Estimating energy interindustry linkages based on the Hypothetical Extraction Method (HEM) in China and USA

ABSTRACT

Energy efficiency policies can help to reduce energy use and mitigate the effects of climate change. This paper examines the U.S. and Chinese economies by applying HEM to both. Key sectors absorbing more energy from other sectors by purchasing intermediate products from them and, simultaneously, transferring more energy by selling products to the rest of the sectors are identified. This provides insights for decision-making on appropriate energy efficiency policies. It appears that the U.S. economy should focus on the service sector, and the Chinese should focus on the industrial sector.

KEYWORDS:

• I-O analysis
• HEM
• linkages
• energy efficiency

Acknowledgments

I am indebted to Professor Theodore Mariolis, Panteion University, for reading early drafts and providing extremely helpful criticism and insight. I thank George Soklis, Centre of Economic and Planning Research, for useful remarks and discussions. I would like to thank the Editor, Dr Michael Brett-Crowther, for investing his time and effort in helping improve the quality of the paper. The suggestions of an anonymous referee are gratefully acknowledged.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Supplementary material

Supplemental data for this article can be accessed here.

Notes

1. For a detailed description of the HEM analysis with all possible extractions’ cases, see Miller and Lahr [1].

2. For a deeper understanding of the intrinsic controversies between the TLM and HEM, see Cai and Leung [41]. For an analytical and empirical comparison of various linkage measures based both on TLM and HEM, see Temurshoev and Oosterhaven [42].

3. In the case of the Chinese Symmetric I-O table, the elements of sector 23, 28, 37, 38, 43, 46, 48, 55, and 56, are all equal to zero and, therefore, they are not included in the analysis. In the US symmetric I-O table, only the elements of sectors 55 and 56 are equal to zero. Hence, these sectors have been excluded from the analysis.

4. Hard coal, coke and crude oil, jet fuel, diesel, gasoline, light and heavy fuel oil, other petroleum products, wastes, renewable and nuclear power, natural gas, other gas, electricity and heat, and biofuels.

5. In competitive I-O tables, imports are aggregated into a single final demand column vector without distinguishing between domestic products and imports and eventually leading to the overestimation of the linkage effect [34].

6. If the interest is in a single economy, interindustry linkages should be estimated by a non-competitive I-O table, since it is the impact on the domestic economy that is of concern. By this way, it is feasible to evaluate the importance of international trade on the production process by estimating interindustry leakages. For the concept of interindustry leakages see Reis and Rua [35] and Mariolis [43].

7. Matrices are indicated by boldfaced capital letters (e.g. $\mathbf{A}$), column vectors are indicated by boldfaced lowercase letters (e.g. $\mathbf{x}$), letter ‘T’ indicates transposition (e.g. x^T), a symbol of hat ‘^’ indicates a diagonal matrix (e.g. $\hat{\mathbf{x}}$) with the elements of a vector on its main diagonal and all other entries equal to zero, scalars (including elements of matrices or vectors) are indicated by italicised lowercase letters (e.g. $e$) and finally $\mathbf{i}$ denotes the summation vector (e.g. ${\mathbf{i}}^{\mathrm{T}}\equiv {\left[1,1,\dots ,1\right]}^{\mathrm{T}}$).

Additional information

Funding

This research is co-financed by Greece and the European Union (European Social Fund- ESF) through the Operational Programme «Human Resources Development, Education and Lifelong Learning» in the context of the project ‘Strengthening Human Resources Research Potential via Doctorate Research’ (MIS-5000432), implemented by the State Scholarships Foundation (ΙΚΥ).