PNNL

Abstract

By direct appeal to the theory underlying price index numbers used by the energy decomposition literature, this note proposed the chain weighted Fisher Ideal Index as a formula that solves the "residual problem;" i.e., the decomposition is not complete in the sense that the components do not add to the whole. The connection to index number theory also allws us to illustrate that the measures of activity used to define energy intensity need not be additive across the sectors that are involved in the decomposition. We give an empirical example using recent U. S. manufacturing data of the Fisher Ideal Index, compared to the Tornquist Divisia Index, a popular index in the energy literature.