DRIVERS OF ENERGY INTENSITY IN PAKISTAN: AN ASSESSMENT USING INDEX DECOMPOSITION METHODS

We employ index decomposition techniques to decompose aggregate energy consumption into energy intensity, efficiency and structural change indices for Pakistan. Data suggests that energy inefficiencies play a prominent role in increasing energy intensity while structural changes cause small reduction in intensity index. Partial adjustment model was applied to investigate underlying forces of energy intensity and its components. Results illustrate that energy prices and capital-labor ratio have significant effect in reducing energy intensity through efficiency channel whereas; income predominantly increases energy intensity through inefficient energy use. Extensive policy intervention is required through implementing energy intensity reduction targets for efficient energy use.