Energy intensity, sectoral activity, and structural change in the Norwegian economy

Energy Vol. 17. No. 3, pp. 215-233. 1992 0360-5442/92 $5.(N) + 0.00 Printed in Great Britain Pcrgamon Prc~.a plc

ENERGY INTENSITY, SECTORAL ACTIVITY, AND STRUCTURAL CHANGE IN THE NORWEGIAN

ECONOMY?

L. SCHIPPER, R. HOWARTH, and E. CARLASSARE

International Energy Studies, Energy Analysis Program, Lawrence Berkeley Laboratory, University of California, Berkeley, CA 94720. U.S.A.

(Received 7 March 1991)

Abstract-We analyze energy-use patterns since 1950 in the residential, service, manufacturing, and transportation sectors of the Norwegian economy, concentrating on changes in energy intensity, sectoral activity, and sectoral structure between 1973 and 1987. In most sectors, energy intensity has increased since the 1973 oil shock, even though the total energy-to-GDP ratio has decreased over the same period. Energy efficiency has not improved as much in Norway as in the other OECD countries. There are several reasons for this. First, electricity has been inexpensive and Norway is a net oil exporter. The income from oil development in Norway, in response to the oil shocks of the 197Os, resulted in energy-use increases while other nations responded by reducing energy utilization. A more subtle factor is that the use of energy in Norway is reaching maturity in most sectors as the ownership of principal energy-using equipment saturates. If changes in energy policy were put into place to increase the price of electricity in Norway, the energy efficiency of the economy could improve dramatically in the future.

INTRODUCTION

Norway’s energy use is dramatically different from that of any other OECDS country. Because

electricity there is inexpensive by international standards, the Norwegian fuel mix is the most

heavily reliant on electricity of the OECD countries. The low price of electricity means that

conservation and efficiency have not been major concerns and will not be so long as the

country’s current approach to electricity pricing is maintained.

Norway is rich in energy resources. Domestic hydroelectricity provides over 40% of national

energy. The oil and natural gas deposits of the North Sea could support the current

domestic-use level well into the future if they were not exported. Norway is and will be a net

exporter of fuels and electricity for some time to come. As a result of energy surpluses, Norway

is not as vulnerable to the demand-side effects of energy price shocks as are the other OECD

countries, although fluctuations in international oil prices have substantial impacts on national

income. For these reasons it may seem that energy efficiency is not an important concern in

Norway.

However, a range of realities that challenges this supposition now confronts the nation. First,

the shortage of new power-plant sites sharply limits any increase in the nation’s hydroelectric

power generation. As a result, any future increase in electricity demand will likely be met

through an increase in fossil fuel consumption and a corresponding increase in the environmen-

tal impacts associated with this energy source. Second, Norway is surrounded by energy-poor

nations that are willing to pay much more for electricity than Norwegians pay. For example,

household electricity prices in Norway are roughly half those of Denmark. Industrial electricity

prices in Norway are the lowest in Europe, held down by long-term contracts. Low electricity

pricing in Norway does not take into account the opportunity cost of domestic consumption

when energy exports would bring much higher returns.

tThe full report from which this article is drawn gives a full listing of sources. as well as a more in-depth discussion of

sectoral energy use (see Ref. 1). *Organization of Economic Cooperation and Development.

21s

216 L. SCHIPPER et al

Policies that promote enhanced energy efficiency would ameliorate these dilemmas. The design and implementation of effective energy policies for Norway, however, will require a solid understanding of past energy-use trends and the identification of opportunities for energy savings and improved efficiency today. Towards this end, we have analyzed energy-use data? for key sectors of the Norwegian economy from 1950 to the present. The long time frame of the analysis captures the long-term evolution of energy use rather than short-term reactions to transient economic conditions.

The purpose of this review is to investigate the evolution of energy demand in Norway. Studies in comparative energy efficiency often make use of aggregate indicators such as the ratio of primary energy use to gross domestic product (GDP). The use of energy-to-GDP ratios as efficiency indicators, however, is theoretically and empirically problematic since the

energy-to-GDP ratio is determined not only by changes in the technical efficiency of energy utilization, but also by changes in the growth of energy-using activities relative to GDP.

In this study we follow a more disaggregated approach. We examine the evolution of energy use in each major end-use sector and relate the changes that occurred to the effects of three causal factors: (1) changes in the aggregate level of energy-using activities in each sector; (2) changes in the structure or composition of activities; and (3) changes in energy intensities,

or energy use per unit of activity or output. Although intensity is not a strict measure of technical efficiency, since intensity is affected by the manner in which energy-using equipment is used as well as by its technical characteristics, we assume intensity indicators are driven for the most part by efficiency improvements.*

For each sector, we measure changes in activity, structure, and intensity and calculate the change in energy use that would have occurred in response to each factor if the other two had remained constant at base year (1973) values. We examine both primary and delivered energy since the substitution of electricity for fuel in end-use sectors distorts the energy-intensity value for delivered energy. We define the contribution of electricity to primary energy as its end-use value multiplied by 3.24, which is the OECD average of the ratio of thermal energy consumed in power plants to end use electricity. It should be noted that Norwegian electricity is generally produced from hydro so that the energetic losses associated with electricity conversion are not substantial (approximately 15% of the kinetic energy in falling water is lost in hydro facilities). The primary energy figures are thus given principally to facilitate comparisons with other

nations. Fuel shares are always given in delivered terms. To account for variations in weather, household space heating is adjusted to the long-run average number of degree days, base lS”C, from January to May and September to December.

