An Inquiry into the Sources of Change in Industrial Energy Use in the Japanese Economy: Multiple Calibration Decomposition Analysis

Abstract

Decomposition methodologies are necessary to examine the causal factors of energy use trends in an economy. This paper suggests a new approach -the Multiple Calibration Decomposition Analysis (MCDA)-to investigate the sources of change in industrial energy use in the Japanese economy. The multiple calibration technique is utilized for an ex post decomposition analysis of structural change between periods, enabling distinction between price substitution and technological change for each sector. This paper explains the theoretical properties of MCDA and applies it to an empirical case -the change in energy use in Japanese industry from 1970 to 1990. This paper clarifies how industrial energy use was affected by price substitution or technological change through the experience of the two oil crises, focusing on energy-intensive industry. The paper shows that technological change played an important role in reducing industrial energy use in the Japanese economy. Remarkably, oil-saving technological change advanced by 60% or more in energy-intensive industry during the 1980s.