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Energy Intensity of the Argentine Economy and Agriculture Sector: A Decomposition Exercise and Policy Evaluation

Energy Intensity of the Argentine Economy and Agriculture Sector: A Decomposition Exercise and Policy Evaluation

Authors: 
Ferraro, D., Universidad de Buenos Aires
Argentina is the seventh largest producer of agricultural products in the world, and as such its economy is highly dependent upon the relative health of its ecological systems to sustain agricultural production. Understanding energy intensity, the amount of energy used to produce one unit of output, is a key metric in order to gage the sustainability of a system. Considering that all physical systems are constrained by the laws of thermodynamics, the way they use energy to maintain structure and function tells us about their capacity to persist in time, what Ludwig Bolztmann stated as a “fight against entropy. In this thesis the economic energy intensity of the Argentine economy and agriculture sector between 1960 and 2013 is examined. This research project has two main objectives, the first is to decompose energy intensity and evaluate the weight of two contributing factors, the efficiency of energy use and the sectoral composition of the economy through Logarithmic Mean Divisia Index (LMDI I). The second objective is to provide an energy efficiency policy evaluation scheme under which we suggest certain proposals to future policymakers. Our results show that changes in technical energy efficiency have played a dominant role, relative to economic structure, in the trends of energy intensity. The general economy has a U-shaped curve in its intensity trend, such that between 1960 and 2013 there have been no real improvements in either energy consumption or energy efficiency. At the sectoral level the economic energy intensity trends have been either U-shaped or strictly increasing, which provides a partial explanation behind the patterns at the aggregate level. The agriculture sector has both increasing intensity, consumption and a high dependence on fossil fuels. Considering that we only take into account the energy used within the economic system (as opposed to all ecosystemic energy flows) our trends only show a partial view of the true situation. Thus, the evidence presented suggests that Argentina is treading down an unsustainable path from a systemic standpoint, in both its general economy and agriculture sector. Feeble energy efficiency oriented public policy and institutions, together with high dependence on fossil fuels, increasing consumption and either stable or increasing energy intensity propose serious difficulties to ensure the longevity of the productive forces behind the Argentine economy and agriculture sector. The incapacity of the productive systems to increase their efficiency could stem from the fact that the degradation of natural capital has exceeded that which technology and higher quality energy can compensate for.