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A Shapley Decomposition of Carbon Emissions

Without Residuals
ARTICLE in ENERGY POLICY FEBRUARY 2002
Impact Factor: 2.58 DOI: 10.1016/S0301-4215(01)00131-8

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WORKING PAPER

A Shapley Decomposition of Carbon Emissions

without Residuals

Johan Albrecht a, Delphine Franois a and Koen Schoors b1

December 2001
2001/123

Ghent University, Faculty of Economics and Business Administration (CEEM), Hoveniersberg 24,
9000 Ghent, Belgium (E-mail : johan.albrecht@rug.ac.be ; delphine.francois@rug.ac.be )
b
Ghent University, Faculty of Economics and Business Administration (CERISE), Hoveniersberg 24,
9000 Ghent, Belgium (E-mail : koen.schoors@rug.ac.be)
1

We wish to thank Dirk Van de gaer for very useful comments on this paper that will mainly bear fruit
in the next paper on this topic.

D/2001/7012/24

Abstract
Conventional decomposition techniques for historical evolutions of carbon emissions present path
dependent factor weights of selected variables next to significant residuals. Especially for analyses over
long periods with many variables, high residuals make it almost impossible to derive reliable
conclusions. As an alternative, we present the Shapley decomposition technique for carbon emissions
over the period 1960-1996. This technique makes it possible to present a correct and symmetric
decomposition without residuals. The starting point of our analysis was an extended Kaya Identity with
nine components.
In a study of four countries, the Shapley decomposition showed that the carbon intensity of energy use
and the decarbonization of economic growth variables that are targeted with current climate policy
measures - have more effect on total emissions than generally suggested in conventional decomposition
exercises. Another interesting conclusion from our analysis was that the effect of population growth on
emissions can be for some countries more important than the decarbonization efforts.

Keywords : carbon dioxide emissions ; (Shapley)decomposition ; Kaya Identity

1. Introduction

In many fields of social sciences, decomposition techniques are used to help

disentangle the impact of various contributing factors. An analysis of the driving
factors of energy-related carbon emission patterns can provide useful information for
further policy studies on national strategies and the use of flexible instruments in
climate policy. Specifically, a decomposition of total CO2 emissions over a number of
contributing factors sheds light on some crucial parameters like the ongoing
decarbonization of energy services or the rate of autonomous energy efficiency
improvements- that are used in scenarios to calculate the possible cost of climate
policy scenarios for developed countries.
While sophisticated forecast technologies are available for the latter type of exercises,
traditional decomposition analyses with a limited number of factors still yield
important residuals, even over short periods of time. Another problem is that the value
of the contribution assigned to any given factor depends on the order in which the
factors appear in the elimination sequence. Factors that are not treated symmetrically
lead to an important path dependence problem (Shorrocks, 1999). This strongly
reduces the relevance of decomposition exercises for studies over longer periods.
Next to these imperfect decomposition methods, the literature has recently come up
with a number of methods that yield a perfect decomposition. We add to this literature

by proposing another perfect and symmetric decomposition method, based on the

Shapley value.

After an introduction to the Kaya Identity, we first work with four contributing factors
or components (carbon/energy, energy/GDP, GDP/population and population) for the
period 1960-1996. We then proceed with a more complex variant on the Kayaidentity. Here the interpretation of the results becomes difficult, as there is no way to
allocate the residual. Hence a perfect decomposition is required. For the same data set,
we present the result of a traditional decomposition and the results of the Shapley
decomposition. Our calculations are based on data for Belgium, France, Germany and
the United Kingdom. In a last step, we decompose the first two factors over three
economic sectors (industry, transport and other sectors) and discuss the main findings
from this detailed Shapley decomposition.

2. The Kaya Identity and a decomposition for four countries

The aim of a decompostion analysis is to reveal the importance of distinct

components or factors that drive historical data. The relative weight of each factor in
the observed change can be relevant information for policy measures. In the field of
climate policy, reliable information on the ongoing decarbonisation of industrialised
economies and on the sensitivity of energy intensity to energy price shocks is
necessary input for policymakers. This information is necessary to evaluate various
strategies to achieve the of the reduction targets of the six Kyoto Protocol greenhouse
gases, with or without international flexibility instruments.
There are two broad categories of decomposition techniques: input-output techniques
and disaggregation techniques. Both techniques have different data requirements but
the latter are more suitable for international comparisons, which explains their
widespread use. For methodological details we refer to Liaskas e.a. (2000) and Park
(1992). We concentrate on disaggregation or decomposition techniques. We first
present a simple mathematical expression of total emissions by means of the Kaya
Identity (Kaya, 1990). This equation provides a useful tool to decompose total
national carbon emissions (C):

C = (C/E)*(E/GDP)*(GDP/P)*P

(1)
2

The formula links energy-related carbon emissions (C) to energy (E), the level of
economic activity (GDP = gross domestic product) and population (P). C/E denotes
the carbon intensity of energy use, E/GDP is the energy intensity of economic activity
and GDP/P is the per capita income. At any moment in time, the level of energyrelated carbon emissions next to emissions that result from changes in land-use - can
be seen as the product of the four Kaya Identity components. For small to moderate
changes in the Kaya components between any two years, the sum of the percent
changes in each of the variables closely approximates the percent change in carbon
emissions between those two years:

d(lnC)/dt = d(ln C/E)/dt + d(ln E/GDP)/dt + d(ln GDP/P)/dt + d(ln P)/dt

(2)

The historical trends in the Kaya Identity components provide a reference point for
evaluating current and future climate policy projections of carbon emissions as well as
the key economic, demographic and energy intensity factors leading to those
emissions. With the availability of detailed data, the impact of for instance the
replacement of coal in electricity generation by natural gas or nuclear power can be
compared to the impact of economic growth on energy-related emissions. The Kaya
Identity can reveal interesting differences between emission patterns of developed and
developing countries. For an analysis based on the Kaya Identity of the implications
of emission trading under the Kyoto Protocol for the U.S. economy, we refer to
Dougher (1999).

