Energy Policy 64 (2014) 373–381

Contents lists available at ScienceDirect

Energy Policy
journal homepage: www.elsevier.com/locate/enpol

The unexpected challenges of using energy intensity as a policy
objective: Examining the debate over the APEC energy intensity goal$
Ralph D. Samuelson n
Asia Paciﬁc Energy Research Centre (APERC), Inui Building Kachidoki 11F, 1-13-1 Kachidoki, Chuo-ku, Tokyo 104-0054, JapanH I G H L I G H T S

 APEC adopted, then subsequently revised, an energy intensity reduction goal.
 This is a case study of APEC's use of energy intensity as a policy objective.
 Energy intensity is declining more rapidly than many policymakers realized.
 The deﬁnition of energy intensity adopted can dramatically change the incentives.
 Currency conversion methodologies can dramatically change the calculations.

art ic l e i nf o

a b s t r a c t

Article history:
Received 10 February 2013
Accepted 5 September 2013
Available online 8 October 2013

Aims: Energy intensity (energy demand per unit of economic output) is one of the most widely usedindicators of energy efﬁciency in energy policy discussions. Yet its application in real-world policymaking
can be surprisingly problematical. This paper aims to provide guidance to governments and organizations considering using energy intensity as a policy objective.
Scope: In 2007 the APEC community adopted, then in 2011 revised, an APEC region-wide energy intensity
improvement goal. This paper presents a case study of that experience, focusing on three key ‘lessons
learned’. These lessons are not original ﬁndings. However, none of them have received the recognition they
deserve, and consequently, they came as a surprise to many of those involved in APEC's policy discussions.
Conclusions: The three lessons are as follows: (1) Energy intensity improvement is happening surprisingly
quickly, but not quickly enough to meet the world's energy challenges. (2) It is difﬁcult to ﬁnd a deﬁnitionof energy intensity that can make it suitable for use as an indicator of regional energy efﬁciency. (3)Whether the GDP's of individual economies are converted to common currency using market exchange
rates or purchasing power parity (PPP) can dramatically change regional energy intensity improvement
calculations.
& 2013 The Authors. Published by Elsevier Ltd. All rights reserved.

Keywords:
Energy intensity
APEC
Energy efﬁciency

1. Introduction
Energy intensity (energy demand per unit of economic output) is
one of the most popular indicators of aggregate energy efﬁciency inenergy policy discussions (Schipper and Haas, 1997). Yet its application in real-world policymaking can be surprisingly problematical.
This was demonstrated by the recent experience of the APEC
community, which adopted, then subsequently revised, an APEC
region-wide energy intensity improvement goal. This paper presents
a case study of that experience focused on three key “lessons$

This is an open-access article distributed under the terms of the Creative
Commons Attribution License, which permits unrestricted use, distribution, andreproduction in any medium, provided the original author and source are creditednCorresponding author. Tel.: þ 81 3 5144 8550; fax: þ81 3 5144 8555.
E-mail addresses: samuelson@aperc.ieej.or.jp, ralph_samuelson@hotmail.com

learned”, which should be taken into account by any policymakerconsidering using energy intensity as a policy objective.
These lessons learned will come as no surprise to those steepedin the literature of energy economics, and they are certainly not
original ﬁndings. However, none of them have received therecognition they deserve in the literature, and consequently, theycame as a surprise to many of those involved in APEC's policy
discussions. The role of this paper is to highlight their importanceby showing their impact on a real world policy decision. Consequently, this paper may provide useful guidance to any othergovernments or organizations considering the use of energy
intensity as a policy objective.
The three “lessons learned” are as follows:
Lesson #1—Energy intensity improvement is happening surprisingly quickly, but not quickly enough to meet the world's
energy challenges.

0301-4215/$ - see front matter & 2013 The Authors. Published by Elsevier Ltd. All rights reserved.
http://dx.doi.org/10.1016/j.enpol.2013.09.020

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R.D. Samuelson / Energy Policy 64 (2014) 373–381

Lesson #2—It is difﬁcult to ﬁnd a deﬁnition of energy intensitythat can make it suitable for use as an indicator of regionalenergy efﬁciency.
Lesson #3—Whether the GDP's of individual economies areconverted to a common currency using market exchange rates
or purchasing power parity (PPP) can dramatically change
regional energy intensity improvement calculations.

The most directly relevant previous literature to this paper is
Suehiro (2008), who has provided a discussion of some of thegeneral properties of energy intensity as an indicator, focusing
especially on the choice of market exchange rates vs. purchasing
power parity (PPP), which we will highlight here as Lesson #3.
However, the existing literature on the properties of energy
intensity is heavily focused on building models to decompose
energy intensity improvement into various explanatory factors.
Two papers with good reviews of this literature are Wing (2008)
and Ma and Stern (2008).
Also relevant to this paper is the literature on a related
indicator, greenhouse gas emissions intensity (emissions per unitof economic output), which appears to be more abundant (see, forexample Pizer, 2005; Herzog et al., 2006; Wing et al., 2006). Someof the properties of emissions intensity also apply to energy
intensity. Similar to this paper's Lesson #1, this literature ﬁnds
that there is a tendency for emissions intensity to decline overtime with improvements in economic productivity and shifts awayfrom energy-intensive industry. However, a signiﬁcant caveat isthat emission intensities can decline even as emissions rise. This
literature also points out that improving emissions intensity is
attractive to policymakers as a policy goal because, unlike anabsolute emissions goal, emissions under an intensity goal canvary with economic activity. An emissions intensity goal is therefore less likely to be perceived as limiting growth, an especiallycritical property for developing economies. An energy intensity
improvement goal would have this same attractive feature forpolicymakers.

