The Dynamics of Energy Consumption and Energy Intensity in Indonesia.

Abstract

This study contributes to the existing literature by examining energy consumption, energy intensity and its determinants in Indonesia’s aggregate and sectoral economy (include industrial, transportation, commercial, residential/household and others). This study uses Index Ideal Fisher to decompose two key determinants of changes in energy intensity – efficiency improvements and changes in economic activity – to analyze which determinant is more important in driving improvements in energy intensity in the past thirty four years in Indonesia. Then time series econometrics analysis are also use to provide the details of the channel through which these economic variables affect the aggregate intensity. It is found that energy intensity rose gradually in Indonesia. The main contributing factor in the national level is the changes in economic activity while in the sectoral level is efficiency effect. Thus there is considerable scope to reduce energy intensity through efficiency improvement and the structural transformation of the Indonesia economy in the future. Energy intensity has a positive respons to the shock of population growth and energy impor, in contrast has a negative respons to the shock of rising per capita income and fuel price.