ENERGY USE IN NORWAY BY ECONOMIC SECTOR

The sectors analyzed in this study include residential, services, manufacturing, and transportation. These sectors represent 89% of delivered Norwegian energy use today. Data limitations precluded the analysis of agriculture, fishing, construction, utilities, and mining, which together account for 11% of final energy use; and the energy use of the energy sector (a mixture of hydro conversion losses and petroleum refining), which accounts for 10% of primary energy use with the 15% loss factor in hydro-electric utilities (see Fig. 1).

Residential Sector

Since 1950, the residential sector of the Norwegian economy has been marked by: (1) a steady increase in the level of comfort and convenience; (2) a steady increase in the energy demand per home; and (3) a high and increasing reliance on electricity.

Residential comfort, as measured by floor area per capita and appliance-ownership levels,

tMost of our data are from the Norwegian Central Bureau of Statistics. See Ref. 1 for a full account of the data

sources.

Energy-use patterns in the Norwegian economy 217

% of Delivered Energy

‘:::~~

60%

40%

20%

~ I

n Manufacturing

B Other Industry

Freight

m Business Services

Personal Services

0 Passenger Transport

m Home Appliances

0 Home Heat, Cooking

0%’ / 1 1 1

1950 1955 1960 1965 1970 1975 1980 1985

Fig. 1. Sectoral shares of delivered energy use.

has grown steadily from 1950 through the present. Today, the indoor living standard enjoyed is one of the highest in the world, up from a relatively low standard in 1950. Home size has increased continually while the average family size has decreased at an even greater rate. Together, these changes have led to a near doubling in space per person since 1950. Some major household appliances (namely, refrigerator/freezer combinations and dishwashers) were introduced as late as the late 1960s. Appliance ownership has since increased at a high rate, and today, Norway boasts one of the highest appliance-ownership level and quality standards in Europe.

The mix of household fuels used since 1950 (see Fig. 2) reflects a continual substitution of

PJ/yr 160

140

120 t

100 L

80

I-

60

1950 1955 1960 1965 1970 1975 1980 1985

1 Electricity

m Solids

II Oil

Fig. 2. Residential energy use by fuel type, climate corrected. City gas and district heat (not shown)

are <l PJ/yr.


GJ/capita/yr

4ot

1950 1955 1960 1965 1970 1975 1980 1985

Fig. 3. Per capita residential energy use.

El On-Site Losses

0 Appliances

m Cooking

m Water Heating

0 Space Heating

electricity for other fuels. Electricity accounts for 65% of the current fuel mix and is used to heat water in about 95% of households. Virtually all ovens, ranges, and appliances are electric. This heavy use of electricity has been encouraged by low electricity prices.

Delivered residential energy increased steadily from 1950 to 1973 from 58 to 110 PJ, and from 1973 to 1987 from 110 to 150 PJ. Primary residential energy also increased steadily over this period, from 89 PJ in 1950, to 237 PJ in 1973, to 385 PJ in 1987. Much of this increase is due to increases in home heating that in turn have been driven by increases in house size and in the number of dwellings, as well as higher indoor temperatures. The energy demand per household for appliances and end uses other than heating has also increased steadily since the 1960s due to the high rate of appliance acquisition since that time. Since the population per household has decreased, population growth is not a driving factor behind the increase in energy use per household. Household energy use has grown faster than home size and population (Fig. 3).

The impact of energy efficiency appears to have been minimal. In other OECD countries we have studied, residential energy use fell sharply following the oil shocks of the 1970~.~ Why was this not the case for Norway? Part of the answer to this question lies in the fact that Norway’s electricity prices have been low and that Norway has become an oil-exporting country. The boom in oil revenues in Norway during the oil-price shocks resulted in an increase in per capita income. At the time of the oil-price shocks, household comfort levels were low compared to the other OECD countries. As a result of the oil shocks, more Norwegians had the money to buy appliances and larger homes. The rapid process to catch up with the comfort levels of other OECD countries was one reason why household energy intensities increased rather than decreased in response to the oil-price shocks of the 1970s. Another reason the oil price increases did not affect the escalation in household energy use was that households responded by substituting inexpensive electricity for oil, as oil prices exploded.

The evolution of energy demand in Norwegian households has been marked by continual growth in energy use with no interruptions arising from the oil shocks. Fuel substitution rather than conservation was the response of households to the oil crises.

Methodology and results

We disaggregated residential energy use by end use to determine what portion of energy use changes is attributable to changes in sectoral energy intensity. We then reaggregated the

Energy-use patterns in the Norwegian economy ?I9

components of energy use in a way that allows for the separation of the effects of changes in

energy intensities from the effects of changes in sectoral structure and activity. The categories for dissaggregated energy end-uses are space heating, hot water and cooking, and appliances (refrigerators, freezers, refrigerator and freezer combinations, clotheswashers. clothesdryers, dishwashers, and lighting). Energy use in space heating is given by

EH = (EdQ)(Q/f’)(f’L

where EH is energy use for space heating and Ekl/Q is the measure for sectoral inrensir_~; Q stands for floor area and Q/P is the measure for sectoral structure; population, P, is the measure for sectoral activity.

Energy use in water heating and cooking is given by

E HC = (EHC/HA’1’2)(HA’1’2/P)(P),

where H stands for the number of households and N is the number of occupants per household. In this relation, as with the previous one, the first term in parentheses represents intensity, the second represents structure, and the third activity. The N”* adjustment to energy intensity is based on empirical evidence,4 which suggests that energy use per household varies approximately with the square root of the number of occupants per household given constant equipment characteristics and occupant behavior.

