UNIVERSITI PUTRA MALAYSIA

IMPACT OF CONSUMPTION PATTERN ON CARBON DIOXIDE EMISSIONS IN MALAYSIA

NORLAILA ABDULLAH CHIK

FEP 2012 21

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IMPACT OF CONSUMPTION PATTERN ON CARBON

DIOXIDE EMISSIONS IN MALAYSIA

NORLAILA ABDULLAH CHIK

DOCTOR OF PHILOSOPHY

UNIVERSITI PUTRA MALAYSIA

April 2012

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Dedication

To my loving husband, three children, parents and parents-in-law

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Abstract of thesis presented to the Senate of Universiti Putra Malaysia in fulfilment of

the requirements for the degree of Doctor of Philosophy

IMPACT OF CONSUMPTION PATTERN ON CARBON DIOXIDE EMISSIONS

IN MALAYSIA

By

NORLAILA ABDULLAH CHIK

April 2012

Chairman: Professor Khalid Abdul Rahim, PhD

Faculty: Economics and Management

This thesis is focused on CO2 emissions related to the consumption pattern in Malaysia

arising from the remarkable increase in private consumption in the 1990s and 2000s.

This is an important issue that could help change household consumption behavior and

demand towards more environmental-friendly products because households play an

important role in determining the demand for these products corresponding to reduced

CO2 emission.

The first part of the study identifies the consumption pattern according to the

expenditure on energy-based and non-energy-based products and services using

compounded annual growth rate (CAGR). The main feature in this part is that the

consumption pattern is divided into two categories: direct and indirect energy

consumption. Households consume not only direct energy in the form of electricity and

petroleum products, but also indirect energy through purchased goods and services. It is

shown that the greatest direct energy consumption by households came from electricity

in 1991 and 2005 and from petroleum products in 2000 while the greatest indirect

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energy consumption came from real estate in 1991 and 2000 but shifting to wholesale

and retail trade in 2005. This pattern is interesting because in the 1990s, consumers

preferred to buy properties (real estate) but in the 2000 they turned to wholesale and

retail trade and motor vehicles.

The second part of the study analyses CO2 emissions by consumption pattern by

employing the simple energy-emission model in measuring direct CO2 emissions

(household side), and extended input-output (hybrid input-output table) and hybrid

input-output analysis in measuring indirect CO2 emissions (production side). The

analysis shows that direct CO2 emissions (household side) were stable compared with

indirect CO2 emissions (production side). On the production side, there were remarkable

increases in CO2 emissions in 2005 at about 24 percent of the total CO2 emissions if

compared with 1991 and 2000 when the emissions were more stable at about 17 and 18

percent respectively.

The third part of the study investigates the changes in CO2 emissions by households by

examining the sources of structural change in CO2 emissions (direct and indirect) due to

household consumption pattern over the 1991-2005 period by using the simple

decomposition model (SDM) and structural decomposition analysis (SDA) for direct and

indirect CO2 emissions respectively. The consumption pattern in Malaysia is seen to

have undergone a number of structural changes caused mainly by variation in the

composition of domestic demand. This analysis indicates that as income increased, there

was a rapid change in consumption pattern, mainly the demand for motor vehicles,

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wholesale and retail trade, construction and services which had high impact on the CO2

emissions.

From the overall result, we can conclude that changing household behavior is the best

way to reduce CO2 emissions generated by the household because every household

consumption will affect the environment whether directly or indirectly. The output of

this study can be utilized in energy/environmental policy analysis and future energy

demand. For instance, changes in sectoral energy intensity can be influenced through a

variety of energy policy measures. By doing so, industrial activity can indirectly be

controlled to address environmental issues towards sustainable development.