2. Background on APEC's energy intensity goal
Asia-Paciﬁc Economic Cooperation or APEC is a multi-lateralorganization of 21 Paciﬁc Rim economies whose primary mission
is to “to support sustainable economic growth and prosperity in
the Asia-Paciﬁc region” (APEC, 2013A). APEC member economies
have a combined population of about 2.7 billion people andaccount for about 54% of world GDP (APEC, 2010A, p.2). Unlike
some multi-lateral organizations, APEC operates on an entirely
voluntary basis—there are no binding commitments and no
penalties for non-compliance. Compliance is achieved through“mutual discussion and mutual support in the form of economic
and technical cooperation” (APEC, 2010A, p.2). Because APEC isprivileged to have the People's Republic of China, Chinese Taipei,
and Hong Kong, China as members, APEC refers to its members as‘economies’ rather than ‘countries’.
APEC promotes regional cooperation in a wide variety of areas
related to economics and trade, including energy. One of APEC's
key energy initiatives has been an APEC-wide regional goal forenergy intensity reduction. This goal was ﬁrst agreed to at the
APEC Leaders’ Meeting in Sydney, Australia in September 2007.
The annual APEC Leaders’ meetings bring together the Presidents,
Prime Ministers, or other political leaders of each of the APEC
economies. In their Sydney APEC Leaders’ Declaration on Climate
Change, Energy Security and Clean Development, the Leadersannounced that they would

highlight the importance of improving energy efﬁciency byworking towards achieving an APEC-wide regional aspirational
goal of a reduction in energy intensity of at least 25% by 2030
(with 2005 as the base year) (APEC, 2007B).
However, at their subsequent meeting in Honolulu in November, 2011, the Leaders adopted a more ambitious goal “to reduce
APEC's aggregate energy intensity by 45% by 2035” (APEC, 2011).
Between these two events, there was extended discussion
within the APEC community, focusing especially on APEC's Energy
Working Group (EWG), as to whether the goal should be revised
and, if so, what the revised goal should be. It is this discussion thatis the focus of this paper. The author's organization, the Asia
Paciﬁc Energy Research Centre (APERC), had the privilege ofproviding much of the analysis that supported this discussion.
APERC is an independent research institute, generously sponsoredby the Japanese government, which supports the energy-related
activities of APEC through both research and cooperative efforts topromote energy efﬁciency and low-carbon energy supply.

3. Setting the original 25% 2005–2030 intensity improvement
goal
The ofﬁcial record is sketchy as to the background of theoriginal 2007 energy intensity improvement goal. The Darwin
Declaration of the APEC Energy Ministers of May, 2007 on
Achieving Energy Security and Sustainable Development ThroughEfﬁciency, Conservation and Diversity makes no mention of anenergy intensity goal (APEC, 2007A). A review of the Summary
Records of APEC Senior Ofﬁcials Meetings (SOM), where drafts ofupcoming Leaders’ Declarations are usually discussed, for the 2nd
half of 2006 and 2007 reveals no discussion of an intensity goal.
However, this is not surprising as discussions of upcoming Leader's
Declarations would usually be done off-the-record. The Summary
Records of APEC EWG Meetings for this time period also reveal no
discussion of the intensity goal.1 So where did this goal comefrom?
According to James Connaughton, who was Chairman of theWhite House Ofﬁce of Environmental Policy in 2007, the goal was
originally promoted by Australia. The Australian government
needed to show that they were doing something meaningful to
reduce emissions going into the upcoming election. The UnitedStates went along with it because it was something they could live
with; in particular, the Bush Administration had set a goal of
improving US energy intensity 18% between 2002 and 2012, andthe 25% goal was consistent with this rate of improvement
projected out to 2030. China also had an intensity improvement
goal in their ﬁve year plan [speciﬁcally, the goal in the 11th Five
Year Plan was to improve energy intensity by 20% between 2006
and 2010 (Price et al., 2011), and the proposed APEC goal was also
consistent that goal (Connaughton, 2012).
It should be explained that each year one APEC economy plays
host to the most senior APEC events including the annual Leaders’Meeting, Ministerial Meetings, Senior Ofﬁcials Meetings and anumber of other events. As the host economy, that economy
nominates a Chair to preside over these meetings (APEC, 2013B).
2007 was Australia's year as host.
Jan Adams, then Australia's Ambassador for Environment, after
a review of an earlier draft of this paper, kindly provided theauthor with the following further explanations regarding theorigins of APEC's energy intensity goal:
1
Summary records for APEC Meetings, including APEC Senior Ofﬁcial Meetings
and APEC Energy Working Group Meetings, are available on the APEC website at
http://aimp.apec.org/MDDB/Pages/search.aspx.

R.D. Samuelson / Energy Policy 64 (2014) 373–381

In 2007 when Australia was APEC chair, there was a great dealof international and Australian focus on climate change. The
Stern report was released, the IPCC update, the drought was
terrible in Australia, and the upcoming Bali conference of the
UNFCCC was a major milestone in terms of Kyoto and post
Kyoto negotiations. In that context Australian PM John Howarddecided that climate change should be a key focus of the APEC
summit. (If you look at other summits that year, they all dealt
with climate change—G8; Commonweath meeting; EAS, etc.).
Australia conducted a series of consultations among APEC
economies on what APEC should do and say about climatechange. I was Australia's Ambassador for the Environment,with responsibility for leading negotiations in the UN andelsewhere on climate change. In that capacity I did much of
the consultation and preparation of the Sydney Declaration. Mr
Downer was Foreign Minister, and Michael L'Estrange was thePrime Minister's special envoy for preparing the Leaders’declarations. Between us, and through our embassies as well,
we conducted consultations with APEC economies on climatechange. This involved foreign, trade, energy and climate change
ministries in the APEC economies, depending on how they
organised their internal processes in support of the leaders
meeting process.
Australia proposed the energy intensity target with a goodunderstanding of the pros and limitations of such a target, andthere was discussion with various member economies on thesorts of issues you discuss in your paper. The actual number
was backed up by APERC research at the time. APEC economies
including Australia were not inclined to focussing on emissions
targets which were under multilateral negotiation in the
UNFCCC. Economies agreed on the utility of focussing onenergy intensity, given the high energy using economies in
APEC and the focus on supporting ongoing economic growth in
the region. As you note, economies opposed to emission targets
such as US and China already had internal energy intensity
targets, so this was an area in which we thought the proﬁle andpeer pressure could be raised by elevating it to a regional
leaders level issue, without interfering in the multilateralprocess of the UN. We envisaged that there would be ongoing
attention to these issues in the APEC work program through[the APEC] EWG.
So from a process point of view, the declaration was negotiatedmainly by representatives of APEC economies with responsibility for climate change negotiations, such as Jim Connaughtonand Harlan Watson from the US. It was done in conjunction
with representatives from energy ministries and [the APEC]EWG but not as an initiative of theirs (Adams, 2012).
The APERC research referred to by Ambassador Adams wouldbe APERC's Energy Demand and Supply Outlook 2006, which
projected that APEC's energy intensity would decline 43% from2002 to 2030 and 33% from 2010 to 2030 (no ﬁgures were
presented for 2005 to 2030). The assumptions behind these
2006 APERC projections would appear to be business-as-usual,although this is never explicitly stated in the report (APERC, 2006).

