Analyzing the Energy Intensity Trend in Indonesia, using Econometric and Decomposition Analysis

The need for energy efficiency comes with energy security. High energy consumption rates with the scarcity of fossil-based energy promote the energy-saving awareness. Meanwhile, one of the most used indicators for energy efficiency is energy intensity, a ratio of energy consumed divided by output produced. In this regard, the decrease in energy intensity reflects an improvement in energy efficiency. This study discusses the trend and the impact of several factors determining energy intensity in Indonesia, using both econometric and decomposition analyses. Using the fully modified ordinary least square (FMOLS) for the econometric, this study found that economic growth and energy price negatively impacted energy intensity while industrialization and energy mix affected energy intensity positively. On the other hand, the decomposition results illustrated that efficiency mattered more in influencing energy intensity rather than the structural effects. Several policy implications, including energy conversion promotion, were then derived from the findings of this study.