The contribution of electricity demand to CO2 emissions by Australian industry

Electricity's share of energy demand in Australia's manufacturing industry is relatively small, and hence the contribution of electricity to CO2 emissions has not received much attention. But since electricity generation in Australia relies heavily on coal, the CO2 intensity of electricity is much higher than that of other fuels. As a result, electricity is a major source of the manufacturing sector's CO2 emissions. Moreover, electricity's share of the manufacturing sector's CO2 emissions has increased significantly since the mid-1970's. In this paper we examine in more detail the trends in electricity demand of Australia's manufacturing sector, and in electricity's contribution to the sector's CO2 emissions. A decomposition analysis is undertaken to identify the effect of changes in output, structural change, and changes in electricity intensity, On electricity demand over the last 20 years. This shows that most of the increase in electricity consumption is due to an increase in electricity intensity. The paper also examines trends in the CO2 intensity of the electricity supply industry. It is found that since the mid-1980's there has been a steady reduction in the CO2 intensity of generated electricity, as well as a steady reduction in losses in generation and distribution. This has lead to a 15% reduction in CO2 emissions per MWh consumed, which has counteracted to some extent the increase in CO2 emissions due to increased electricity demand. As a result, the trend in electricity-induced CO2 emissions has levelled out since the mid-1980's. Finally, the paper undertakes an examination of data at the sub-sector level, which reveals that there is a vast diversity in the CO2 intensity of different subsectors. The basic non-ferrous metals industry, which is dominated by aluminium production, is by far the largest industrial user of electricity in Australia. Yet its contribution to the gross product of the manufacturing sector is quite modest. This raises vexing questions about the desirability of industry policies aimed at attracting CO2 intensive export-oriented industries.