petajoules in 2005-06, at an average annual rate of 2.5 per cent. Over the same period, activity in these sectors increased by 62 per cent (3.2 per cent a year). In 2005-06, Australian industry, as covered in this report, used 48 per cent more energy than it did 16 years earlier. Without changes in energy intensity and sectoral structure the industry would have used 62 per cent more energy. Changes in activity remain the principal driver of changes in energy consumption. A change in the sectoral structure of Australian industry is estimated to have reduced energy consumption from the mid-1990s onward. Trends in real energy intensity had a negligible effect on energy consumption for most of the study period (figure a). Without changes to structure and real energy intensity, growth in activity alone would have resulted in energy consumption increasing by 759 petajoules (figure b). Structural shifts from relatively more energy intensive industrial activities to less energy intensive services activities are estimated to have reduced energy consumption by 170 petajoules in 2005-06 (figure b). Changes in real energy intensity created energy savings in all sectors except the agriculture (including forestry and fishing) and mining sectors (figure c). Overall, these savings were offset by higher energy intensity in agriculture and mining, resulting in an additional energy requirement of 3 petajoules. Manufacturing sector – Energy intensity declined at an average annual rate of 0.5 per cent over the past 16 years. This is estimated to have led to energy savings of 62 petajoules (figure c). Construction sector – Energy intensity declined at an average annual rate of 8.2 per cent over the study period. A reduction in real energy intensity is estimated to have delivered energy savings of approximately 32 petajoules (figure c). Services sector – Energy intensity declined at an average annual rate of 0.8 per cent over the study period. Such a reduction is estimated to have led to energy savings of 20 petajoules(figure c). Agriculture (including forestry and fishing) sector – Energy intensity increased at an average annual rate of 2.8 per cent. Such an increase in real energy intensity is estimated to have led to an additional energy requirement of approximately 5 petajoules over the period 1989-90 to 2005-06 (figure c). A reduction in output because of drought in 1994-95 and 2002-03, without changes in energy consumption, is assessed to have contributed to an increase in energy intensity in this sector. Mining sector – Energy intensity increased at an average rate of 3.7 per cent a year over the period 1989-90 to 2005-06. This is estimated to have led to an additional energy requirement of approximately 112 petajoules (figure c). Increases in the use of energy for exploration activity as the industry moved to deeper and lower grade ores, and increases in the energy intensive liquefaction of natural gas, have contributed to an increase in energy intensity in this sector. |