2.1 Kaya in the International Energy Outlook 2001

A global view is given in Table 1 with the Kaya Identity components for three world
regions. A historical analysis for the period 1970-1999 is complemented with the
reference case projections for 1999-2020 from the International Energy Outlook 2001
(EIA, 2001). Positive annual average growth rates of carbon emissions between 1970
and 1999 are found for developed as well as for developing countries. For all
countries, economic growth and population growth outpaced declines in energy
intensity and carbon intensity of energy use. The average annual decline of carbon
emissions of 5.4% in the 1990s in Eastern Europe and the Former Soviet Union
3

presents a special case. This decline is the result of a severe drop in economic output
per capita (-4% per year). The IEO2001 reference case projections illustrate that
reductions of carbon emissions require accelerated declines in energy intensity and/or
carbon intensity. Such changes may in turn require significant changes in the existing
energy infrastructure. It remains questionable whether these necessary changes can be
realised in one or two decades. Energy use in the transport sector will continue to
depend on oil since there are currently few economical alternatives. And if such an
alternative would soon arrive (e.g. ethanol, bio-methanol, hydrogen, fuel cell
technology,), reshaping the current fuel delivery infrastructure would take a long
time.

Table 1 Average annual percentage change in CO2 emissions and the Kaya Identity
Components by region, 1970-2020
Parameter
1970-1980
Industrialized World
C/E
E/GDP
GDP/P
P
C emissions

-0.5%
-1.1%
2.4%
0.9%
1.7%

History
1980-1990

1990-1999

Reference case projection

1999-2010
2010-2020

-0.7%
-2.0%
2.2%
0.7%
0.2%

-0.5%
-0.7%
1.6%
0.6%
1.0%

0.0%
-1.3%
2.2%
0.5%
1.4%

0.1%
-1.3%
2.0%
0.4%
1.1%

-0.2%
0.9%
1.7%
2.1%
4.5%

-0.7%
-1.0%
3.1%
1.7%
3.1%

-0.1%
-1.4%
3.7%
1.7%
3.9%

-0.1%
-1.4%
4.2%
0.8%
3.5%

Developing World
C/E
E/GDP
GDP/P
P
C emissions

-0.8%
-0.4%
3.5%
2.2%
4.6%

Eastern Europe and the Former Soviet Union

C/E
-0.8%
-0.3%
-1.0%
-0.2%
-0.3%
E/GDP
1.4%
0.6%
-0.5%
-2.4%
-2.6%
GDP/P
2.4%
0.6%
-4.0%
4.1%
4.5%
P
0.9%
0.7%
0.0%
0.0%
0.0%
C emissions
3.9%
1.6%
-5.4%
1.4%
1.5%
Source : Energy Information Administration (2001). International Energy Outlook 2001, p.162

Furthermore, we need to consider actual political decisions that will later have
important consequences for energy infrastructures and energy-related emissions.
Several European countries already committed to a complete phase-out of domestic
nuclear power generation. This decision will slow down the decline in carbon
intensity as a result of the increased use of fossil fuels.

2.2 An analysis for four countries

Table 2 Carbon emissions (percentage changes per period)

1960-1996

1960-1973

1974-1986

1987-1996

Carbon emissions
Belgium

+86%

+85.1%

-12.8%

+22.3%

France
Germany

+102%
+96%

+109.7%
+123.3%

-12.6%
+1.6%

+15.2%
-9.7%

United Kingdom

+9.7%

+13.8%

-6.3%

+6.5%

Belgium

-24.3%

-12.4%

-10.8%

-1.8%

France

-26.1%

-10.4%

-14.7%

-1.7%

Germany

-21.6%

-10.4%

-5.5%

-6.4%

United Kingdom

-23.1%

-12.7%

-5.1%

-5.9%

Belgium

-15.9%

+13.1%

-19.4%

+3.2%

Carbon/Energy

Energy/GDP
France

-12.1%

+17.9%

-18.9%

-1.1%

Germany

-8.4%

+43.6%

-15.9%

-20.4%

United Kingdom

-37.3%

-12.6%

-21.4%

-3.7%

Belgium
France

+162%
+145%

+75.1%
+74%

+19.9%
+19.2%

+17.7%
+13.4%

Germany

+143%

+59.9%

+30%

+14.9%

United Kingdom

+103%

+39.1%

+24.2%

+14%

Belgium

+11.4%

+6.8%

+1.2%

+2.6%

France

+27.8%

+14.1%

+5.9%

+4.6%

Germany

+12.7%

+8.6%

-1.6%

+5.4%

United Kingdom

+12.2%

+7.3%

+1.1%

+3.1%

GDP/Population

Population

In Table 2, we present for four European countries data for the period 1960-1996.
Instead of working with average annual percentage changes as in Table 1, we still use
the Kaya Identity but subdivide the total period in three subperiods: the early years
before the oil crisis (1960-1973), the oil crisis years (1974-1986) and recent history or
the period after the oil crisis (1987-1996). Information on the used sources and
calculations that were necessary to compile Table 2 are given in the appendix.

Carbon or CO2 emissions did increase in the four countries over the period 1960-1996
but the differences are remarkable. Total emissions increased strongly in Belgium,
Germany and France, but only modestly the United Kingdom (UK). It is important to

note that the different situation in the UK seems to be the result of what happened in
the early years of the analysis. From 1960 to 1973, emissions in the UK did grow by
only 13.8% while emissions in Germany and France more than doubled (+123% resp.
+ 109%). Emissions in Belgium did increase by 85.1% from 1960 to 1973. These
divergent post-war evolutions depend on strategic (and even environmental) fuel
choices for electricity production and on the strong and uneven development of
energy-intensive industries like iron and steel production, chemical manufacturing
and mining. London experienced a sequence of killer smogs in the late 1940s and
early 1950s, leading to the Clean Air Act of 1956 that imposed much lower sulfur
dioxide concentrations (Elsom, 1997). New technologies were installed and coal
gradually was replaced by gas and oil. The result was a decline of carbon and sulfur
dioxide emissions.