For appliances (refrigerators, freezers, refrigerator and freezer combinations, clotheswashers, clothesdryers, dishwashers, and lighting), the relation for disaggregating the contributions to energy use made by intensity, structure, and activity is

where S, is the share of households with appliance i and 1, is its unit energy utilization. In this relation structure consists of the Si and H/P terms, intensity is 1,, and activity is P. The total residential energy use, ER, is the sum of the energy contributions from space heating, hot water and cooking, and appliances, i.e.,

ER=EH+EHC+EA.

By disaggregating the effects of sectoral structure, intensity, and activity in residential energy use in this manner, we find that the growth in population in Norway increased energy use by 5% between 1973 and 1987. Structural changes, such as increases in household floor area and appliances per capita, themselves caused residential delivered energy to increase by 27% and primary energy to increase by 24%. Changes in energy intensity were responsible for a 3% drop in delivered energy and a 16% increase in primary energy use.

Service Sector

The service sector includes International Standard Industrial Classification (ISIC) sectors 6-9, which include mainly commercial and government buildings. Energy data for the service sector have been poorly documented until recently.? Due to data limitations, the period of analysis begins in 1965, not in 1950 as it does for the analyses of the other sectors.

In 1987, service-sector value added accounted for roughly half of Norway’s GDP. Service sector GDP has grown steadily at a rate of 3.3%/yr since 1965, from 90 billion 1980 NOK (60% of total GDP) in 1965 to 190 billion 1980 NOK (51% of total GDP) in 1987. Service-floor area per capita has increased rapidly and has caught up to the levels reached in many other OECD countries; however, Norway still trails Denmark and Sweden and is far behind the U.S.’ Delivered energy use in the service sector grew at 5.4%/yr from 33 PJ in 1965 to 48 PJ in

tEnergy data for the sector are often lumped in with the residential and agricultural sectors while some portion of the

electricity use of the construction and utility sectors is apparently included in the service sector energy balances

before 1976. As a result, our analysis will be based mainly on the period after 1965, and in particular after 1976.


PJ/yr

0 Electricity

m District Heat

m Solids

I Oil

60

0 1960 1965 1970 1975 1980 1985

Fig. 4. Service-sector energy use by fuel type. Pre-1965 data are estimated.

1973 and at 3.l%/yr thereafter to 79 PJ in 1987. Primary energy increased from 61 PJ in 1965, to 95 PJ in 1973, to 204 PJ in 1987. The increasing gap between delivered and primary energy reflects the increasing importance of electricity use in the service sector. After the first oil-price shock, energy use continued to increase but at a reduced rate. Electricity accounted for 41% of the service-sector fuel mix in 1965 and had increased only by 1% by 1973. By 1987, as a result of the oil-price shocks, electricity accounted for 74% of service sector energy, most of which is used for heating. Thus, the service sector of the Norwegian economy, like the residential sector, responded to the oil price shocks by substituting inexpensive hydroelectricity for oil (see Fig. 4). The Norwegian service sector is far more electricity dependant than that of any other OECD country.

GJ/sq.m./yr

o.7~

-+- Useful Heat

+ Non-Heat Elec.

0.1 t

0’ I I I /

1965 1970 1975 1980 1985

Fig. 5. Service-sector energy intensity. The data include hot water estimated.

and cooking. Data for 1970 are


Figure 5 shows the trends in energy intensity in the service sector since 1960. Energy intensity in the service sector increased until 1979 (the second oil shock). After 1979, energy intensity stabilized. This leveling-off in energy intensity occurred in part as a reaction to the oil crisis and in part since comfort levels in the service sector were approaching saturation at the same time. Figure 5 shows energy intensities for the service sector in terms of useful heat and non-heat electricity, where useful heat is delivered energy minus on-site conversion losses and non-heat electricity primarily represents appliances and lighting.

Overall, the trends in energy use in the service sector parallel those in the residential sector. The Norwegian service sector did not respond to the oil price shocks with efficiency improvements as did most other OECD countries. Rather, electricity was substituted for oil. Since the service sector is approaching saturation, there is now significant potential for improved efficiency and reduced energy-use measures, particularly in space-heating and lighting energy use.


For the service sector, the relation used for disaggregating the contributions to energy use made by changes in intensity, structure, and activity is

Es = (EIQ)(QlVW),

where E/Q (energy use per floor area) is the intensity indicator, Q/V (floor area per service-sector value added) is the indicator for sectoral structure, and V (service-sector value added) is the measure for sectoral activity.

When the contributions to service-sector energy use from changes in sectoral structure, intensity, and activity are analyzed, we find that increases in service sector GDP increased energy use by 57% between 1973 and 1987. However, floor area (the indicator of service sector structure) increased less rapidly than service-sector GDP. For this reason structural changes were responsible for a 12% decrease in service-sector energy use over the same period. Changes in energy intensity caused a 14% increase in delivered energy and a 56% increase in primary energy in the service sector over this period.

Manufacturing Sector

The energy use of the Norwegian manufacturing sector is dominated by energy-intensive raw materials processing, primarily for export. When analyzing the manufacturing sector, we divided it into six industry groups so that structural changes within the sector woulcl be apparent. The industry groups are iron and steel (ISIC 371); nonferrous metals (ISIC 372); stone, clay, and glass (ISIC 36); basic chemicals (ISIC 351); paper and pulp (ISIC 341); and an “other” category consisting of less energy-intensive industry.