4. Lessons learned
The EWG's post-Sydney discussions centered on three signiﬁcant topics, each of which became a focus of the discussion, atleast for a time. Each topic suggests a “lesson learned”. This section
discusses the three topics and the lessons learned in the chronological sequence in which they arose.

375

4.1. Lesson #1—Energy intensity improvement is happening
surprisingly quickly, but not quickly enough to meet the world's
energy challenges
APERC explicitly looked into the question of the adequacy ofthe 25% goal in its November 2009 APEC Energy Demand andSupply Outlook 4th Edition (APERC, 2009). APERC's projections
were based mostly on simple econometric models of ﬁnal demandand expected transformation efﬁciencies in electricity generation2.
Consistent with APERC's earlier Energy Demand and Supply Outlook
2006, these projections indicated that, assuming energy intensity
is deﬁned as primary energy supply per US dollar of GDP atpurchasing power parity, the Sydney Declaration goal could be
easily be met under business-as-usual assumptions. By 2030, theprojections indicated that APEC region primary energy supply will
increase by about 45% compared to 2005, while GDP will increaseby about 235%. As shown in Fig. 1 below, the net impact will be adecrease in energy intensity of about 38%.
While it may be good news that energy intensity improvement
appears to be happening so quickly, the Outlook 4th Edition also
had some bad news: even with this improvement in energy
intensity, over the 2005–2030 time period, APEC's oil imports
from outside the APEC region were likely to grow by about 70%,
while CO2 emissions from fuel combustion were likely to grow by
about 40%. Hence, the business-as-usual outlook raises serious
concerns regarding both energy security and environmental
sustainability.
Of course, there was skepticism at ﬁrst both inside and outside
APERC as to whether these projections were really reasonable.
Therefore, APERC undertook further analysis focusing on APEC's
energy intensity goal, ﬁnally published in August 2010 under thetitle Pathways to Energy Sustainability; Measuring APEC Progress in
Promoting Economic Growth, Energy Security, and Environmental
Protection (APERC, 2010).
The Pathways report presented three types of additional
evidence which suggested that the conclusions of the Outlook
4th Edition were reasonable. It should be noted that energy
intensity can be measured in at least two ways: primary energy
intensity is primary energy (raw fuels before conversion to electricity or reﬁning of crude oil) divided by GDP; ﬁnal energy
intensity is ﬁnal energy (energy in the form it is ﬁnally used)divided by GDP. The APEC Leaders did not specify which measure
they had in mind, so the Pathways Report considered both.
1. The energy intensity of the APEC region has historically declined at
a rate exceeding 25% over the 25 years prior to 2005. Between
1980 and 2005, the primary energy intensity of the region
excluding Russia and Viet Nam (for which comparable data areunavailable prior to 1990) declined by 31% (1.5% per year). Overthe same period, the ﬁnal energy intensity of the region
declined by 39% (1.9% per year). From 1990 to 2005, whendata for all APEC economies is available, the primary energy
intensity of the region declined by 20%. Final energy intensity

2More speciﬁcally, APERC estimated simple least-squares regression models of
ﬁnal demand for each of 10 sub-sectors (iron and steel, chemicals, other industries,
road transport, other transport, agriculture, household, commercial, non-speciﬁed
other, and non-energy) for each of four fuel types (coal, petroleum products,
natural gas, and electricity) for each economy. The models were driven by
projections of macro-economic variables including GDP, population, crude oil
prices, industrial value-added, and automobile ownership, which were obtained
from a variety of published sources for each economy. Demands for each type ofprimary energy for electricity generation were based on data on the existing
generation ﬂeet by primary energy type, including capacity, transformation
efﬁciencies, and utilization, combined with APERC's assessment of likely future
generation ﬂeet additions and retirements by 2030 based on published studies foreach economy.

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R.D. Samuelson / Energy Policy 64 (2014) 373–381

250

Index (2005 = 100)

200

Primary Energy Supply

GDP Index

Intensity Index

150

100

50

Energy Intensity Down 38% vs. 2005
0
1990

2000

2005

2015

2030

Fig. 1. Projected APEC business-as-usual primary energy demand, GDP, and energy
intensity (APERC, 2009, Fig. 1.5).