A good example of the different evolution in energy-intensive industries is the metals

industry in the UK that did grow by only 0.06% per year during the period 19541973. For that period the average annual growth rate of all manufacturing was
0.88% with the highest growth rates found for instruments (+1.25%), electrical
engineering (+1.39%) and vehicles (+1.38%). For the period 1973-1986, the metals
industry faced an average annual growth of -0.73% while the average for UK
manufacturing was 0.47% (Oulton and OMahony, 1994). For countries like
Belgium, the strong growth of the iron and steel industry was one of the driving
economic forces in the post-war era.

During the oil crisis years, emissions decreased in all countries with the exception of
Germany (+1.6% over the period 1974-1986). After 1986, the reverse happened:
German emissions decreased with 9.7% as a result of the closing down of parts of the
former Eastern German economy in the early and mid-1990s, while emissions in other
countries did increase. The growth of emissions in the UK is again more modest than
in Belgium and in France.

With the Kyoto Protocol of December 1997, the year 1990 became the base year for
the necessary reductions of emissions. Especially Germany will benefit from this
choice since its emissions increased strongly in the period 1960-1990, followed by a
sharp reduction as a result of the German unification.
6

The impact of the oil crisis on the energy intensity of production (energy/GDP)
provides an indication of the potential of prices instruments (like energy or CO2 taxes)
to reduce energy use in developed economies. Table 2 shows that during the period
1974-1986, the energy intensity in the four countries has been reduced by 15.9 to
21.4%. The oil crisis did clearly lead to a similar reaction in the four countries but it is
interesting to note that from 1960 to 1974, the energy intensity in the UK decreased
by 12.6% while in the other countries a completely different evolution did take place.
The increase of energy intensity of the post-war German economy between 19601973 is striking (+43.6%). In the period after the oil crisis years, the energy intensity
of production more or less stabilized in France and even increased in Belgium
(+3.2%). The latter evolution can be ascribed to the strong growth of the basic
chemical industry in Belgium. Over the total period 1960-1996, energy intensity
decreased by 37.3% in the UK while the reduction in the other three countries was
between 8.4% and 15.9%.

Table 2 also shows that pro capita economic growth over the period 1960-1996 was
strongest in Belgium, followed by France and Germany. The difference with the
growth rate for the UK is mainly the result of slower income growth in the UK in the
period before the oil crisis. Before the oil crisis years, pro capita growth was in all
countries higher than during or after the oil crises when Europe faced long periods of
economic recession.
Finally, from 1960 to 1996 the population increased in all countries and especially in
France. The total French population growth is more than double of that in the three
other countries. We will later show that the French population growth is an important
component in the decomposition of total emissions growth. Only since 1987,
Germany faces a higher population growth than France.
The data in Table 2 are used in the analysis in the next sections. There is however an
important innovation in section 4 where we will also include a structural element, this
is the result of changes in the structural composition of the economy.

3. An introduction to the Shapley decomposition

Table 2 provides information on the evolution of Kaya Identity factors for three
different periods. Changes in these factors have caused changes in total carbon
7

emissions. For small changes, the Kaya- identity is additive in the growth rates of the
contributing factors, and hence no decomposition technique is required. However for
longer periods of time there is a problem of residuals. However, since the Kayaformula is of a simple linear form one can assume that the residual is jointly created
and equally ditributed. This implies that the relative order of magnitude of
contribution of the several factors will not be biased by the residual and that the
results can be correctly interpreted, as we did in the previous section. With more
complex formulas this is, however, not necessarily the case and a more precise
decomposition method is required.

More than 100 decomposition studies in energy and environmental studies are listed
in a survey by Ang and Zhang (Ang and Zhang, 2000). They indicate that the
methods reported prior to 1995 always leave a residual after decomposition. This
residual was sometimes omitted, causing a large estimation error. In other models the
residual was regarded as the interaction effect, which still leaves a new puzzle for the
reader (Sun, 1998). Important residuals constitute the most serious problem with
conventional disaggregative decomposition. Liaskas e.a. (2000) e.g. decompose
industrial CO2 emissions for a number of European countries. They work with two
periods, 1973-1983 and 1983-1993, and the factors in the decomposition are output,
energy intensity, fuel mix and structure. For some countries, the weight of the residual
in the decomposition over only ten years exceeds the weight of three of the other four
components. For the United Kingdom, the Netherlands, Italy, France, Finland, Spain,
Denmark, Belgium and Austria, the weight of the structural component - or the
structural economic effect on emissions - is lower than that of the residual. Obviously,
conclusions from this type of analysis are not always straightforward. For longer
periods and for analyses with more components, the residual becomes even more
problematic. This is illustrated in the next section with data for Belgium, France,
Germany and the United Kingdom.

Some methods proposed after 1995 are perfect, i.e. do not leave a residual term in the
results (Ang and Zhang, 2000). One of these perfect decomposition methods is the
one introduced by Sun (Sun, 1998). In his method, referred to as the refined
Laspeyres index method (Ang and Zhang, 2000), the interactions (residual) are
distributed equally among the main effects based on the jointly created and equally
8

distributed principle. This underlying assumption is not always appropriate. If the

various main effects are known to be additive, there will be no residual. If we deviate
only marginally from this property of additive factors, it may be appropriate to
assume jointly created and equally distributed residuals. The further we move away
from additivity, however, the more inappropriate this assumption becomes. Sun and
Ang (2000) apply the same principle to the Paasche and Marshall- Edgeworth forms.
Contrary to the Laspeyres index model, which adopts a prospective view, the Paasche
index adopts a retrospective view. The Marshall- Edgeworth index adopts a
compromising view based on the Laspeyres and Paasche indices (Sun and Ang,
2000). The authors prove that when the jointly created and equally distributed
principle is applied to the Paasche and Marshall-Edgeworth models, the
decomposition results are identical to the Laspeyres form results. But the method still
implies the assumption made by Sun. Another perfect decomposition method
discussed by Ang and Zhang (2000) is the logarithmic mean Divisia method,
proposed by Ang and Choi (1997). They replaced the arithmetic mean weight
function used in the arithmetic mean Divisia index method by a logarithmic mean
weight function. This refinement results in a perfect decomposition, but one has to
take into account the fact that using a logarithmic weight function implies the
assumption of a constant growth rate. Furthermore, this refined Divisia method is
based on the normalization of the weight function, because the sum of the weight
function over all sectors is not unity, but by definition always slightly less than unity
(Ang and Choi, 1997).