The manufacturing sector presently accounts for 36% of final energy demand. Delivered energy use in the sector grew at a rate of 4.6%/yr from 89 PJ in 1950 to 260 PJ in 1973, while manufacturing activity as measured by real value added grew at 4.2%/yr. Since the 1973 oil-price shock, energy use and manufacturing activity have remained relatively constant. Can this be correctly interpreted as a response to the oil crisis ? In part, it can be, although not as a response to higher oil prices. The boom in the oil sector of Norwegian industry following the oil-price shocks drew capital away from manufacturing. This contributed to the decline in

growth of manufacturing activity and hence, energy use. Figure 6 shows the evolution of the fuel mix used in manufacturing since 1950. A few trends

stand out. Electricity use has increased dramatically since 1950. After 1973, oil use in manufacturing fell by 61%. The low oil prices of the mid 1980s have since caused a slight resurgence in oil demand. From these trends it can be inferred that the manufacturing sector responded to the oil-price shocks by substituting electricity for oil.

Analysis of the energy-use patterns of the industry groups comprising the manufacturing sector shows that the most energy-intensive manufacturing industries have grown the most

222 L. SCHIFPER et al

PJ/yr

3oo(

250

/ Electricity

m Solids

m Gas

0 Oil

1950 1955 1960 1965 1970 1975 1980 1985

Fig. 6. Manufacturing energy use by fuel type.

since 1950. The proportion of manufacturing value added originating in energy-intensive industry groups grew from 14 to 27% over the period of analysis. Since the energy intensity in these industries is 10 times that of less energy-intensive industries, the magnitude of the growth in energy use which corresponds to this growth in production is great. This shift towards energy-intensive production is responsible for a considerable fraction of the increase in sectoral energy use and output that occurred from 1950 to 1973.

Raw materials processing is extremely electricity intensive. The nonferrous metals, chemicals, and iron and steel manufacturing industries are 12 times more electricity intensive (measured in terms of electricity per value added) than all other manufacturing industries combined. Accordingly, the growth in raw materials manufacturing from 1950 to 1973 resulted

MJ/1980 NOK 800

600

1950 1955 1960 1965 1970 1975 1980 1985

-

..-

Paper 8 Pulp

Industrial Chemicals

Stone, Clay, 8 Glass

Ferrous Metals

Non-Ferrous Metals

Fig. 7. Manufacturing energy intensities (delivered energy per unit value added).


in a corresponding growth in electricity use. Within raw materials manufacturing, electricity use has increased from 44 to 65% of the total fuel mix between 1950 and 1987.

Since 1973, the energy intensities in most manufacturing industries show downward trends (see Fig. 7). These reductions averaged 20% between 1973 and 1987 weighted by shares of 1973 energy use; in seven other OECD countries, the reduction was 23-36% over the same period.” In no country except Norway did structural changes cause an increase in energy use in manufacturing.

Norwegian industrial electricity prices are low in comparison with those of other nations. For example, industries in Sweden, Germany, and the U.S. paid 2-4 times more than Norway for industrial electricity in the mid- to late-1980s. Electricity-intensive industry pays far less for electricity than the other Norwegian economic sectors since electricity pricing for the raw materials industry is held down by contracts that have been in effect since 1950. This pricing structure is a major reason why electricity accounts for 60% of Norwegian manufacturing energy use; for the other OECD countries, it accounts for only 17-35%.


For the manufacturing sector the relation for disaggregating the contributions to energy use made by changes in intensity, structure, and activity is

where EM is total sectoral energy use and Q is total manufacturing activity, measured in real (base year 1980) value added. The energy intensity of subsector i is given by 1,. = Ei/Qi where (2, is the activity of that subsector in real value added. Structural change is captured by the value-added shares Si for each industry group where Si = Qi/Q.

From disaggregating the effects of sectoral structure, intensity, and activity in manufacturing energy use in this manner, we find that increases in sectoral activity when intensity and structure are held constant were responsible for a 9% increase in sectoral energy use between 1973 and 1987. Changes in sectoral structure as measured in industry-by-industry value-added shares were responsible for a 21% increase in manufacturing delivered energy and a 26% increase in primary energy. Changes in energy intensity in manufacturing were responsible for a 20% decrease in sectoral delivered energy and a 13% decrease in primary energy.

Transportation Sector

For the purposes of analysis, we divided the transportation sector into three categories: passenger traffic, freight, and miscellaneous activities. Because the data for this last category have been sporadic and inconsistent over time, the analysis focuses on activity and energy-use trends in passenger and freight transportation. Since these two activities account for 90% of transportation energy use, the analysis captures the most important long-term influences on transportation energy use.

Passenger transportation

Activity in passenger travel, measured in passenger-kilometers per year, grew at an annual rate of 7.1% between 1950 and 1973 and at 2.6% thereafter. The annual growth rates of GDP over the same periods were 4.0 and 4.1% respectively. Figure 8 shows the evolution of passenger-transportation activity since 1950. The structure of passenger-transport activity has transformed radically over the past 40 yr, shifting towards a mix of transportation modes that require more energy per unit of activity. Auto use has increased dramatically: in 1950 cars accounted for 12% of all passenger-kilometers, in 1973 this was up to 75%, and by 1987, it was 80%. The share of total passenger-kilometers provided by air travel grew from 0.3% in 1950, to 3% in 1973, and to 5% in 1987. Norway is now very travel intensive compared with other OECD countries, tied with Sweden but behind the U.S. This is surprising since passenger

224 L. WHIPPER et al

1000 passenger-km/capita/yr 141

8

8

1950 1955 1980 1985 1970 1975 1980 1985

Fig. 8. Passenger transportation by mode.

m Sea

Air

j Automobile

m Bus, Tram

/ Rail

Motorcycle

travel per capita in Norway was low by European standards in the 1960s. Air travel has also become more important in Norway than in most other European countries, a consequence of the geographic layout of the nation.

