Methodological issues in cross-country/region decomposition of energy and environment indicators

A recent development in energy and environment decomposition analysis is the application of the technique to cross-country/region comparisons. Cross-country/region decomposition gives rise to several problems that do not normally occur in chronological decomposition of changes in a specific country. These include large variations in explanatory factors in the data, the measure of economic output and structural comparability. We examine these problems using energy-related CO₂ emission data of three world regions. It is concluded that the conventional decomposition methods are not effective in cross-country/region studies as they tend to leave a large residual. Instead, perfect decomposition methods should be adopted. The choice of economic output measure can affect decomposition results greatly and the impacts vary from one decomposition method to another.