We add to this literature by proposing a perfect decomposition of carbon emissions

based on the Shapley value. Indeed, the decomposition problem has formal
similarities with a classical problem in co-operative game theory. Shapley (1953) was
the first to give a formula for the real power of any given voter in a coalition voting
game with transferable utility. This is commonly referred to as the Shapley value. The
Shapley value is the mathematical expression of the real power of a player when all
orders of coalition formation are equiprobable. The Shaply value distributes the real
power among the players, satisfying three axioms, namely symmetry, no inessential
players and additivity. Symmetry means that every player should be treated
symmetrically in the estimation. No inessential players means that players that do not
contribute to the power of any coalition do not receive any power. Additivity means
9

that the power derived from every single possible coalition can be added to find the
total real power.

Since 1953 the Shapley value has been used in a number of cost allocation models.
The properties of symmetry and no inessential players are very useful in this context.
A clear and simple explanation of how to use the Shapley value in cost allocation
problems is given in Hamlen, Hamlem and Tschirhart (1977). Okada et al (1982)
proposed to use the Shapley value to allocate costs in water resources development
projects. Kattuman, Bialek and Abi-Samra (1999) proposed to use the Shapley value
to allocate the costs of electricity transmission losses in the network between several
electricity generators. In these Shapley-value based cost allocation models everything
happens as if the cost drivers enter the equation one by one, each of them receiving
their marginal contribution to the total cost. All orders of entering the cost equation
are considered and receive the same weight 1/n! in the computation of the ultimate
allocation of costs.
Shorrocks (1999) points at the formal similarity between the original Shapley value
coalition problem and the general problem of allocating a certain amount of any
output or cost among a set of agents, beneficiaries or cost drivers. Shorrocks builds on
this similarity to construct a general decomposition procedure based on the Shapley
value. Basically, the technique involves estimating the impact of eliminating each
factor in succession, repeating this exercise for all possible elimination sequences (the
symmetry property) and then for each factor averaging its estimated impact over all
the possible elimination sequences (the additivity property).

Let us consider what this concretely implies for the decomposition. In a simple ceteris
paribus type decomposition one calculates the impact of each variable, leaving other
variables constant. Because of the interactions between several variables, this gives
rise to a residual. The literature has come up with several ways to avoid or allocate
this residual (see higher). One simple method is to calculate the contribution of one
variable, and then add cumulatively more and more variables. The result is a perfect
decomposition without residuals. However, the order in which we include variables
largely determines their calculated contribution because the allocation of the
interaction effects depends on the order of inclusion of the variable. Since the results
depend on the order by which variables enter the calculation, this cumulative
10

approach is path dependent and hence biased. The underlying problem is that
variables are not treated symmetrically.
The Shapley decomposition iterates the cumulative approach for every possible order
(permutation) of variables. With n variables, we need to make n! calculations, with
each calculation based on another order for including new variables. The Shapley
value implies that taking the average of the n! estimated contributions for every
variable, yields the true contribution of each variable. As a result, the Shapley
decomposition has three major advantages. First of all, the decomposition is perfect,
meaning that the sum of the impacts, allocated to each of the explanatory variables,
equals the observed change in the decomposed variable. One does not need to make
any assumptions or effort to allocate the residual, as the solution is free from
residuals. Secondly, the Shapley decomposition is symmetric (or anonymous): the
factors are treated in an even-handed manner, without making any further theoretical
assumptions. Thirdly, the Shapley decomposition allows for very complex
decompositions that would otherwise be troublesome because of very high residuals
and subsequent interpretation problems.

4. Sectoral and structural effects in the decomposition

Starting from (1) and the data in Table 2, we add sectoral and structural effects to our
analysis over the period 1960-1996. For the UK, the analysis is based on the period
1960-1995. The change in carbon intensity of energy use and the change of energy
intensity of production can be due to changes within sectors (sectors become more or
less intensive in energy and carbon) or changes between sectors (sectors that are
intensive in energy or carbon become more or less important in total production). For
simplicity, we work with three sectors: industry, transport and other sectors. For these
three sectors, changes between 1960 and 1996 in the carbon intensity of energy and in
the energy intensity of the production are calculated. For climate policy
recommendations, this type of information is essential, especially for analyses with
extended time horizons. By including these effects in our analysis, we have nine
components for the decomposition: three sectoral carbon intensity effects (C/Eindustry,
C/Etransport , C/Eother, denoted as C ij in (3)) three sectoral energy intensity effects (Ei in
(3)), the effect of pro capita GDP ( Popc in (3)), the population effect (P in (3)) and one

11

structural effect. Name jt the share of a sector j at time t in total production, the final
equation for the change in carbon emissions over n sectors is presented in (3) :

jt C ijt E ijt Ptpc Pt j0 C ij0 E ij0 P0pc P0

.
j=1

j=1

C=
n

j0 C ij0 E ij0 P0pc P0

j= 1

(3)

We only calculate one structural effect that captures the net effect on emissions of the
change in the economys structure, as mirrored in three jt . It is possible to calculate
three separate sectoral effects, but this seems not very informative since obviously the
relative decrease in two sectors implies growth in the third sector and vice versa. It is
only the net emission effect of the increasing service- isation of the economy that is
of interest for this paper. As a result of the inclusion of sectoral and structural effects,
there are some modest differences in the data, when comparing to the data used in
Table 2. We explain our data in the appendix.