The most striking change in the structure of the passenger-transportation sector has been the rapid rise of the private passenger car. The number of autos grew more rapidly than disposable income and population, from only 0.06 per capita in 1960 to nearly 0.4 per capita in 1987. A rapid rise in total transportation-sector energy use has occurred due to the increasing number of autos as well as the auto’s changing role. During the period of analysis, cars became heavier and more powerful. The distance driven by each car did not change considerably after 1973, although the breakdown of car trips by purpose did change. According to national surveys,’ the share of driving for shopping and commuting-purposes which contribute more than proportionally to urban congestion and air pollution-have increased from 33 to 39% of the kilometers driven since 1980. Moreover, load factors fell during this time and the average length of trips decreased.’ Since short trips mean the car is running proportionately more on a cold engine and since they usually require more starts and stops than long trips, fuel economy declines. For these reasons an increase in the overall energy intensity of automobile traffic has occurred.

Fuel economy for all cars increased 12% between 1973 and 1987. This improvement is consistent with the small changes observed in Germany and Sweden, but far behind the dramatic improvements made in the US. The changes in auto use described above overshadow

this small improvement in fuel economy. The fuel economy figures for Norway show so little

improvement due to increases in car size and power, and increases in urban driving. Several factors limited the improvement in fuel economy. While real gasoline prices in

Norway are high by international standards due to taxation, they were 5% lower in 1987 than 1973, although an increase of 28% occurred between 1973 and 1981. Moreover, the income tax system, which permits the deduction of some driving costs as well as the interest on money borrowed to buy a car, makes it easier for Norwegians to drive larger cars farther than otherwise. Also important is the pervasive “company car” phenomenon, where employers purchase or loan cars to their employees in lieu of higher wages and salaries. Because these transfers of wealth are not fully taxed, both parties benefit, but the practice represents an important government subsidy to automotive transport which increases fuel consumption, congestion, and urban air pollution.


billion tonne-km&r

m limber Floating

/ Ship

@@ Rail

D Truck

1950 1955 1960 1965 1970 1975 1980 1985

Fig. 9. Freight transportation by mode

Transportation activity and energy use do not appear to be saturated yet in Norway. While Norwegian reliance on automotive transport is high by European standards, there is still considerable room for growth in the level of car ownership. This suggests that driving will increase for all purposes. Therefore, an increase in gasoline demand can be expected in Norway unless measures are taken to alter transportation-sector trends or stimulate improvements in fuel economy. Because of the congestion and pollution that accompanies automobile use, there is considerable interest in Norway concerning the role of automobiles in the transportation system of the future.

Freight transportation

Freight activity, measured in tonne-kilometer, grew by 4.6%/yr between 1950 and 1973 and 1.8%/yr after 1973. Figure 9 shows the evolution of freight activity. Over the past 40 yr, freight

transport, like passenger transport, has shifted to a mix of modes that requires more energy per unit of activity. Although fuel-efficient marine shipping carries almost 60% of domestic freight, road transport via truck has grown more rapidly than any other mode, today accounting for approximately half of freight energy use. The share of freight transport (measured in tonne-kilometer) held by trucking grew from 14% in 1950, to 24% in 1973, to 35% in 1987. Within freight transport by truck, short-haul trucking, which uses more energy per tonne- kilometer than long-haul trucking, is growing most rapidly. The energy intensity of freight transport has increased not only because of the increased use of small trucks to provide local delivery service, but also because load factors have declined.

Energy use for freight transport grew less rapidly than for passenger transport. Compared with the other Scandinavian countries and Germany, Norway has the highest share of sea-going freight and the lowest share of truck freight. Because of the high volume and low energy intensity of marine shipping, Norwegian freight transport is relatively energy efficient, but the rise of the truck in the last 15 yr has steadily increased the overall energy intensity of freight.


In the passenger- and freight-transport sectors, the relation used for disaggregating the effects of changes in structure, activity, and intensity on energy use is

E,. = Q c SJ,.


where Q is sectoral activity, measured in passenger-kilometers per year for passenger transport and in tonne-kilometers per year for freight transport; Si is the share of activity in mode i such that Si = QJQ; and 4 = Ei/Qi is the energy intensity of mode i. The modes for passenger transport are cars, buses, rail, and air. For freight transport the modes are trucks, rail, sea, and air.

For the passenger-transport sector, changes in sectoral activity increased energy use 54% between 1973 and 1987. Structural changes (i.e., changes in the modal mix) were responsible for a 15% increase in passenger-transport energy use. Changes in energy intensities for different passenger-transport modes increased sectoral energy use by 6%.

For freight transport, activity was responsible for a 26% increase in energy use between 1973 and 1987. Structural changes in the modal mix were responsible for a 15% increase in energy

(a)

Primary Energy (PJ/yr)

1300

1100

900

700

-- Actual Energy

- Varying Activity

- Varying Intensity

‘....--- Varying Structure

1970 1973 1976 1979 1962 1965

(b)

Delivered Energy (PJ/yr)

- Actual Energy

- Varying Activity

- Varying Intensity

........ Varying Structure

4001 ’ ’ I ’ ’ I ’ ’ I ’ ’ I ’ ’ I ’ ’ 1970 1973 1976 1979 1962 1965

Fig. 10. Impacts of changes in sectoral activity levels, structure, and energy intensities on (a) primary energy use and (b) delivered energy use.