declined by 25%. A continuation of these 1990 to 2005 rates ofdecline over the next 25 years would bring a decline in primaryenergy intensity of around 31% and a decline in ﬁnal energy
intensity of around 38%. Both declines comfortably exceeded
the APEC Leaders’ goal.
2. Since 2005, energy intensity of the APEC region has continued to
improve. At the time the Pathways report was published, data
were available only for 2006 and 2007, but they indicated anaverage annual reduction in primary energy intensity of 2.2%
per year and an average annual reduction in ﬁnal energy
intensity of 2.3% per year, well above the historical trends
discussed above. Subsequently, data for 2008–2010 havebecome available. They indicate that, with the onset of theeconomic crisis, the rate of APEC energy intensity improvement
slowed in 2008, essentially stopped in 2009, and resumed
slowly in 2010. Therefore, over the 2005–2010 time period,
primary energy intensity declined at an average rate of 1.4% per
year, while ﬁnal energy intensity declined at an average rate of
1.8% per year.3 Even at these rates, the 25% goal would be
exceeded by 2030, and the 2008–2010 results are probably
anomalous in any case.
3. A comparison of APERC's projections with those of other modeling
efforts indicates a remarkable degree of similarity. Projections of
APEC energy intensity based on the results in the International
Energy Agency's World Energy Outlook 2009 (IEA, 2009A)
indicated a 38% intensity improvement, almost exactly matching APERC's independent Outlook 4th Edition projection.4 A
comparison with the United States Energy Information Administration's International Energy Outlook 2009 model results
indicated a slightly larger 40% intensity improvement.5 Hence,
there are three independent modeling efforts that have arrived
as essentially the same conclusion about APEC's projectedbusiness-as-usual intensity reduction.
It should be emphasized that these ﬁndings are not unique tothe APEC region. The IPCC's Fourth Assessment Report, Working
Group 3: Mitigation of Climate Change found that energy intensity
globally declined by 1.2% per year between 1970 and 2004 (Fisher
et al., 2007, Section 1.3.1.2), a 33% decline in 25 years (IPCC, 2007,
Section SPM B). Nakicenovic (1997) concluded that the historicalrate of decrease in energy intensity appears to have averaged
3
These results are APERC calculations based on historical energy data from IEA(2011A, 2011B) and historical economy GDP data from IHS (2012).
4
Additional non-published data on individual economy model results were
provided by the IEA to APERC to facilitate these calculations. The raw data is©
OECD/IEA, 2009, calculations by APERC.
5
These results are APERC calculations based on projections of energy demandand GDP published in United States Energy Information Administration (2009).

about 1% per year since the mid-nineteenth century and about 2%
per year in some countries since the 1970s, with large andpersistent variations between countries.
Looking ahead, the IPCC's Fourth Assessment Report, Working
Group 3 analysis of 286 ‘non-intervention’ scenarios to the year
2100 from the literature found that in all scenarios, energy
intensity improves signiﬁcantly across the century, with a meanannual intensity improvement of 1%. The 90% range of the annual
average intensity improvement is between 0.5% and 1.9%, which
they note is fairly consistent with the historical variation (Fisher
et al., 2007, Section 3.2.1.5). It should be noted that many of thesescenarios compared GDP values across countries using market
exchange rates (Fisher et al., 2007, Section 3.2.1.4). As discussed
under Lesson #3 below, they may thus understate the actual
improvement in energy intensity.
The Pathways report also outlined an example of how a moresustainable scenario for energy development in the APEC region
could be achieved. The scenario shows how the energy sector in
the APEC region could contribute towards limiting global warming
to 2 1C by limiting greenhouse gas concentrations in the atmosphere to 450 PPM of CO2-equivalent. This scenario would requirea roughly 50% improvement in primary energy intensity by 2030,
along with other measures to promote non-fossil energy as well ascarbon capture and storage.6
An early draft of the Pathways report was published on thewebsite of the APEC Energy Ministers meeting in Fukui, Japan,
prior to the meeting in June 2010. At that meeting, the Ministers
decided that a reconsideration of the 25% goal was needed. In their
Fukui Declaration, the Energy Ministers directed the EWG to:Assess the potential for reducing the energy intensity of
economic output in APEC economies between 2005 and 2030,
beyond the 25 percent aspirational goal already agreed by the
APEC Leaders, with assistance from APERC, EGEDA [the APEC
Expert Group on Energy Data and Analysis], and EGEEC [theAPEC Expert Group on Energy Efﬁciency and Conservation](APEC, 2010B).

4.2. Lesson #2—It is difﬁcult to ﬁnd a deﬁnition of energy intensitythat can make it suitable for use as an indicator of regional energy
efﬁciency
The Ministers directed the EWG to reassess the goal, but whatshould the new goal be and exactly how should it be measured?
Measurement turned out to be a surprising difﬁcult question.
As noted above, there are two commonly-used measures of economywide energy demand: primary energy and ﬁnal energy. The two differ
by the losses in energy transformation processes, especially electricity
generation and reﬁneries, which are included in primary energy but
not included in ﬁnal demand.
As noted above, the Sydney Declaration did not specify what
measure of energy demand was to be used to calculate energy
intensity. Nor does there appear to be any standard set by theInternational Energy Agency (IEA). The IEA's World Energy Outlook
2012 (IEA, 2012, see, for example, Fig. 2.4) discusses intensity
based on primary energy. However, another IEA publication
speciﬁcally devoted to the topic of energy indicators focusesthroughout on energy intensity calculated using ﬁnal energy(IEA, 2008, see, for example, p. 15).
6
See Chapter 5 of APERC (2010). The Sustainable Scenario in the Pathways
report was based on model results from the 450 Scenario of the International
Agency's World Energy Outlook 2009. Additional non-published data on individual
economy model results were provided by the IEA to APERC to facilitate thesecalculations. The raw data is © OECD/IEA, 2009, calculations by APERC.