We illustrate the problem of interpreting decomposition residuals first by

decomposing a simplified version of (3) with only four components, namely carbon
intensity (only one C i ), energy intensity (only one Ei ), GDP and structure of the
economy. These components are used in most decomposition exercises (see Liaskas,
e.a (2000)). Notice that these four factors are not the Kaya Identity factors, since the
Kaya equation does not include a structural effect. We perform the imperfect
decomposition proposed in Liaskas, et al (2000) and the perfect Shapley
decomposition proposed in this paper. Results of the method of Liaskas e.a. are
presented in Table 3, panel (A), while panel (B) shows the results of the Shapley
decomposition. In panel (C) we show results of the Shapley decomposition of the full
formula (3) with nine components.

The information in Table 3 (A) should in principle answer the question how do
carbon emissions change if one component changes and other components are fixed?
The reliability of the answer when applying a decomposition method with residuals, is

12

however very limited since the sum of changes strongly exceeds the real change of
emissions. An overexplanation between 44 and 68% is found for the four countries
in our sample. There is no reliable way to attribute these residuals to the four
components and hence interpretation becomes very cumbersome. With nine
components the results of an imperfect decomposition would be even more difficult to
interpret.

Table 3 Three decompositions of carbon emissions

(A) With residuals (four components)
Components

C/E

E/GDP

GDP

Structure

Sum

Real

Residual

Belgium

-25.6%

-16.3%

192.2%

2.4%

152.6%

84%

68.6%

France

-28.4%

-10.2%

212.7%

0.2%

174.3%

107.1%

67.2%

Germany

-22.6%

-14.5%

174%

6.4%

143.2%

98.8%

44.4%

UK

-23.9%

-36.1%

122.5%

-1.9%

60.6%

4.6%

56%

(B) Shapley decomposition without residuals (four components)

Components

C/E

E/GDP

GDP

Structure

Sum

Real

Residual

Belgium

-42.9%

-27.5%

154.1%

-0.02%

84%

84%

France

-55%

-16.3%

176.4%

2%

107.1%

107.1%

Germany

-39.4%

-25.5%

152.4%

11.5%

98.8%

98.8%

UK

-41.1%

-71.4%

124.4%

-8%

4.6%

4.6%

(C) Shapley decomposition without residuals (nine components)

C/E

E/GDP

GDP/P

POP

Struct.

Sum

Industry

Transp.

Other

Industry

Transp.

Other

BE

-19.6%

-1.9%

-21.4%

-31.2%

12.6%

-8.9%

144%

10.1%

-0.02%

84%

FR

-23.1%

-3.5%

-28.4%

-26%

5.9%

3.8%

148%

28.4%

2%

107.1%

GE

-17.3%

-3.5%

-18.6%

-12.5%

-9.7%

-3.3%

140%

12.4%

11.5%

98.8%

UK

-12.9%

-3.1%

-25.1%

-20.4%

4.7%

-55.7%

111%

13.4%

-8%

4.6%

5. Results from the Shapley decomposition

Panels (B) and (C) in Table 3 illustrate the disturbing impact of the residuals that are
found in Table 3. It is shown that the analysis with residuals clearly overestimates the
effect of economic growth on emissions and underestimates the effects of changes in
carbon and energy intensity (C/E and E/GDP), the two important target parameters

13

in climate policy. Especially the carbon intensity effect on emissions is much more
important in Panels (B) and (C) than suggested in Panel (A) of Table 3. Our exact
decomposition reveals that shifts in fuel mixes influence carbon emissions more than
suggested in the decomposition with residuals. For the four countries, the real weight
of this factor (in Panels (B) and (C)) is almost twice the value suggested in Panel (A).
Similar conclusions are valid for the energy intensity factor.

The Shapley analysis allows some further conclusions. First of all, we notice that the
structural effect is not that important for explaining total emissions growth. For
Germany, the structural effect did lead to an increase of emissions a growth of
11.5% when holding all the other factors constant - while for the UK emissions
decreased (-8%) as a result of the structural effect. In the analysis with four
components and with residuals, the weight of the structural component for Germany
is lower (+6.4%). For Belgium and France, there is almost no structural effect found
in Table 3 Panel (C). Does the fact that some energy-intensive sectors did become
relatively more or less important without significantly influencing total carbon
emissions suggest that future structural changes will also have a modest impact on
total emissions? Since every economic sector agriculture, industry and services
consumes energy, shifts between sectors have a limited impact especially because
energy efficiency is for most service industries not the same priority as it is for
industries like basic chemicals whose profit base depends on it to a large extent.
Population growth had a positive impact on emissions, especially for France. We
notice that for France, the population effect is more important that the separate
sectoral carbon intensity and energy intensity effects. The population effect (+28.4%)
is for France stronger that the effect of the ongoing energy efficiency improvement of
the French economy (-26% + 5.9% + 3.8% = -16.3%). When this population growth
is expected to continue in the next decades, this development will negatively impact
the possibility for France to achieve the same emission reductions as countries with
more stable populations. If this hypothesis would hold, a possible solution would be
to base future European burden-sharing agreements on population data.
The energy needs that follow from the population growth have a stronger impact on
carbon emissions than the effort to reduce the energy intensity of the French
economy. To reverse this evolution, the increase in energy efficiency should not be
limited to French industry (-26%) but should become visible in transport and other
14

sectors especially housing, hospitals, schools and administrations. These asymmetric