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Abstrak tesis yang dikemukakan kepada Senat Universiti Putra Malaysia sebagai

memenuhi keperluan untuk ijazah Doktor Falsafah

KESAN CORAK PENGGUNAAN TERHADAP PENGELUARAN KARBON

DIOKSIDA DI MALAYSIA

Oleh

NORLAILA ABDULLAH CHIK

April 2012

Pengerusi: Profesor Khalid Abdul Rahim, PhD

Fakulti: Ekonomi dan Pengurusan

Tesis ini memberi tumpuan kepada pembebasan karbon dioksida (CO2) yang dikaitkan

dengan corak penggunaan di Malaysia disebabkan oleh penggunaan swasta meningkat

dengan pantas pada 1990-an dan 2000-an. Isu utama di dalam tesis ini adalah untuk

mengubah gelagat isirumah dan permintaan terhadap produk yang lebih mesra alam

kerana mereka memainkan peranan penting dalam menentukan permintaan produk

mesra alam dalam usaha untuk mengurangkan pembebasan CO2.

Pada bahagian pertama dalam tesis ini adalah untuk mengenal pasti corak penggunaan

berdasarkan perbelanjaan mereka terhadap produk berasaskan tenaga dan produk

berasaskan bukan tenaga dan perkhidmatan dengan menggunakan kaedah kadar

pertumbuhan tahunan (CAGR). Perkara penting dalam bahagian ini adalah corak

penggunaan telah dibahagikan kepada dua kategori; penggunaan tenaga langsung dan

tidak langsung. Isirumah tidak hanya menggunakan tenaga secara langsung untuk

elektrik dan produk petroleum, tetapi mereka juga menggunakan tenaga tidak langsung

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dengan membeli barangan dan perkhidmatan. Hasil daripada bahagian ini menunjukkan

bahawa isirumah menggunakan elektrik yang paling tinggi pada tahun 1991 dan 2005

dan produk petroleum pada tahun 2000. Sementara itu, penggunaan tenaga tidak

langsung lebih kepada sektor hartanah pada tahun 1991 dan 2000 tetapi berubah kepada

perdagangan borong dan runcit pada tahun 2005. Corak ini amat menarik kerana pada

tahun 1990-an, isirumah lebih cenderung untuk membeli hartanah, tetapi bermula tahun

2000 corak penggunaan berubah kepada perdagangan borong and runcit, dan kenderaan

bermotor.

Pada bahagian kedua dalam tesis ini adalah untuk menganalisa pembebasan CO2 oleh

corak penggunaan dengan menggunakan model tenaga-pembebasan mudah untuk

mengukur pembebasan CO2 langsung (sektor isirumah) dan, model lanjutan input output

(Hybrid Input Output Table) dan analisis input output hybrid dalam mengukur

pembebasan CO2 tidak langsung (sektor pengeluaran). Hasil dari bahagian ini

menunjukkan bahawa pembebasan CO2 langsung (sektor isirumah) adalah stabil jika

dibandingkan dengan pembebasan CO2 secara tidak langsung (sektor pengeluaran).

Dalam sektor pengeluaran terdapat peningkatan pantas dalam pembebasan CO2 pada

tahun 2005 lebih kurang 24 peratus daripada jumlah keseluruhan pelepasan CO2 jika

dibandingkan dengan 1991 dan 2000 yang lebih stabil, masing-masing lebih kurang 17

dan 18 peratus.

Manakala, bahagian ketiga dalam tesis ini adalah untuk mengenal pasti perubahan

pembebasan CO2 oleh isirumah dengan meneliti sumber perubahan struktur dalam

pembebasan CO2 (secara langsung dan tidak langsung) disebabkan oleh corak

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penggunaan isirumah dalam tempoh 1991-2005 dengan menggunakan kaedah dekompos

mudah (SDM) dan analisis dekompos struktur (SDA) untuk pembebasan CO2 secara

langsung dan tidak langsung. Kajian ini mendapati bahawa corak penggunaan di

Malaysia telah mengalami satu perubahan struktur disebabkan oleh variasi dalam

komposisi permintaan domestik sahaja. Hasil daripada analisis ini menunjukkan bahawa

apabila pendapatan meningkat, terdapat perubahan mendadak dalam corak penggunaan

terutamanya permintaan terhadap kenderaan bermotor, perdagangan borong dan runcit,

pembinaan dan perkhidmatan yang memberikan kesan pembebasan CO2 yang tinggi.

