Empirical Analysis of Aggregate Economy Wide Energy Intensity Drivers in South Africa

As both energy prices and concerns about global warming continue to dominate the energy literature, energy intensity measures have become important indicators informing energy policy at both the country and global level. The study presented here focuses on the factors that influence aggregate economy wide energy intensity values in South Africa in an effort to better understand the drivers of change in energy use within the economy. The empirical model employed estimates both a long and a related short run equation for determining energy intensity changes using modern time series techniques. In the long run, the use of energy is found to be dependent on the country’s capital stock, output and investment levels. The model’s coefficient of determination is high, at 0.89. The short run model dynamics relates changes in South Africa’s energy use patterns specifically to the capital to output ratio. A rise in the capital to output ratio within the economy is found to reduce economy-wide energy use, whilst a fall in the ratio increases it. The research suggests that the relationship between energy and capital has to change if production in South Africa is to become less energy intensive. Energy policy should therefore focus on monitoring the economy’s energy to capital ratio whilst being mindful of potential energy rebound effects in the promotion of energy intensity reductions in South Africa.