efficiency gains seem to be especially valid for France. In Belgium, Germany and the
UK, we find that the efficiency gains of the others sector indeed have a negative
impact on emissions when we hold all other factors constant. Especially for the U.K.,
the efficiency gains of the other sectors are spectacular (-55.7%) and had a strong
impact on total emissions. The shift from less efficient energy use to more efficient
energy use in households and services is very important. Did this shift already take
place in the other three countries or did they just not recognise this potential yet?
The effect of the average income is, as could be expected, the most important
component in the growth of carbon emissions. As a result of the pro capita income
effect, emissions would ceteris paribus have increased with 111 to 144% (Panel (C)).
This reveals that the impact of economic growth (pro capita income effect plus
population growth effect) is overestimated in traditional decomposition analyses as is
illustrated by the high factor weights in Table 3 (A). Without the effect of economic
growth, carbon emissions would have decreased in the four countries from 1960 to
1996. In contrast to most developing countries, the growth of emissions for the four
countries in Table 3 (B) is lower than the effect of GDP growth. The argument that
the Kyoto Protocol targets can be achieved at a low cost without impacting economic
growth therefore seems to depend on access to low-cost emission reduction
opportunities. These low hanging fruits can probably be found in developing or
transitional countries.
Table 3 (C) shows that for industry, the decrease in energy intensity had an important
impact on total emissions for all countries. This effect is strongest for Belgium where
the increasing energy efficiency of industry could reduce emissions by 31.2% when
other factors are held constant. For Germany, this effect is weakest (-12.5%). There is
still no indication of a trend towards increased energy efficiency in the transport
sector. Cleaner and more fuel-efficient transport equipment cannot compensate the
strong growth of transport activities in most developed countries. Another explanation
can be the declining market share of rail transport in the container market in countries
like Belgium. Holding all other components constant, the evolution of the transport
energy intensity would lead to increasing emissions in Belgium, France and the UK.
Only for Germany, the impact would be negative.
With respect to the carbon intensity of energy use, there are only minor differences
between the four countries. The impact of the change in industrial carbon intensity on
15

total emissions is between 12.9% (UK) and 23.1% (France). The impact of carbon
intensity changes in transport is very similar: between 1.9% for Belgium and 3.5%
for France and Germany. This is not a surprise since transport infrastructure is very
similar in the four countries. The impact of other carbon intensity changes is more
diverging. For Germany, we find the lowest value with 18.6%. For France this effect
is most important: -28.4%.

6. Growth versus component weight

When we compare Table 2 to Table 3 (B) and (C), some points deserve our further
attention. For the four countries, the differences in the carbon intensity of energy use
during the period 1960-1996 seem to be modest in Table 2. Table 3 (B) shows that
similar evolutions in carbon intensity (from 21.6% for Germany to 26.1% for
France, see Table 2) can have a different impact on total emissions (from 39.4% to
55%). Precisely this impact provides the most useful information for further policy
development. The difference in carbon intensity between France and Belgium is only
1.8% (see Table 2) while the difference in total weight is 12.1% (see Table 3 (B)).
Holding all other components constant, similar reductions in carbon intensity can lead
to different reductions in carbon emissions because of structural differences between
different economies. We therefore need to be aware of all the interaction effects that
take place inside the economy. The evolution of one single variable can be interesting
but the impact of this single variable on total emissions depends on the evolution of
other variables as well. The more interactions are included in the analysis, the more
reliable the reported effects will be. This explains why we opted for an extended Kaya
equation with nine components. Of course, we do not claim that this extended
equation captures all relevant interactions.
The differences in the evolution of the energy intensity of production also correspond
to more explicit differences in the weight of this factor in the decomposition. The
difference between Belgium and France is 3.8% (see Table 2: -15.9% versus 12.1%)
while the difference in the total weight of this factor is 11.2% (-27.5% versus 16.3%
in Table 4). Similarly, compared to the UK, E/GDP is 25.2% lower in France (-37.3%
versus -12.1%). The total weight of this factor is for the UK 71.4% while it is only
16.3% for France. These findings illustrate again that similar trends for parameters in

16

Table 2 can be the result of very different evolutions in similar developed economies
and vice versa.

7. Conclusions

Starting from the Kaya Identity, we presented a Shapley decomposition for carbon
emissions for four European countries. This technique makes it possible to present a
perfect and symmetric decomposition without residuals. Compared to conventional
decomposition techniques - with residuals that amount to more than 50% of carbon
emission growth - this is a promising improvement offering valid and reliable
information on complex questions such as the impact of specific energy-related
evolutions on total emissions growth.
From a limited analysis for four countries, our Shapley decomposition showed that
factors like the carbon intensity of energy use and the decarbonization of economic
growth have more effect on total emissions than suggested in conventional
decomposition exercises. In these exercises, the effect of economic growth on
emissions is overestimated for developed countries since this important variable
captures a significant part of the residuals. But the real weight of this variable is lower
and the weight of the other variables those that are the essence of climate policy - is
higher. These results seem to lend support to the view that fuel mix changes and the
ongoing decarbonization can in interaction with other effects play an important role in
climate policy. The precise relation however between climate policy and these
variables has not been studied in this paper and is therefore subject to further research.
Another interesting conclusion from our analysis was that the effect of population
growth on emissions has been for some countries been more important than the
emission effect of decarbonization efforts.

17

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19

Appendix
Calculations and Data Sources
Population
Source: OECD Energy Balances.
GDP
global Kaya Identity
Source: OECD National Accounts, I. We used the Gross Domestic Product (Expenditure) data in US $
at exchange rates and price levels of 1990.
sectoral decomposition
Source: OECD National Accounts, II, Value Added by Kind of Activity approach (for compatibility
reasons with the decomposition of the Energy data).
Sectoral decomposition calculations for each separate country were as follows:
Belgium (MN FB90 Price); France (MN FF80 Price)
Total Industry Sector GDP
Total Transport Sector GDP
Total Other Sectors GDP

= Manufacturing + Electricity, Gas and Water + Construction

= Transport and Storage
= Gross Domestic Product Total Industry Sector GDP Total
Transport Sector GDP

Germany (MN DM 91 Price)

German Value Added GDP data were only available from 1991. For the years 1960-1990 we used
data from the former Federal Republic of Germany and added 10% as this was estimated to be the GDP
share of the former German Democratic Republic. We assumed that the different sectors were equally
represented in both parts of the country, knowing that this would lead to only minor distortions of the
data.
Germany 1991- 1996
Total Industry Sector GDP
Total Transport Sector GDP
Total Other Sectors GDP