R.D. Samuelson / Energy Policy 64 (2014) 373–381

It is natural to assume that primary energy is the best measure
to use for calculating energy intensity improvement, since it is thebroader measure that can reﬂect improvements in electricity
generation and reﬁnery efﬁciency, as well as end-use efﬁciency.
However, since various types of electricity generation have different levels of conversion efﬁciency, changing the mix of electricity
generation can change the apparent overall efﬁciency of electricity
generation (Percebois, 1979), and such changes do not always alignwith the ultimate objectives of the APEC energy intensity goal.
This message was clearly driven home to the author several
months after the Fukui Declaration in a discussion with an energy
policy analyst from Hong Kong, China. The analyst explained thatHong Kong was considering a proposal to build a nuclear power
plant. He explained that Hong Kong, as a member of APEC, wanted
to help APEC meet its energy intensity improvement goal, butwhen they did the calculations for the impact of the nuclear power
plant, they showed that it would make Hong Kong's energy
intensity increase, that is get worse. This did not seem right tohim, since the nuclear plant would reduce Hong Kong's greenhouse gas emissions and reduce Hong Kong's dependence on
imported fossil fuels, both goals that the APEC Leaders presumably
wished to encourage with their energy intensity improvement
goal. He asked me if his calculations were correct.
The answer is that his calculations are indeed correct, at least if
primary energy is used to calculate energy intensity and primaryenergy is calculated using the ‘physical energy content’ methodology employed by the International Energy Agency and Eurostat(IEA et al., 2004). There are actually at least three methodologies
used in the literature to calculate primary energy (Moomaw et al.,2011, Section A.II.4; Macknick, 2009). All of them agree that, forfossil fuel generation plants, primary energy is the fuel burned,
and the efﬁciency of the plant is the electrical energy output
divided by the fuel energy input. However, for a nuclear plant, thedeﬁnition of ‘efﬁciency’ is not so obvious, since the heating valueof the nuclear fuel cannot be clearly established. In the IEA/
Eurostat methodology, primary energy for a nuclear plant isdeﬁned to be the energy content of the steam leaving the reactor
for the turbine, implying that the efﬁciency of the plant is theelectrical energy output divided by the steam energy input(see IEA et al. 2004, p.22).
Using this methodology, the efﬁciency of a nuclear plant istypically relatively low. In 2009, the worldwide average efﬁciencyof nuclear plants was about 33%.7 Since many countries do noteven keep statistics on the energy content of the steam produced
in nuclear plants, the IEA/Eurostat methodology for estimating itin these cases is to impute it from the electricity output at anassumed efﬁciency rate of 33% (IEA et al., 2004, p. 138).
For geothermal plants, the principle under the IEA/Eurostat
methodology is the same: the energy in the geothermal steam is
the primary energy and the electricity produced is the ﬁnal energy.
However, for geothermal plants, because of the relatively low
temperature of most geothermal steam, the worldwide average
efﬁciency turns out to be an even more dismal 11%.8 Again, since
many countries do not keep statistics on the energy content of thegeothermal steam produced, the standard approach for estimating
it in these cases is to impute it from the electricity output at anassumed efﬁciency rate of 10% (IEA et al., 2004, p. 138).

7
This ﬁgure is the author's calculation based on worldwide statistics from IEA(2011A), which show that nuclear plants had a primary fuel input of 703.2 mtoe,
and an output of 2696,765 GW h, or 231.88 mtoe, of electricity plus 0.52 mtoe ofmarketable heat for a total output of 232.4 mtoe.
8This ﬁgure is the author's calculation based on worldwide statistics from IEA(2011A), which show that geothermal electricity and CHP plants had a primary fuelinput of 55.931 mtoe, and an output of 66,672 GW h, or 5.73 mtoe, of electricity
plus 0.23 mtoe of marketable heat for a total output of 5.96 mtoe.

377

Fossil fuel plant efﬁciencies are typically much higher—theworldwide averages were 36% for coal plants and 49% for natural
gas plants in 2009.9 Hence, when an economy converts from fossil
fuel to nuclear or geothermal electricity generation, their generation efﬁciency under the IEA/Eurostat methodology will decrease
and their primary energy intensity will increase (get worse). Notethat this anomalous result does not apply to non-thermal types ofrenewable energies that are converted directly to electricity without the intermediate step of producing steam or heat, such ashydro, wind, and solar photovoltaics. For non-thermal renewables,
the primary energy input under the IEA/Eurostat methodology isdeﬁned to be the same as the electricity output, effectively
counting them as 100% efﬁcient (IEA et al., 2004, pp. 118 and
137). Since one might assume that low-carbon, non-fossil electricity generation, such as nuclear and geothermal, is somethingthat the APEC Leaders would be seeking to promote, or at least not
to discourage, it is apparent that using primary energy to measureenergy intensity, at least following the IEA/Eurostat methodology,
does not align with their ultimate objectives.
As noted above, there are at least two alternatives to the IEA/
Eurostat ‘physical energy content’ methodology used in theliterature to measure primary energy (Moomaw et al., 2011,
Section A.II.4) from non-fossil sources. First, BP (2011, p, 44) uses
the ‘substitution method’, which counts the primary energy used
to produce nuclear and renewable electricity as if they had been
produced from fossil fuels. Speciﬁcally, a 38% conversion efﬁciency
is assumed for all nuclear and renewable electricity. The UnitedStates Energy Information Administration applies a similar methodology to electricity from hydro, geothermal, solar thermal/
photovoltaic, and wind, currently assuming a conversion efﬁciencyof 35%, but follows a methodology more similar IEA/Eurostat for
nuclear10.
Second, UN Statistics (2012) use the ‘direct equivalent method’,
which simply counts one unit of electricity generated from nuclear
or renewables other than biomass as one unit of primary energy,
effectively assuming generation from these renewables to be 100%
efﬁcient. The ‘direct equivalent method’ has also been used invarious IPCC reports (Moomaw et al., 2011, Section A.II.4).
The EWG did consider using the ‘direct equivalent’ methodology to measure energy intensity improvement, which would haveavoided the anomalous effects of increased nuclear and geothermal generation on primary energy intensity discussed above. The
main argument for this methodology was that fossil fuel plantlosses result in greenhouse gas emissions and fossil energy
imports, while nuclear and geothermal losses are more benign
and should be ignored in calculating energy intensity. Thismethodology would also standardize the treatment of most nonfossil energy, since nuclear and geothermal generation would
effectively be counted as 100% efﬁcient just like hydro, wind,and solar photovoltaics. However, within the EWG there were
objections that this methodology was not commonly used inpolicy analysis, and would therefore be confusing to policymakers.
Also, some EWG members felt that this deﬁnition would cause the9These ﬁgures are the author's calculations based on worldwide statistics fromIEA (2011A), which show that coal electricity and CHP plants had a primary fuelinput of 2041.13 mtoe, and an output of 8110,286 GW h, or 697.36 mtoe, ofelectricity plus 43.96 mtoe of marketable heat for a total output of 741.32 mtoe.
Natural gas electricity and CHP plants had a primary fuel input of 918.98 mtoe, andan output of 4301,367 GW h, or 369.85 mtoe, of electricity plus 76.92 mtoe ofmarketable heat for a total output of 446.77 mtoe.
10
The United States Energy Information Administration methodology for
estimating primary energy is explained in the entries for ‘Primary Energy
Consumption’ and ‘Primary Energy Production’ in their on-line Glossary available
at 〈http://205.254.135.7/tools/glossary/index.cfm?id=P〉. The actual conversion
rates used are shown in United States Energy Information Administration (2011,
Table A6).