Daripada hasil kajian tersebut, kita dapat menyimpulkan bahawa usaha dalam mengubah

gelagat isirumah adalah cara terbaik untuk mengurangkan pembebasan CO2 dalam

domestik kerana setiap penggunaan oleh isirumah akan mempengaruhi alam sekitar

secara langsung atau tidak langsung. Hasil kajian ini boleh digunakan dalam tenaga /

analisis dasar alam sekitar dan permintaan tenaga masa depan. Sebagai contoh,

perubahan dalam keamatan tenaga sektor boleh dipengaruhi melalui pelbagai langkah-

langkah dasar tenaga. Dengan berbuat demikian, aktiviti industri secara tidak langsung

boleh dikawal untuk menangani isu alam sekitar ke arah pembangunan mapan.

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ACKNOWLEDGEMENTS

First and foremost, all my thanks and praise go to ALLAH S.W.T, the Most Gracious

and Merciful, for giving me the strength, courage and determination to complete this

study.

I would like to express my heartfelt gratitude to Prof. Dr. Zakariah Abdul Rashid for his

invaluable guidance, encouragement and constructive criticisms throughout the study

period, and giving me full moral support during the up-and-down journey of my study.

His enthusiasm and patience have left a feeling of indebtness that cannot be fully

expressed.

My sincere thanks are extended to my supervisory committee members, Prof. Dr. Khalid

Abdul Rahim, Ass. Prof. Dr. Alias Radam and Dr. Shaufique Fahmi Sidique, for their

personal support, valuable guidance and encouragement to make this study possible.

They provided me invaluable direction and were willing to listen and discuss with me

throughout the preparation and presentation of this thesis.

I would like to express my warm appreciation and gratitude to the staff members of the

Faculty of Economics and Management and Graduate School, Universiti Putra Malaysia,

for their generous prayers and help, especially to Puan Azizah Ujang, Puan Kamsiah,

Puan Nafsiah, Puan Zalilah, Puan Mashitah, and Puan Saedah. Special thanks go to Dr.

Rusmawati Said, Professor Dr. Fatimah Arshad, Dr. Rohana, Associate Professor Dr.

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Zulkornian Yusof, Dr. Zaiton Samdin and all the lecturers of the Economics Department

for their advice, encouragement and comments till the completion of my study.

I shall be failing in my duty if I do not mention my friends and colleagues in UPM, who

gave a helping hand whenever needed. Special thanks go to Encik Mohd Yusof Saari

(UPM),Puan Zunika Mohammed (EPU), Cik Rohaida Saidon (UUM), Puan Jamilah

Muhydeen (UiTM), Puan Mawar Murni Yunus (KUIS), Khairul Hisham Hassan

(UNIMAS), Puan Suraya (UUM), Dr. Ahmad Fauzi Puasa (MIER), Dr. Khalid Abdul

Hamid (MIER) and not fogetting Cik Nik Rosniwati Ismail (FEP) who has been in the

same journey with me from the beginning until today struggling to complete our studies,

and all the staffs and students in the Department of Economics and IKDPM.

My thanks go to Encik Azman Zainal Abidin, Encik Zaharin and Cik Aznida from Pusat

Tenaga Malaysia, Puan Azizah (DOS Library) and the staffs of DOS and DOE for

providing the use of the input-output tables, the data from the Household Expenditure

Survey and the data on energy consumption. IKDPM was kind to give me a comfortable

place to complete my PhD work.

My special appreciation and deepest thanks go to my husband, Mohd Jadwi Abdul

Halim, for his strong support throughout my study period. He was always being around

when I needed him in my ups and downs and to give me strength and motivation during

my spells of stress. The other important persons always in my mind and my heart are my

three children, Jamilin Rasyidah, Muhammad Jad Rusydi and Jasmin Rafifah who in

their own loving ways have continuously provided me the motivation, challenge and the

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greatest inspiration in raising them during the period of my study, and being able to

maintain a difficult balance between my motherly duties and studies. They are the

reason for my being able to carry on with my study, knowing that they will understand

and appreciate what I have gone through.