= Manufacturing + Construction
= Transport, Storage and Communication
= Gross Domestic Product Total Industry Sector GDP Total
Transport Sector GDP

Germany 1960-1990
Total Industry Sector GDP
Total Transport Sector GDP
Total Other Sectors GDP

= Manufacturing + Electricity, Gas and Water + Construction

= Transport and Storage
= Gross Domestic Product Total Industry Sector GDP Total
Transport Sector GDP

United Kingdom (MN PS Curr. Price)

Total Industry Sector GDP
Total Transport Sector GDP
Total Other Sectors GDP

= Manufacturing + Electricity, Gas and Water + Construction

= Transport, Storage and Communication
= Gross Domestic Product Total Industry Sector GDP Total
Transport Sector GDP

The baseyear and the used currencies differ from those used in the global Kaya Identity. We therefore
multiplied all sectoral GDP data by correction factors (GDP used in global Kaya formula / Value
Added GDP) for each year.

20

Energy
Source: OECD Energy Balances.
We opted for Total Final Consumption as a basic concept in calculating the Carbon and Energy Kaya
Identity Factor. Total Final Consumption is the sum of consumption by the different end-use sectors.
The reason for this choice is the fact that Total Final Consumption data can easily be disaggregated into
different sectors, more specifically the industry sector, the transport sector and the other sectors
(Agriculture, Commerce and Publ. Serv., Residential and Non-specified). We did not include NonEnergy Use. A correction factor was included when comparing the sum of the sectoral decompositions
with the global Kaya results.

Carbon
Total Final Consumption data comprise the use of different energy sources, as well as Electricity and
Heat. The decomposition of Electricity and Heat is based on data from Electricity Plants, CHP Plants
and Heat Plants. Emission factors from fossil fuel combustion were found in the Second Netherlands
National Communication on Climate Change Policies and the Revised 1996 IPPC Guidelines for
National Greenhouse Gas Inventories: Reference Manual.

21

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99/69

J. BOUCKAERT, Monopolistic competition with a mail order business, May 1999, 9 p. (published in Economics
Letters, 2000).

99/70

R. MOENAERT, F. CAELDRIES, A. LIEVENS, E. WOUTERS , Communication flows in international product

innovation teams, June 1999, p. (published in Journal of Product Innovation Management, 2000).

99/71

G. EVERAERT, Infrequent large shocks to unemployment. New evidence on alternative persistence perspectives,
July 1999, 28 p.

99/72

L. POZZI, Tax discounting and direct crowding-out in Belgium : implications for fiscal policy, August 1999, 21 p.

99/73

I. VERSCHUEREN, M. DE LOOF, Intragroup debt, intragroup guaranties and the capital structure of Belgian firms,
August 1999, 26 p.

99/74

A. BOSMANS, P. VAN KENHOVE, P. VLERICK, H. HENDRICKX, Automatic Activation of the Self in a Persuasion
Context , September 1999, 19 p. (forthcoming in Advances in Consumer Research, 2000).

99/75

I. DE BEELDE, S. COOREMAN, H. LEYDENS, Expectations of users of financial information with regard to the
tasks carried out by auditors , October 1999, 17 p.

99/76

J. CHRISTIAENS, Converging new public management reforms and diverging accounting practices in Belgian local
governments, October 1999, 26 p. (forthcoming in Financial Accountability & Management, 2001)

99/77

V. WEETS, Who will be the new auditor ?, October 1999, 22 p.

99/78

M. DEBRUYNE, R. MOENAERT, A. GRIFFIN, S. HART, E.J. HULTINK, H. ROBBEN, The impact of new product
launch strategies on competitive reaction in industrial markets, November 1999, 25 p.

99/79

H. OOGHE, H. CLAUS, N. SIERENS, J. CAMERLYNCK, International comparison of failure prediction models

from different countries: an empirical analysis, December 1999, 33 p.

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00/80

K. DE WULF, G. ODEKERKEN-SCHRDER, The influence of seller relationship orientation and buyer relationship
proneness on trust, commitment, and behavioral loyalty in a consumer environment, January 2000, 27 p.

00/81

R. VANDER VENNET, Cost and profit efficiency of financial conglomerates and universal banks in Europe.,
February 2000, 33 p. (forthcoming in Journal of Money, Credit, and Banking, 2001)

00/82

J. BOUCKAERT, Bargaining in markets with simultaneous and sequential suppliers, April 2000, 23 p. (forthcoming
in Journal of Economic Behavior and Organization, 2001)

00/83

N. HOUTHOOFD, A. HEENE, A systems view on what matters to excel, May 2000, 22 p.

00/84

D. VAN DE GAER, E. SCHOKKAERT, M. MARTINEZ, Three meanings of intergenerational mobility, May 2000, 20
p. (forthcoming in Economica, 2001)

00/85

G. DHAENE, E. SCHOKKAERT, C. VAN DE VOORDE, Best affine unbiased response decomposition, May 2000,
9 p.

00/86

D. BUYENS, A. DE VOS, The added value of the HR-department : empirical study and development of an
integrated framework, June 2000, 37 p.

00/87

K. CAMPO, E. GIJSBRECHTS, P. NISOL, The impact of stock-outs on whether, how much and what to buy, June
2000, 50 p.

00/88

K. CAMPO, E. GIJSBRECHTS, P. NISOL, Towards understanding consumer response to stock-outs, June 2000,
40 p. (published in Journal of Retailing, 2000)

00/89

K. DE WULF, G. ODEKERKEN-SCHRDER, P. SCHUMACHER, Why it takes two to build succesful buyer-seller

relationships July 2000, 31 p.

00/90

J. CROMBEZ, R. VANDER VENNET, Exact factor pricing in a European framework, September 2000, 38 p.

00/91

J. CAMERLYNCK, H. OOGHE, Pre-acquisition profile of privately held companies involved in takeovers : an

empirical study, October 2000, 34 p.

