This study is aimed at developing policies for energy efficiency by observing the past changes of energy use in Indonesia???s manufacturing sector over the period 1980???2000, and to investigate mitigation options for energy-related CO2 emissions in the sector. The first part of the study uses decomposition analysis to assess the effect of the changes in energy consumption and the level of CO2 emissions, while the second part investigates energy efficiency improvement strategies and the use of economic instruments to mitigate CO2 emissions in the manufacturing sector. Economic activity was the dominant factor in increasing energy consumption over the whole period of analysis, followed by the energy intensity effect and then the structural effect. The increase in aggregate energy intensity over the period 1980-2000 was mainly driven by the energy intensity effect. In turn, the technical effect was the dominant contributor to changes in energy intensity effect, with the fuel-mix effect being of lesser importance. Changes in CO2 emissions were dominated by economic activity and structural change. Sub-sectors that would benefit from fuel switching and energy efficiency improvements are the textile, paper, and non-metal sub-sectors. Three main options for reducing CO2 emissions from the manufacturing sector were considered: the imposition of a carbon tax, energy efficiency initiatives, and other mitigation measures. A carbon tax was found to reduce sectoral emissions from the direct use of oil, gas and coal, but increased the demand for electricity. At the practical level, energy efficiency improvements can be implemented by adopting energy efficient technologies that can reduce aggregate energy intensity up to 37.1 per cent from the base-year level, estimated after imposition of a carbon tax at $30 per tonne of carbon. A major priority for energy efficiency improvements was found to be in the textile and the paper and chemical sub-sectors. A mitigation measure such as the Clean Development Mechanisms could be encouraged in order to reduce projected emission levels. The preferred option would be the adoption of energy efficient technologies in the textile, chemical, paper and non-metal sub-sectors.

This study is aimed at developing policies for energy efficiency by observing the past changes of energy use in Indonesia???s manufacturing sector over the period 1980???2000, and to investigate mitigation options for energy-related CO2 emissions in the sector. The first part of the study uses decomposition analysis to assess the effect of the changes in energy consumption and the level of CO2 emissions, while the second part investigates energy efficiency improvement strategies and the use of economic instruments to mitigate CO2 emissions in the manufacturing sector. Economic activity was the dominant factor in increasing energy consumption over the whole period of analysis, followed by the energy intensity effect and then the structural effect. The increase in aggregate energy intensity over the period 1980-2000 was mainly driven by the energy intensity effect. In turn, the technical effect was the dominant contributor to changes in energy intensity effect, with the fuel-mix effect being of lesser importance. Changes in CO2 emissions were dominated by economic activity and structural change. Sub-sectors that would benefit from fuel switching and energy efficiency improvements are the textile, paper, and non-metal sub-sectors. Three main options for reducing CO2 emissions from the manufacturing sector were considered: the imposition of a carbon tax, energy efficiency initiatives, and other mitigation measures. A carbon tax was found to reduce sectoral emissions from the direct use of oil, gas and coal, but increased the demand for electricity. At the practical level, energy efficiency improvements can be implemented by adopting energy efficient technologies that can reduce aggregate energy intensity up to 37.1 per cent from the base-year level, estimated after imposition of a carbon tax at $30 per tonne of carbon. A major priority for energy efficiency improvements was found to be in the textile and the paper and chemical sub-sectors. A mitigation measure such as the Clean Development Mechanisms could be encouraged in order to reduce projected emission levels. The preferred option would be the adoption of energy efficient technologies in the textile, chemical, paper and non-metal sub-sectors.