Finally, I am much indebted to my beloved parents, Tuan Hj. Abdullah Chik Abu and

Puan Hjh. Bakiah Ahmad, and also my parents-in-law, Tuan Hj. Abdul Halim Hussin

and Puan Hjh. Jaedah Ahmad, who gave me strength and always offered prayers during

my study period. My special appreciation and deepest thanks also go to my brothers,

sisters as well as all the relatives from my side and my husband’s who have expressed

concern for my success in this study.

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I certify that a Thesis Examination Committee has met on 5th of April 2012 to conduct the final examination of Norlaila Binti Abdullah Chik on her thesis entitled "Impact of Consumption Pattern on Carbon Dioxide Emissions in Malaysia" in accordance with the Universities and University Colleges Act 1971 and the Constitution of the Universiti Putra Malaysia [P.U.(A) 106] 15 March

1998. The Committee recommends that the student be awarded the Doctor of

Philosophy. Members of the Thesis Examination Committee were as follows: Law Siong Hook, PhD Associate Professor Faculty of Economics and Management Universiti Putra Malaysia (Chairman) Rusmawati Said, PhD Faculty of Economics and Management Universiti Putra Malaysia (Internal Examiner) Zaiton Samdin, PhD Faculty of Forestry Universiti Putra Malaysia (Internal Examiner) Sangwon Suh, PhD Professor Bren School of Environmental Science and Management University of California, Santa Barbara United States of America (External Examiner)

SEOW HENG FONG, PhD Professor and Deputy Dean School of Graduate Studies Universiti Putra Malaysia Date: 23rd July 2012

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This thesis was submitted to the Senate of Universiti Putra Malaysia has been accepted

as fulfilment of the requirement for the degree of Doctor of Philosophy. The members of

the Supervisory Committee were as follows:

Khalid Abdul Rahim, PhD

Professor

Faculty of Economics and Management

Universiti Putra Malaysia

(Chairman)

Alias Radam, PhD

Associate Professor

Faculty of Economics and Management

Universiti Putra Malaysia

(Member)

Shaufique Fahmi Sidique, PhD

Lecturer

Faculty of Economics and Management

Universiti Putra Malaysia

(Member)

Zakariah Abdul Rashid, PhD

Executive Director

Malaysian Institute of Economic Research, (MIER)

(External Member)

_____________________________

BUJANG BIN KIM HUAT, PhD Professor and Dean,

School of Graduate Studies

Universiti Putra Malaysia

Date:

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DECLARATION

I declare that this thesis is my original work except for quotations and citations which

have been duly acknowledged. I also declare that it has not been previously, and is not

concurrently, submitted for any degree at Universiti Putra Malaysia or other institutions.

____________________________

NORLAILA ABDULLAH CHIK

Date: 5th

April 2012

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TABLE OF CONTENT

Page

DEDICATION

i

ABSTRACT

ii

ABSTRAK

v

ACKNOWLEGDEMENTS

viii

APPROVAL

xi

DECLARATION

xiii

LIST OF TABLES

xvii

LIST OF FIGURES

xix

LIST OF ABBREVIATIONS

xxi

CHAPTER

1

INTRODUCTION

1.1 Introduction

1

1.2 Background of the Study

1

1.3 Sustainable Development and Population

8

1.4 Malaysian Household Income and Consumption Pattern

13

1.4.1 Household consumption pattern

16

1.4.2 Household energy consumption pattern

20

1.4.2.1 Direct energy consumption pattern by household

25

1.4.2.2 Indirect energy consumption pattern by household

28

1.5 Impact of Consumption on CO2 Emissions

30

1.6 Research Design

35

1.6.1 Problem statement

35

1.6.2 Research question

39

1.6.3 Objectives of the study

40

1.6.4 Significance of the study

41

1.6.5 Scope of the study

43

1.6.6 Organization of the study

44

2

LITERATURE REVIEW

2.1 Introduction

46

2.2 Reviews of the Theoretical Framework

46

2.2.1 Economic growth and environment

46

2.2.2 Sustainable development

51

2.2.3 Population and environment

56

2.2.4 Consumption pattern and environment

61

2.3 Review of Methodology

65

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2.3.1 Energy consumption and CO2 emissions by econometric analysis 65