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R.D. Samuelson / Energy Policy 64 (2014) 373–381

APEC energy intensity reduction goal to look a bit too much like anemission intensity reduction goal, an alternative the APEC Leaders
had already rejected.
An alternative to using primary energy to measure the APEC
energy intensity goal would be to use ﬁnal energy. This approach
would give a clear measure of end-user energy efﬁciency, which isthe focus of energy efﬁciency improvement efforts in many
economies. However, it would not reﬂect any improvements aneconomy makes in the efﬁciency of its electricity generation,
which in many economies represents a major opportunity to
improve energy efﬁciency.
Fortunately, all of the analysis of projected energy intensity
improvement indicated that it made little difference whether one
used primary energy or ﬁnal energy to calculate energy intensity—for
any given set of assumptions, the projected APEC-wide improvement
always seemed to work out about the same either way (Samuelson,2011). So, from the perspective of setting a numerical goal, themeasure selected did not matter that much in the end. Perhaps forthis reason, the EWG has still never taken a position on which
deﬁnition should be used (APEC Energy Working Group, 2011).
However, from the perspective of incentives to APEC economy
policymakers, the measure of energy demand selected does
matter. Using primary energy intensity calculated according to
the IEA/Eurostat methodology, policymakers seeking to contributeto the APEC-wide energy intensity goal should avoid nuclear andgeothermal generation. Using ﬁnal energy intensity, they should
not concern themselves with generation efﬁciency at all. Neither
seems right to the author.
4.3. Lesson #3—Whether the GDP's of individual economies areconverted to common currency using market exchange rates orpurchasing power parity (PPP) can dramatically change the energy
intensity improvement calculations
Discussions within the EWG of APEC's energy intensity
improvement goal took a surprising turn as the deadline
approached for recommending a new goal in time for consideration at the APEC Economic Leaders’ Meeting in Honolulu, Hawaiiin November 2011. One EWG participant, who was skeptical of
APEC's ability to meet a more ambitious energy intensity goal,cited a recent study of the ASEAN þ6 economies by the Economic
Research Institute of ASEAN and East Asia (ERIA), which concluded
that their energy intensity would improve in the 2005–2030 time
period by only 9.9% under business-as-usual, and only 26.7% underan “Alternative Policy Scenario” (APS) incorporating additional
goals and action plans (Kimura, 2010).
The ASEAN þ6 economies are not the same as the APEC
economies. However, 12 of the 21 APEC economies are also in
the ASEAN þ6, so the results of this new study appeared to be
difﬁcult to reconcile with the results of other studies, discussed
under Lesson #1 above, which suggested a much higher 2005–
2030 business-as-usual improvement in energy intensity.
It turns out that the major explanation for the difference
between the ERIA results and other model results lies in the way
GDP's for each economy were converted to US dollars. ERIA used
year 2000 market exchange rates (MER), while the other models
and the historical results cited under Lesson #1 above used
Purchasing Power Parity (PPP) rates with a 2005 base year. If the
ERIA results are recalculated using PPP's, the results become
consistent with those other models.
To see why this is the case, we have to look at the underlying
data. Table 1 below shows the business-as-usual ERIA results
economy-by-economy using their original year 2000 market
exchange rates. The 2005–2030 primary energy intensity improvement would be 4.2% for the ASEAN þ6 economies that are also
members of the APEC and 9.9% for all the ASEAN þ6 economies.

