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Putting decomposition of energy use and pollution on a firm footing - clarifications on the residual, zero and negative values and strategies to assess the performance of decomposition methods

  • Muller, Adrian

    ()

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

I show how the problems with zero and negative values in decomposition can in principle be resolved by avoiding ill-defined mathematical operations used to derive the decomposition formulae (division by zero and taking logarithms of zero and negative values). Referring to integral approximation, which is the basis of any decomposition analysis, I also discuss the residual in decomposition and show that the presence of a non-zero residual is natural and that requiring a zero residual as a strategy to identify optimal decomposition methods is without basis. To nevertheless advise on optimal decomposition methods, I suggest to investigate for which types of functions different decomposition methods are exact or good approximations and how they perform in simulations, where the exact integrals are known. Regarding these criteria the LMDI seems to perform best.

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File URL: http://hdl.handle.net/2077/2702
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Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 213.

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Length: 25 pages
Date of creation: 31 Aug 2006
Date of revision: 10 Aug 2007
Handle: RePEc:hhs:gunwpe:0213
Note: WP 215 is now a revised version of bort WP 213 and WP 215.
Contact details of provider: Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/

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  1. Ang, B.W. & Liu, F.L., 2001. "A new energy decomposition method: perfect in decomposition and consistent in aggregation," Energy, Elsevier, vol. 26(6), pages 537-548.
  2. B. W. Ang & Ki-Hong Choi, 1997. "Decomposition of Aggregate Energy and Gas Emission Intensities for Industry: A Refined Divisia Index Method," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 59-73.
  3. Chung, Hyun-Sik & Rhee, Hae-Chun, 2001. "A residual-free decomposition of the sources of carbon dioxide emissions: a case of the Korean industries," Energy, Elsevier, vol. 26(1), pages 15-30.
  4. Muller, Adrian, 2006. "Putting decomposition of energy use and pollution on a firm footing - clarifications on the residual, zero and negative values and strategies to assess the performance of decomposition methods," Working Papers in Economics 213, University of Gothenburg, Department of Economics, revised 10 Aug 2007.
  5. Ang, B.W., 1995. "Decomposition methodology in industrial energy demand analysis," Energy, Elsevier, vol. 20(11), pages 1081-1095.
  6. Trivedi, P K, 1981. "Some Discrete Approximations to Divisia Integral Indices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(1), pages 71-77, February.
  7. Sun, J. W., 1998. "Changes in energy consumption and energy intensity: A complete decomposition model," Energy Economics, Elsevier, vol. 20(1), pages 85-100, February.
  8. Ang, B. W., 2004. "Decomposition analysis for policymaking in energy:: which is the preferred method?," Energy Policy, Elsevier, vol. 32(9), pages 1131-1139, June.
  9. Boyd, Gale A. & Hanson, Donald A. & Sterner, Thomas, 1988. "Decomposition of changes in energy intensity : A comparison of the Divisia index and other methods," Energy Economics, Elsevier, vol. 10(4), pages 309-312, October.
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