2.3.2 Computable general equilibrium (CGE) and environment 70

2.3.3 Empirical studies of hybrid input-output analysis (HIOT)

72

2.3.3.1 Empirical studies on environment related to energy consumption 77

2.3.3.2 Structural decomposition analysis (SDA) of CO2 emissions 85

2.4 Summary

90

3

METHODOLOGY

3.1 Introduction

92

3.2 Framework of the Study

92

3.3 Patterns of Household Consumption

95

3.3.1 Patterns of household consumption on goods and services 95

3.3.2 Patterns of household consumption on energy

97

3.4 Carbon Dioxide (CO2) Emissions from Household Consumption

97

3.4.1 Total effect of CO2 emissions

98

3.4.2 Direct CO2 emissions by household (household side)

99

3.4.3 Indirect CO2 emissions by household (production side)

100

3.4.3.1 Definition of variables in the model

101

3.4.3.2 Traditional input-output model

104

3.4.3.3 Construction of the hybrid input-output table (HIOT)

109

3.4.3.4 Hybrid input-output analysis

113

3.4.3.5 Energy intensity analysis (total energy requirement)

118

3.4.3.6 Carbon dioxide (CO2) emissions factor and intensity (multiplier) 121

3.5 Source of Changes in CO2 Emissions

125

3.5.1 Total decomposition of changes in CO2 emissions

125

3.5.2 Decomposition of changes in direct CO2 emissions (household side) 126

3.5.3 Decomposition of changes in indirect CO2 emissions (production side) 128

3.6 Data Sources

134

3.7 Summary

135

4

RESULTS AND DISCUSSIONS

4.1 Introduction

137

4.2 Patterns of Household Consumption

138

4.2.1 Patterns of household consumption on goods and services 138

4.2.2 Patterns of household consumption on energy

145

4.3 Carbon Dioxide (CO2) Emissions from Household Consumption

152

4.3.1 Total effect of CO2 emissions

152

4.3.2 Direct CO2 emissions from households

153

4.3.3 Indirect CO2 emissions by households from the production side 155

4.3.4 Relationship between consumption by sector and CO2 emissions 161

4.3.5 Energy intensity analysis

165

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4.3.5.1 Total energy intensity analysis by economic sector 165

4.3.5.2 CO2 emission intensity analysis

171

4.4 Changes in CO2 Emission

176

4.4.1 Total changes of CO2 emissions

176

4.4.2 Sources of direct CO2 emissions changes in the consumption (household side) 177

4.4.3 Sources of indirect CO2 emissions changes in the consumption

(production side) 180

4.4.3.1 First interval period, 1991-2000

180

4.4.3.2 Second interval period, 2000-2005

187

4.4.3.3 Overall period, 1991-2005

195

4.5 Summary

199

5

CONCLUSION

5.1 Introduction

201

5.2 Summary and Conclusions

201

5.3 Contribution of the study

205

5.4 Policy Implication

207

5.5 Limitations of the Current Study

210

5.5.1 The input-output model

211

5.5.2 Hybrid input-output analysis (HIOT)

211

5.5.3 Structural decomposition analysis (SDA)

212

5.6 Future Direction of Study and Recommendations for Further Study 213

REFERENCES

215

APPENDICES

238

BIODATA OF STUDENT

241

LIST OF PUBLICATIONS

242

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LIST OF TABLES

Table Page

1.1 Malaysia's economic growth from 2006 to 2009 2

1.2 Malaysian gross domestic products by industry, 1970-2009

(RM million in 2000 prices)

5

1.3 Malaysia annually household expenditure in Ringgit Malaysia,

1982-2005 (In 2000 prices)

15

1.4 Average annual expenditure per household Malaysia for

selected products, 1980/82-2004/2005 (in percentage)