At ﬁrst glance, the individual economy improvements inTable 1 appear to be broadly consistent with the results of themodeling work discussed under Lesson #1 above, especiallyconsidering the large projected improvements in energy intensity
in the two largest energy-consuming economies, China and India.
What seems odd are the total values for the APEC ASEAN þ6
economies and for the entire ASEAN þ6. For example, the 4.2%
BAU case total improvement for the APEC ASEAN þ6 economies issmaller than the corresponding ﬁgure for every individual economy. How can this be?
The answer lies in the fact that there is a disconnect here
between GDP and energy demand. It can be seen that more than
53% of the total 2005 GDP of the ASEAN þ6 is contributed by
Japan. On the other hand, 48% of the total 2005 energy demand of
the ASEAN þ6 is contributed by China. Between 2005 and 2030,
Japan's economy is projected to grow slowly, while China's
economy is projected to grow quickly. Hence, total ASEAN þ6
GDP growth tends to be pushed down by Japan, while total
ASEAN þ6 energy demand tends to be pushed up by China. Sinceenergy intensity is energy demand divided by GDP, this would
explain why total primary energy intensity improvement for the
ASEAN þ6 economies that are also members of APEC is a meager
4.2% and why total primary intensity improvement for all
ASEAN þ6 economies is only 9.9%.
Table 2 shows Table 1 recalculated using 2005 PPP's, to makethem comparable to the models discussed under Lesson #1.
To make this table, the 2005 GDPs of each economy in 2005 PPP
US dollars were obtained from the World Bank,11 and were
substituted for the original 2005 GDP values. A currency conversion factor was also calculated, equal to each economy's 2005 GDP
in 2005 PPP US dollars divided by the economy's original ERIA
2005 GDP at market exchange rates. Each economy's 2030 GDP
was then multiplied by this conversion factor to obtain a projected
2030 GDP in 2005 PPP US dollars. Note that this currency
conversion did not change either the 2005–2030 percentage
growth of each economy's GDP nor the individual economy
improvements in energy intensity. It did, however, dramaticallychange the absolute energy intensities (energy/GDP) for some
economies.
In Table 2, GDP's are much better aligned with energy use, with
China and other fast-growing economies making a much larger
contribution to total GDP compared to Table 1. As a result, totalenergy intensity improvement is much larger: 32.5% for the
ASEAN þ6 economies that are also members of APEC and 37.2%
for all ASEAN þ6 economies. A similar recalculation of ERIA's
Alternative Policy Scenario (APS) would give a 2005–2030 primaryenergy intensity improvement of 44.3% for the ASEAN þ6 economies that are also members of APEC and 48.8% for all ASEAN þ6
economies. These results are generally consistent with the resultsof the other models discussed under Lesson #1.
Tables 1 and 2 demonstrate in a practical way why PPP is thesuperior approach for calculating aggregate energy intensity
improvements across economies for use in policy analysis—as
noted, the GDP's calculated using PPP are much more closelyaligned with energy use than the GDP's calculated using exchange
rates. But there are good theoretical reasons to favor PPP as well.
In fact, there has been much discussion in the literature on the
merits of using PPP vs. exchange rates in multi-economy modeling(see Van Vuuren and Alfsen, 2006, for a literature review). Much ofthis debate is well beyond the scope of this paper. Our concern
here is simply with how to best aggregate the results of individual
economy models to produce an aggregate energy intensity

11
World Bank (2008, pp. 23–28). This publication did not provide PPP ﬁgures
for Myanmar, so Myanmar's GDP values in Table 2 were left unchanged.

R.D. Samuelson / Energy Policy 64 (2014) 373–381

379

Table 1
Original ERIA business-as-usual primary energy intensity improvement results by economya.
2005 GDP(billion 2000 US$)2005 Energy(mtoe)

2005 Energy/GDP

2030 GDP(billion 2000 US$)

2030 Energy(mtoe)

2030 Energy/GDP

2005–2030 Improvement(%)

APEC members
Australia
Brunei
China
Indonesia
Japan
Korea
Malaysia
New ZealandPhilippines
Singapore
Thailand
Viet Nam
Total—APEC

468.4
6.6
1893.0207.94980.0
639.6
112.5
61.7
94.5
114.7
157.0
44.8
8780.7122.0
2.6
1505.2
135.1
517.8
218.5
62.8
15.2
33.8
27.7
98.9
27.3
2766.9

0.260
0.394
0.795
0.650
0.104
0.342
0.558
0.246
0.358
0.241
0.630
0.609
0.315

898.4
16.8
11,996.0
937.3
6,984.0
1,449.6
347.1
100.9
395.4
296.4
419.9
280.1
24,121.9184.0
5.45011.6
544.5
503.5
323.7
120.1
18.5
120.4
45.1
247.7
156.8
7281.3

0.205
0.321
0.418
0.581
0.072
0.223
0.346
0.183
0.305
0.152
0.590
0.560
0.302

 21.4
 18.4
 47.5
 10.6
 30.7
 34.6
 38.0 25.6
 14.9
 37.0
 6.4
 8.1
 4.2

Non-APEC members
Cambodia
India
Lao PDR
Myanmar

5.7
645.0
2.4
13.3

1.3
379.9
0.5
5.8

0.228
0.589
0.208
0.436

35.0
4,513.0
15.0
131.1

8.6
1346.9
6.2
22.4

0.246
0.298
0.413
0.171

7.7
 49.398.4
 60.8

Total—all

9447.13154.40.334

28,816.0

8665.4

0.301

 9.9

a

Results were calculated from the primary energy and GDP ﬁgures given in Annex 1 to Kimura (2010). In some cases, the ﬁgures differ slightly from the ﬁgures given in
Table 5 of that report due to rounding errors.

Table 2ERIA business-as-usual primary energy intensity improvement results by economy recalculated using 2005 purchasing power parities (PPP).

APEC members2005 GDP
2005 Energy 2005 Energy/GDP 2030 GDP
2030 Energy 2030 Energy/GDP 2005–2030 Improvementbillion 2005 PPP US$ (mtoe)
billion 2005 PPP US$ (mtoe)(%)

Australia
Brunei
China
Indonesia
Japan
Korea
Malaysia
New ZealandPhilippines
Singapore
Thailand
Viet Nam
Total—APEC

671.5
17.6
5,333.2
707.9
3,870.3
1,027.4
299.6
100.7
250.0
180.1
444.9
178.1
13,081.3

122.0
2.6
1505.2
135.1
517.8
218.5
62.8
15.2
33.8
27.7
98.9
27.3
2766.9

0.182
0.148
0.282
0.191
0.134
0.213
0.210
0.151
0.135
0.154
0.222
0.153
0.212

1,287.9
44.8
33,796.7
3,191.5
5,427.7
2,328.5
924.4
164.7
1,046.0
465.4
1,189.9
1,113.5
50,981.1

184.0
5.4
5011.6
544.5
503.5
323.7
120.1
18.5
120.4
45.1
247.7
156.8
7281.3

0.143
0.121
0.148
0.171
0.093
0.139
0.130
0.112
0.115
0.097
0.208
0.141
0.143

 21.4
 18.4
 47.5
 10.6
 30.7
 34.6
 38.0 25.6
 14.9
 37.0
 6.4
 8.1
 32.5

Non-APEC members
Cambodia
India
Lao PDR
Myanmar20.1
2,341.0
10.2
13.3

1.3
379.9
0.5
5.8

0.065
0.162
0.049
0.436

123.4
16,379.7
63.8
131.1

8.6
1346.9
6.2
22.4

0.070
0.082
0.097
0.171

7.7
 49.398.4
 60.8

Total—all

15,465.93154.40.204

67,679.1

8665.40.128

 37.2indicator, not how to build aggregated models of multiple economies. Nevertheless, the conclusions from the literature are relevant. And the conclusions seem generally to favor using PPP's
when one wishes to compare income levels between economies.
For example, the IPCC's Fourth Assessment Report, Working
Group 3: Mitigation of Climate Change (Fisher et al., 2007 Section
3.2.1.4) concluded that:On the question of whether PPP or MER [market exchange
rates] should be employed in economic scenarios, the generalrecommendations are to use PPP where practical. This iscertainly necessary when comparisons of income levels acrossregions are of concern ….