Energy-use patterns in the Norwegian economy

Table I. Impacts of changing activity levels, sectoral structure, and structure-adjusted energy

intensity on sectoral energy use for 1973-1987

221

Indicator/sector

ACI’lVITY

Passenger transpxation

Freight

Manufacturing

Residential

Services

Weighted average b,c

STRUCTURE


Freight

Manufacturing

Residential

Services

Weighted averageb

ENERGY INTENSITY


Freight

Manufacturing

Residential

Services

Weighted averageb’e

ACTUAL l3NERGY USE

Passenger Transportation

Freight

Manufacturing

Residential

Services

Weighted averageb

Definition/description of factors T passenger-km/yr

tonne-km&r

manufacturing value added

population

service sector value added

modal mix

modal mix

industry-by-industry value added shares

household floor area and appliance ownership per capita

commercial lloor area per unit of value added

modal energy intensitieP

modal energy intensitiesd

industry-by-industry energy intensities

space heat energy per unit of home floor area, electricity per appliance, energy per capita for cooking and hot water

energy use per unit of commercial floor area

Impact on sector-al energy use

between 1973 and 1987

Delivered energy Primary energya

+54% +54%

+26% +26%

+9% +9%

+5% +5%

+57% +57%

+18% +16%

+15%

+15%

+21%

+27%

+15%

+15%

+26%

+24%

-12%

+18%

-12%

+21%

+6%

+6%

-20%

-3%

+6%

t6%

-13%

+16%

+14%

-9%

+56%

+3%

+77%

t48%

-2%

+36%

+58%

+24%

+77%

+48%

+lO%

+63%

+116%

+38%

a Electricity is converted to primary energ J

using a factor of 3.24. b Weights are shares of 1973 energy use. ’ Real

GDP increased by 76% over the period. Includes the impact of changes in load factors. e The energy/GDP ratio

fell by 25% in terms of delivered energy and 13% in terms of primary energy.

use in freight transport. Changes in intensity for different modes of freight transport increased energy use by 6%.

THE EVOLUTION OF NORWEGIAN ENERGY USE

The Big Picture and Cross-sectoral Comparisons

Figure 10 shows the evolution of primary and delivered energy use respectively from 1973 to 1987 (see also Table 1) and the hypothetical energy-use levels that would be obtained if only energy intensities, sectoral activities, or sectoral structures had changed over time while the other two factors remained constant at their base year (1973) values. From these graphs, it is clear that activity growth and structural change each served to increase both primary and delivered energy use. Intensity changes had little effect on primary energy use, although they did work to reduce delivered energy use due to growth in the electricity share; however, the


(a)

1973-1987 Relative Change 120%

i 100% t

80%

80%

40%

20%

0%

-20% I 1 I 1

Res. Serv. Freight Pass. Manuf.

(b)

1973-1987 Relative Change 120% r-

100%

80%

80%

m Actual Energy

&?d Varying Activity

0 Varying Intensity

Varying Structure

I I / I 1

Res. Serv. Freight Pass. Manuf.

m Actual Energy

@@ Varying Activity

I Varying intensity

Varying Structure

Fig. 11. Impacts of 1973-1987 changes in sectoral activity, structure, and energy intensities on (a) primary energy use and (b) delivered energy use.

effects of structure and activity, which increased delivered energy use, overshadowed the decreasing effect of intensity changes on delivered energy use.

Our findings for each end-use sector can be summarized by aggregate indicators of sectoral act, intensity, and structure which are indexed to the year 1973. Figure 11(a) shows the effect of activity, intensity, and structure on primary energy for each sector, as well as the

actual change in primary energy use. This graph illustrates that for most sectors activity, structure, and intensity all worked to increase primary enery use. Structural change had a decreasing effect on primary energy use only for services and changes in intensity had a decreasing effect only for manufacturing.

Figure 11(b) illustrates the effect of activity, intensity, and structure on delivered energy


1973-1987 Relative Change 60% 1

40% I 20% t

0% ! .I m Primary Energy

m Delivered Energy

-40% ’ 1 , I 1 -

Res. Serv. Freight Pass. Manuf. Wtd. Avg. E/GDP

Fig. 12. 1973-1987 changes in aggregate sectoral energy intensities, adjusted for structural change

rather than primary energy for each economic sector. Structural change had a decreasing effect on delivered energy use for services and changes in intensity had a decreasing effect for residential and manufactured delivered energy use. All other sectoral changes in activity. intensity, and structure worked to increase sectoral energy use.

Figure 12 shows the effects of changes in intensity on sectoral primary and delivered energy use, the weighted-average effect of energy intensity changes, and the change in the energy-to-GDP ratio. From this figure it is evident that the energy-to-GDP ratio is not an accurate measure of intensity changes at a disaggregated level of analysis.

To the analyst who only considers energy-to-GDP ratio when evaluating energy intensity, this gives the false impression that energy savings have occurred when they clearly have not since the energy intensities in most sectors have experienced an overall increase since 1973. One important change in the composition of the GDP in the 1970s was the rapid rise of oil-sector activity. In 1973 petroleum extraction accounted for only 1% of GDP; by 1987, it accounted for 19% of GDP as measured in 1980 NOK. Together, oil and services accounted

for 80% of the growth in GDP after 1973. The energy-to-GDP ratio fell because of increases in oil-sector GDP and because of a shift from oil to electricity. From these summary indicators, we may conclude that across-the-board reductions in sectoral energy intensities did not occur as a result of increased oil prices in 1973 or 1979 in Norway as they did in most other OECD countries. The oil shock did result in a switch from oil to electricity in Norway so that domestic oil could be exported for a high price. Energy demand, however, was not affected.

