Decomposition and Determinants of Energy Intensity in Iran

Due to the necessity of energy saving in Iran there is a need to identify factors affecting the intensity of energy use in the economy. The main purpose of this study is to identify key factors affecting energy intensity over the period of 1968-2006. Applying decomposition methodology allows for more accurate energy-intensity trend analysis in the past and forecasting future trends. Energy productivity is an important determinant of energy intensity. An additional factor that affects energy intensity is the structure of economic activity. An increase in energy-intensive economic activities increases total energy consumption. This study decomposes the energy intensity index of Iran into two key factors; productivity index and changes in index of economic activities structure. The results of applying Fisher ideal index method indicate that increased energy intensity is due to reduction of productivity and changes in the structure of economic activities. Based on the results، one of the most important factors that influences energy intensity and productivity index is the energy price index، with energy intensity highly sensitive to energy prices.