Abstract:
The final energy consumption of Pakistan has increased by 86 percent over the period 1990-2013. Investigating the responsible factors for changes in energy use trends over time is important for analyzing future projections. Decomposition technique enables us to quantify the contributing factors in aggregate energy change over the period. This study attempts to investigate the factors behind aggregate change in energy consumption of Pakistan economy over the period 1990-2013 using Logarithmic Mean Divisia Index (LMDI) decomposition technique. LMDI decomposes the overall increased energy use in three effects/factors i.e. activity effect, structural effect and intensity effect. Analysis is carried out by period wise decomposition (PWD) in which the whole time period is divided in to three sets of periods for decade wise comparisons. Results suggests that observed increase in Pakistan’s energy consumption is the result of activity effect and structural effect. Activity effect plays a dominant role in rising energy consumption followed by structural effects. The energy intensity of overall economy has decreased showing improvement in energy efficiency over time. The 2000’s is observed to be less energy efficient as compared to the 1990’s. The quantification of energy imports based on projections shows that Pakistan will have to face serious challenges in 2025 due to energy supply and price shocks, high energy dependence, and unaffordable oil and gas import bill worth of $ 52.76 billion. There is a need to reduce energy supply and demand gap by diversifying domestic production, conservation, and efficient use of available resources thus will reduce energy dependence in future. Intensity effect is the key area for policy makers to design sector specific energy conservative policies that will increase energy efficiency and thus will compensate the inflating energy consumption in future that will be generated through activity and structural effects.
