Determinants of Energy Intensity in Portugal Decomposition and BVAR approaches

The decrease of Energy Intensity (EI) of an economy could mean more conservation of natural resources, promotion of energy security, less environmental pollutants and production costs. One of Portugal's weaknesses is the large EI of the economy, leading to major difficulties in fulfilling the commitments made with the European Union and internationally (leading to financial penalties and the bottleneck of development). This work analyses EI in Portugal, for the period 1995-2015, in two steps: (i) decomposition analysis using the LMDI method, separating the structural effect from the intensity effect, and (ii) BVAR model to understand which variables affect the Portuguese EI. It is shown that the growth of EI is strongly and positively linked to the sectors intensity effect. The structural effect has a negative impact. It was found that the Industry Value Added and the Total Factor Productivity affect positively EI, and the Energy Prices and the GDP affect it negatively.