Nordhaus (2007, pp. 351–352) puts it in stronger terms:
The basic answer is clear: In principle, PPP measures aresuperior to MER measures for representing relative incomes
and outputs …. It should be emphasized that the use of MER is
not a ﬁne technical detail. Incomes estimated at MER are
fundamentally wrong ….
More precisely, Nordhaus argues (see his Fig. 3) that the best
approach is to use PPP values to establish the GDPs of various
countries for a single base year, then use national accounts growth
rates of real GDP for each economy to extrapolate country data

380

R.D. Samuelson / Energy Policy 64 (2014) 373–381

forward and backward in time. He calls this the “Superlative PPP”
technique. This is the approach used here in Table 2.
A good short summary as to why PPP is superior is offered byCastles and Henderson (2005). They argue that the PPP approach
can be thought of as facilitating cross-economy comparisons of
GDP in the much same manner that converting nominal GDP toreal GDP facilitates time series comparisons of GDP for a single
economy. In order to compare GDP over time, one must adjust forchanges in price level over time. Similarly, to compare the ‘real’
GDPs of various economies, one must adjust for the differences in
the price level between the economies, which is what PPP does.
Market exchange rates, on the other hand, have no necessary
relationship to the ‘real’ value of an economy's GDP—that is, howmuch it will buy locally. The PPP approach ensures that if two
economies have the same physical outputs, they will have thesame GDP, whereas market exchange rates provide no suchassurance. Since it is this real GDP that should drive to energy
demand, it is clear why economy GDPs and energy demands aremuch more closely related in Table 2 than in Table 1.
The fact that the market exchange rates used in Table 1 result inunderstatement of the GDP of China relative to Japan and tounderstate energy intensity improvement is probably a robust
result. The “Harrod–Balassa–Samuelson effect” hypothesizes that
GDPs calculated using market exchange rates will systematicallyunderstate the GDPs of low-income economies (Nordhaus, 2007;
Suehiro, 2008). The literature on the Harrod–Balassa–Samuelson
effect is reviewed in Tica and Družić (2006). To the extent that
low-income economies tend to have the fastest growing GDPs,
using market exchange rates to calculate energy intensities willtend to understate regional GDP growth and thus downward-bias
projections of aggregate future energy intensity improvement.
A practical reason to favor energy intensities calculated using
PPP values in policy analysis is that market exchange rates canﬂuctuate dramatically over time. Even if the exchange rate for asingle base year is applied to all years, as in Table 1, energy
intensities based on market exchange rates will depend heavily on
the base year selected. This will not be true of energy intensities
based on PPP. PPP conversion rates for any two economies should,
in principle, change over time only in response to changes in theirrelative levels of inﬂation, as measured by their GDP deﬂators.
Of course, in the real world, there will always be some data
inconsistencies, but these are generally small (see Nordhaus, 2007,
p. 357).
An objection sometimes raised to using PPP rather than market
exchange rates is that PPP's must be estimated based on surveys,
whereas market exchange rates are always precisely known
market values. While this is true, Nordhaus (2007) notes, “in thisarea it is better to be imprecisely right than precisely wrong”.
For all these reasons, the EWG concluded that the PPP approachshould be used (APEC Energy Working Group, 2011).

5. Conclusion
This paper has highlighted three signiﬁcant lessons related toenergy intensity calculations in the analysis of the APEC energy
intensity improvement goal. These lessons may be of interest to
anyone who is studying international trends in energy efﬁciency
improvement, or who is seeking to deﬁne international indicatorsof energy efﬁciency improvement. The three lessons are as
follows:
Lesson #1—Energy intensity improvement is happening surprisingly quickly, but not quickly enough to meet the world's energy
challenges. Large reductions in energy intensity, on the order of
35–40%, can be expected between 2005 and 2030. However,

because of expected rapid economic growth, these improvements in energy intensity will not stop the growth of energy
demand, with its associated threats to the environment and thestability of the world economy.
Lesson #2—It is difﬁcult to ﬁnd a deﬁnition of energy intensity thatcan make it suitable for use as an indicator of regional energy
efﬁciency. Energy intensity, if calculated based on primaryenergy demand using the IEA/Eurostat methodology, will
increase (get worse) if an economy uses more nuclear andgeothermal electricity generation. Energy intensity, if calculated based on ﬁnal energy demand, will not reﬂect improvements in electricity generation efﬁciency at all.
Lesson #3—Whether the GDP's of individual economies areconverted to common currency using market exchange rates orpurchasing power parity (PPP) can dramatically change theenergy intensity improvement calculations. The literature suggests that PPP is the more correct approach because it is theactual purchasing power of each GDP that will drive an
economy's energy use. Energy intensity improvement for agroup of economies will typically be downward biased if
calculated using market exchange rates rather than purchasing
power parities. Because of exchange rate ﬂuctuations, energy
intensities calculated using PPP's will also be less dependent on
the base year selected than energy intensities calculated using
market exchange rates.
Although the lessons discussed here relate speciﬁcally to the 21
APEC member economies, it may be hypothesized that similar
lessons would apply to the entire world and to other regionalgroupings of economies. Further research is needed to verify thishypothesis.
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