18

1.5 Income and energy supply and consumption in Malaysia 21

3.1 Summary of rearranged sectors 113

3.2 Estimation of CO2 emission factors for each energy source (T-

CO2/toe)

124

4.1 Percentage of expenditures on different consumption categories

1991, 2000 and 2005 (2000=100)

139

4.2 Household consumption growths, 1991-2000, 2000-2005 and

1991-2005 (2000 constant prices)

143

4.3 Direct energy consumption of households by fuel 146

4.4 Indirect energy consumption of households by sectors (ktoe)

149

4.5 Total CO2 emissions from energy consumption by households

(T-CO2)

152

4.6 CO2 emission directly from energy consumption by households

(T-CO2)

154

4.7 Emissions produced by products, 1991 -2005 (T-CO2) 158

4.8 Total energy intensities of energy and non-energy products

(toe/M-RM)

167

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4.9 Percentage changes in the total energy intensities of energy and

non-energy products (%)

170

4.10 Carbon dioxide (CO2) emission intensities by sector 172

4.11 Percentage changes in the CO2 emission intensities of energy

and non-energy products (%)

175

4.12 Total of decomposition of CO2 emission from energy

consumption by household (T-CO2)

177

4.13 Decomposition analysis of changes in CO2 emission directly

from households (T-CO2), 1991-2000

178

4.14 Decomposition analysis of changes in CO2 emission directly

from households (T-CO2), 2000-2005

178

4.15 Decomposition analysis of changes in CO2 emission directly

from households (T-CO2), 1991-2005

179

4.16 Decomposition analysis of changes in CO2 emission by sector

1991-2000 (T-CO2)

182

4.17 Decomposition analysis of changes in CO2 emission by sector

2000-2005 (T-CO2)

189

4.18 Decomposition analysis of changes in CO2 by sector, 1991-

2005 (T-CO2)

196

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LIST OF FIGURES

Figure Page

1.1 Malaysia quality of life index and environment index,

1990-2002

10

1.2 The total number of newly registered motor vehicles and

energy consumption per capita, 1980-2004

12

1.3 Malaysian mean annually gross household income (RM),

1985-2007

14

1.4 Income distribution and electricity consumption by

households in Malaysia for selected years

19

1.5 Total energy consumption and GDP in Malaysia from

1991 to 2006

22

1.6 Percentage of energy consumption by electrical appliances ,

2009

27

1.7 Relationship between energy consumption and carbon

dioxide (CO2) emission

33

2.1 Barbier's Venn Diagram (adapted from Barbier, 1987)

52

2.2 Outline of principal flow 78

3.1 Framework of the study 93

3.2 Structure of an input-output table

105

3.3 Three levels of energy consumption and CO2 emission in

economic sector

110

3.4 Schematic representation of the hybrid input-output table

(HIOT)

112

4.1 Direct energy consumption by energy product

147

4.2 Indirect energy consumption by fuels, 1991-2008 151

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4.3 Emission produced by consumption for selected non-

energy sectors

160

4.4 Distribution of 40 sectors from the private consumption,

1991

162

4.5 Distribution of 40 sectors from the private consumption,

2000

163

4.6 Distribution of 40 sectors from the private consumption,

2005

164

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LIST OF ABBREVIATIONS

ASEAN Association of Southeast Asian Nations

BNM Bank Negara Malaysia

CPI consumer price index

CAGR Compounded annual growth rate

CGE Computable general equilibrium

CO2 carbon dioxide

EADN East Asian Development Network

EE electric and electronic

EIO energy input output

EKC Environment Kuznet curve

EPU Economic Planning Unit

FDI foreign direct investment

GDP gross domestic product

GHG greenhouse gases

GNE Gross national expenditure

GNP gross national product

HIOT hybrid input-output table

IMP Industrial Master Plan

I-O input-output

IOA input-output analysis

IO-SDA Input output- structural decomposition analysis

IPCC Intergovernmental Panel on Climate Change

MIOT monetary input-output table

MITI Ministry of International Trade and Industry

M-RM million per ringgit Malaysia

MSIC Malaysian Standard Industrial Classification

NEB New Energy Balance

NEP New Economic Policy

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PPI producer price index

PTM Pusat Tenaga Malaysia

RM Ringgit Malaysia

SDA structural decomposition analysis

SDM simple decomposition method

SITC Standard International Trade Classification

TPES Total primary energy supply

toe tonne of oil equivalent

tj terra joule

UNDP United Nations Development Programme

WCED World Commission on Environment and

Development

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CHAPTER ONE

INTRODUCTION

1.1 Introduction

This section provides the background of the study and explains the economic growth,