Shift of Energy Use from Producer to Consumer

We have alluded to several factors that have shaped the evolution of energy use in Norway. The most obvious are the low price of electricity and the richness of natural resources that led to the development of electricity-intensive raw materials industries. But Norway, unlike Sweden where an engineering industry developed to take raw materials to their final stage as consumer goods for both domestic use and export, exports most of the output of the raw materials industries. At the same time Norway imports a large portion of consumer goods, making these expensive and often, objects of taxation. This explains why it took Norwegians longer to acquire heavy appliances and cars than their neighbors in Sweden. The increase in oil-sector activity crowded out manufacturing growth after 1973. The spurt in Norway’s GDP

230 L. SHIPPER et al

after the oil crisis fed consumer spending, which grew more rapidly than disposable income in some years as consumers used up savings or borrowed money to acquire larger cars and appliances. This also contributed to the late blooming of the Norwegian consumer economy.

When we divide sectoral energy use even further, we find an additional and important conclusion hidden in the aggregate figures. In Fig. 1, the energy demand can be separated into that for producers (including manufacturing, other industry, freight, and business services) and consumers (including personal services, passenger transport, home appliances, and home heat). The figure shows that the share of energy used by consumers was constant or decreasing until the mid 196Os, when this share began to rise.

This shift towards the consumer has significant ramifications for the future prospects of energy efficiency in Norway. For one thing, energy-use decisions will be spread over more households and individuals, with each decision generating only a small impact on aggregate

energy use. Moreover, producers and consumers approach energy-use issues differently. Producers tend to watch their energy costs carefully and calculate how they can best use energy and other resources in the production process. Consumers pay less attention. They can be expected to watch for ways to improve their heating comfort while reducing heating energy use, and to pay some attention to the price of gasoline when selecting their next auto or driving their next kilometer. They pay less attention to the energy consequences of the size of their homes, the comfort in the places they visit away from home, or the overall distances they drive. Consumers generally focus on the initial cost of energy-using equipment, underweighting future energy costs, and their interest in investing in energy-saving technology is generally weak.

FUTURE IMPLICATIONS AND POLICY RECOMMENDATIONS

Our analysis has shown that the evolution of the energy demand in Norway has not undergone major long-term changes related to fuel and electricity conservation. This evolution is consistent with the development of Norway’s energy prices and with many features of Norway’s natural resources. Nevertheless, the energy future of Norway will likely be different than the recent past.

For one thing, the rate of growth of certain energy uses in most sectors is beginning to slow. The growth in energy use in homes is beginning to slow as appliance ownership and comfort levels approach saturation. With proper price signals and incentive programs, building owners and occupants could be induced to make significant investments to save fuel and electricity in existing and new buildings. Expansion of built space in the service sector, driven in part by oil-related private activity and public services fed by oil revenues, may slow. Growth in automobile ownership and use has not yet begun to slow, but could approach saturation in the future, limiting growth in gasoline use. In the following sections, the potential for improved energy efficiency and some policy recommendations are presented for each economic sector analyzed.

Residential Sector

The growth in the major uses of energy in Norwegian households has begun to slow. National surveys8 indicate that Norwegians have achieved high comfort standards. The ownership of major appliances is close to saturation. Energy use per household is the highest ever, as is the potential for energy-saving investments. This means that decision makers in Norwegian households should be more interested than ever in improving the efficiency of energy use if given appropriate incentives. Increases in efficiency in the future could reduce these energy intensities, possibly even enough to reduce total energy use in the residential sector.

Improved efficiency of household energy use in Norway will not come automatically with higher electricity prices. The first step, now underway, is a detailed assessment of household


energy use and equipment. This survey would determine actual energy-utilization patterns for different end uses in the residential sector. Such a survey will allow better determination of the energy efficiency and savings potential than is possible with today’s limited knowledge of the sector. From this survey, the government, and concerned electric utilities, could determine the kinds of homes where efficiency improvements could be profitably undertaken.

Other important steps could be taken to accelerate efficiency improvements. For example, the government could consider minimum efficiency standards for appliances, including cooking and water-heating equipment. The heat-transmission values in the building code could be further reduced to the levels now in place in Sweden. National or local authorities could reward the purchase of particularly efficient appliances or light bulbs through rebate schemes such as those underway in the U.S. An energy certificate that presents the thermal performance properties of all homes for sale could be made a requirement of sale, as is the case in

Denmark.

Service Sector

As with the residential sector, the evolution of the service sector suggests that there is a significant potential for reductions in space-heating energy use, as well as lighting and possibly other building-related uses of energy. If the price of electricity were to increase, building owners and users would be more interested in saving energy.

To better grasp the potential for energy savings, the survey Energiundersokelsen” could be reanalyzed for detail showing the differences in heating and non-heating energy use by building type and vintage. This survey could be repeated to clearly establish the pattern of fuel and electricity use by end-use and building type to determine the potential for more efficient energy

use.

Manufacturing Sector

The development of the manufacturing sector in Norway has been particularly important to the long-term evolution of energy use. The availability of electricity to industrial users at a fraction of the price paid in other nations is the driving force behind the structure and high energy intensity of Norwegian manufacturing. The average electricity price is clearly below the price which could be obtained through the export of electricity to neighboring nations, and it is even below the long-run marginal cost of electricity generation in Norway. Long-term electricity contracts written in the 1950s when hydropower was cheap and abundant no longer

apply to the situation today. This policy is economically inefficient and results in the misallocation of scarce energy resources.

While higher energy prices have been met in other nations with enhanced efficiency that, in some cases, actually reduced production costs, the transition to higher electricity prices in Norway might entail not only improved efficiency but also a significant reorganization of the structure of the manufacturing sector. Inevitably this will be a difficult process which will cause stagnation and unemployment in certain sectors of the economy and in certain districts of the country. Higher electricity prices should therefore be accomplished by job retraining programs and other policies designed to reduce the losses of the most vulnerable members of society.