00/92

K. DENECKER, S. VAN ASSCHE, J. CROMBEZ, R. VANDER VENNET, I. LEMAHIEU, Value-at-risk prediction

using context modeling, November 2000, 24 p. (forthcoming in European Physical Journal B, 2001)

00/93

P. VAN KENHOVE, I. VERMEIR, S. VERNIERS, An empirical investigation of the relationships between ethical
beliefs, ethical ideology, political preference and need for closure of Dutch-speaking consumers in Belgium,
November 2000, 37 p. (forthcoming in Journal of Business Ethics, 2001)

00/94

P. VAN KENHOVE, K. WIJNEN, K. DE WULF, The influence of topic involvement on mail survey response
behavior, November 2000, 40 p.

00/95

A. BOSMANS, P. VAN KENHOVE, P. VLERICK, H. HENDRICKX, The effect of mood on self-referencing in a

persuasion context, November 2000, 26 p. (forthcoming in Advances in Consumer Research, 2001)

00/96

P. EVERAERT, G. BOR, W. BRUGGEMAN, The Impact of Target Costing on Cost, Quality and Development
Time of New Products: Conflicting Evidence from Lab Experiments, December 2000, 47 p.

00/97

G. EVERAERT, Balanced growth and public capital: An empirical analysis with I(2)-trends in capital stock data,
December 2000, 29 p.

00/98

G. EVERAERT, F. HEYLEN, Public capital and labour market performance in Belgium, December 2000, 45 p.

00/99

G. DHAENE, O. SCAILLET, Reversed Score and Likelihood Ratio Tests, December 2000, 16 p.

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WORKING PAPER SERIES

01/100 A. DE VOS, D. BUYENS, Managing the psychological contract of graduate recruits: a challenge for human
resource management, January 2001, 35 p.
01/101 J. CHRISTIAENS, Financial Accounting Reform in Flemish Universities: An Empirical Study of the implementation,
February 2001, 22 p.
01/102 S. VIAENE, B. BAESENS, D. VAN DEN POEL, G. DEDENE, J. VANTHIENEN, Wrapped Input Selection using
Multilayer Perceptrons for Repeat-Purchase Modeling in Direct Marketing, June 2001, 23 p. (published in
International Journal of Intelligent Systems in Accounting, Finance & Management, 2001).
01/103 J. ANNAERT, J. VAN DEN BROECK, R. VANDER VENNET , Determinants of Mutual Fund Performance: A
Bayesian Stochastic Frontier Approach, June 2001, 31 p.
01/104 S. VIAENE, B. BAESENS, T. VAN GESTEL, J.A.K. SUYKENS, D. VAN DEN POEL, J. VANTHIENEN, B. DE
MOOR, G. DEDENE, Knowledge Discovery in a Direct Marketing Case using Least Square Support Vector
Machines, June 2001, 27 p. (published in International Journal of Intelligent Systems, 2001).
01/105 S. VIAENE, B. BAESENS, D. VAN DEN POEL, J. VANTHIENEN, G. DEDENE, Bayesian Neural Network Learning
for Repeat Purchase Modelling in Direct Marketing, June 2001, 33 p. (forthcoming in European Journal of Operational
Research, 2002).
01/106 H.P. HUIZINGA, J.H.M. NELISSEN, R. VANDER VENNET, Efficiency Effects of Bank Mergers and Acquisitions in
Europe, June 2001, 33 p.
01/107 H. OOGHE, J. CAMERLYNCK, S. BALCAEN, The Ooghe-Joos-De Vos Failure Prediction Models: a CrossIndustry Validation, July 2001, 42 p.
01/108 D. BUYENS, K. DE WITTE, G. MARTENS, Building a Conceptual Framework on the Exploratory Job Search, July
2001, 31 p.
01/109 J. BOUCKAERT, Recente inzichten in de industrile economie op de ontwikkelingen in de telecommunicatie,
augustus 2001, 26 p.
01/110 A. VEREECKE, R. VAN DIERDONCK, The Strategic Role of the Plant: Testing Ferdows' Model, August 2001, 31 p.
01/111 S. MANIGART, C. BEUSELINCK, Supply of Venture Capital by European Governments, August 2001, 20 p.
01/112 S. MANIGART, K. BAEYENS, W. VAN HYFTE, The survival of venture capital backed companies, September
2001, 32 p.
01/113 J. CHRISTIAENS, C. VANHEE, Innovations in Governmental Accounting Systems: the Concept of a "Mega General
Ledger" in Belgian Provinces, September 2001, 20 p.
01/114 M. GEUENS, P. DE PELSMACKER, Validity and reliability of scores on the reduced Emotional Intensity Scale,
September 2001, 25 p.
01/115 B. CLARYSSE, N. MORAY, A process study of entrepreneurial team formation: the case of a research based spin
off, October 2001, 29 p.
01/116 F. HEYLEN, L. DOBBELAERE, A. SCHOLLAERT, Inflation, human capital and long-run growth. An empirical
analysis, October 2001, 17 p.
01/117 S. DOBBELAERE, Insider power and wage determination in Bulgaria. An econometric investigation, October 2001,
30 p.
01/118 L. POZZI, The coefficient of relative risk aversion: a Monte Carlo study investigating small sample estimator
problems, October 2001, 21 p.
01/119 N. GOBBIN, B. VAN AARLE, Fiscal Adjustments and Their Effects during the Transition to the EMU, October
2001, 28 p.

FACULTEIT ECONOMIE EN BEDRIJFSKUNDE

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WORKING PAPER SERIES

Tel.
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01/120 A. DE VOS, D. BUYENS, R. SCHALK, Antecedents of the Psychological Contract: The Impact of Work Values and
Exchange Orientation on Organizational Newcomers Psychological Contracts, November 2001, 41 p.
01/121 A. VAN LANDSCHOOT, Sovereign Credit Spreads and the Composition of the Government Budget, November
2001, 29 p.
01/122 K. SCHOORS, The fate of Russias former state banks: Chronicle of a restructuring postponed and a crisis foretold,
November 2001, 54 p.