In the manufacturing sector, there are significant opportunities for improved energy efficiency, but these improvements will be realized only through sound policy management. Sectoral output has been stagnant since the development of Norway’s oil resources in the 197Os, and this stagnation has been a major factor in the stabilization of manufacturing energy use at the current level and in the lack of any interest in far-reaching conservation investments. With electricity prices as low as they are, Norwegian manufacturing has grown towards energy-intensive production, and there has been little incentive for efficiency improvement. Reductions in manufacturing energy intensity will occur only if electricity prices are restructured to more accurately reflect the marginal social cost of domestic electricity use.


While the impacts of such reform could be severe for the most electricity-intensive sectors, it may be an unavoidable consequence of economically efficient resource utilization.

Transportation Sector

Enhanced efficiency for the transportation sector is a more difficult matter than for the other

sectors. The fuel economy of cars in Norway increased by only about 10% since 1973, consistent with developments in most other European countries. Far greater improvements are possible. These could be stimulated both by fiscal measurements that the national government could undertake, as well as by changes in local incentives and disincentives to travel. Travel demand, however, is still relatively unsaturated, as both air travel and car ownership and use show considerable growth potential. We therefore expect some growth in energy use for transportation even if the efficiency of certain modes increase.

Growth in Norwegian transportation energy use could be reduced or at least constrained. To achieve this objective, measures must be taken to reduce the level of transport activity and the reliance on energy-intensive transport modes. Substantial increases must be achieved in the energy efficiency of all vehicles.

One way to reduce the growth in gasoline demand would be to encourage the use of relatively light-weight, small-engined cars. This has been partially achieved already through the increased taxation of automobiles on a weight basis. The private use of company cars and interest payments on auto loans could be taxed more, and the nation could impose fuel-economy standards on new automobiles.

Over the long term, careful attention to the geographical distribution of urban development could reduce the demand for travel. Low off-peak fares for bus and local rail services would encourage switching to these less energy-intensive modes. Careful attention to the location of shops and public facilities could also reduce the need to move about. The use of tolls to enter large cities, particularly during peak hours, would certainly discourage some car use and thus reduce congestion and pollution levels. This approach has been implemented in Bergen, Singapore, and Hong Kong, and is now being tested in Oslo. Preliminary reports from Vegdirektorat and other authorities attribute a 3% decline in total automobile traffic over the period March 1990-March 1991 to decreases in city tolls (including in Oslo), as well as the new CO2 fee on motor fuels.”

Norway could also take measures to reduce the energy intensity of freight. Mandating the use of wind spoilers on long-distance trucks and penalizing the empty return of trucks are realistic options. For short-haul freight, whose role in freight transport in increasing, the most important contribution that the government could make would be to reduce congestion in cities. If the use of city tolls reduced traffic in cities, trucks would operate more efficiently.

CONCLUSIONS

The main lesson to be learned from Norway’s energy-use patterns is that a decreasing energy-to-GDP ratio alone does not necessarily imply improved energy efficiency. Changes in economic structure can cause the energy-to-GDP ratio to decrease even while the energy intensities of particular sectors or processes remain constant or increase. In Norway, the energy-to-GDP ratio has decreased by 13% since 1973 while the primary-energy intensities of every economic sector except manufacturing have increased. Clearly energy efficiency has not increased since 1973 in most applications.

The Norwegian fuel mix is the most heavily reliant on electricity of all the OECD countries. This is a consequence of the availability of cheap hydroelectricity, which encouraged the evolution of manufacturing towards a mix of electricity-intensive products and processes, and a high penetration of electric space and water heating in comparison with other countries in the OECD. These factors, coupled with the rapid increase in Norway’s living standards, have led


to structural change that favors high energy use, particularly high electricity use. The structure of Norwegian energy use is significantly influenced by these features, and any strategy to increase energy efficiency must deal with the institutions and political pressures that this decades-old pattern has shaped.

The lack of significant and measurable reductions in energy intensities in the manufacturing and residential sectors since 1973 suggests that these sectors would be very receptive to energy-efficiency efforts if electricity prices were to increase. Although we have not analyzed the service sector in great detail due to incomplete data, its intensive use of electricity suggests that this sector would also be receptive to conservation efforts.’

Acknowl~~gemenrs-This work was sponsored by Oslo Lysvaerker and the Olje og Energidepartment, Norway

REFERENCES

1. L. Schipper, R. Howarth, and D. Wilson, “A Long-Term Perspective on Norwegian Energy Use,” LBL-27295, Lawrence Berkeley Laboratory, Berkeley, CA (1990).

2. L. Schipper, R. Howarth, and H. Geller, A. Rev. Energy 15, 455 (1990). 3. R. Howarth, L. Schipper, P. Duerr, and S. Strom, Energy Econ. 13, 135 (1991). 4. L. Schipper, A. Ketoff, and A. Kahane, A. Rev. Energy 10, 341 (1985). 5. L. Schipper, S. Bartlett, D. Hawk, and E. Vine, A. Rev. Energy 14, 273 (1989). 6. L. Schipper, S. Meyers, and A. Ketoff, Energy Policy 14, 201 (1986). 7. Norwegian Central Bureau of Statistics, Eie og Bruk au Privat Biler (various years). 8. Norwegian Central Bureau of Statistics, Energiundersokelsen (1980, 1983). 9. Norwegian Central Bureau of Statistics, “Energiundersokelsen 1985, Energibruk i Privat og Offentlig

Tjenesteyting,” report 87/15 (1987). 10. “Trafikk Nedgang Overrasker,” (Traffic Decline Surprising), Aftenposten (7 May 1991).

Documents

Energy intensity, sectoral activity, and structural change in the Norwegian economy