employment, income and consumption trends. The concept of sustainable

development and population is discussed. Energy consumption is chosen to identify

the factors that affect the environment. The effect of energy consumption on carbon

dioxide (CO2) emissions is examined. Finally, the problem statement is presented

covering the issues and objectives, significance, scope and limitations of the study.

1.2 Background of the Study

Malaysia is one of the developing countries in the world that have gained

prominence, having transformed itself from the 1970s to the 1990s from a raw

material producer to a multi-sector economy particularly in the manufacturing and

services sectors. This transformation was induced by positive economy growth

contributed mainly by the export of electrical and electronic (EE) components.

Malaysia is characterized by its open economy and acquisition of foreign direct

investments as shown in Table 1.1. The expansion of export and industrialization

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determined mainly by foreign direct investment has seen a need for labour, thus

lowering the rate of unemployment and increasing the GDP.

Table 1.1: Malaysia’s economic growth from 2006 to 2009

Economic indicator 2006 2007 2008 2009

GDP $million 125,051 132,988 139,159 139,174

Growth of GDP % 6.0 6.0 5.0 -3.1

Inflation (CPI) % 4.0 2.0 5.0 1.1

Unemployment % 3.0 3.0 3.7 3.4

Foreign direct investment % of GDP 4.0 5.0 3.0 4

Export growth % 7.0 4.0 1.5 (16.6)

Import growth % 9.0 5.0 2.2 (14.9)

Current account balance $million 26,200 29,243 38,914 21,053

Sources: The World Bank, World Development Indicators 2010 for 2006-2008, Economic Planning Units (EPU)

Malaysia hopes to be a developed country with high income per capita as stated in

Vision 2020. In order to achieve this vision, Malaysia has to obtain an annual

growth rate of 7% in real term in 2020. However, in the middle of 1997, the

economy faced a disaster, the Asian financial crisis that began in Thailand and later

spread all over to the other ASEAN countries including Malaysia which had

undergone 10 years recovery since 1987. The year 1987 was the time when the

manufacturing sector for intermediate goods started to expand, which subsequently

drove the Malaysian economy forward. This established a new structural change

from merely producing primary commodities to processing, manufacturing and

advanced manufacturing of products that included electronic semiconductors and

components of electrical products.

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In fact the exchange rate badly affected most of the ASEAN countries in 1997 which

had no other choice but to liquidate their current assets in order to offset their losses

resulting from the currency devaluation. Slightly more than one year later, the

Malaysian economy recovered. All these events have changed the structure of the

Malaysian economy to what it is today. It has become a tradition at the dawn of each

decade to predict the path or direction and magnitude of economic growth within the

context of the challenges and prospects for the next 10 years or more. The 1980s

were an enormously difficult and turbulent decade for the global economy. In fact in

the 1990s, though expected by some to be somewhat less difficult, the struggle

should be quite different for Malaysia in its quest to become a newly industrialized

economy. Given the diverse structure of the economy, it has its own internal

problems, with its strengths and weaknesses.

Malaysia's gross domestic product (GDP) grew from RM45 billion in 1970 to about

RM100 billion in 1980. It increased further to RM179 billion in 1990 and RM282

billion in 1995. It increased from RM449 billion in 2005 to RM519 billion in 2009.

These figures represent a GDP growth rate of 11% between 1970 and 2009 as shown

in Table 1.2. The Manufacturing sector expanded from 15% of the GDP in 1970 to

19, 24, 26, 33, 31 and 27% in 1980, 1990, 1995, 2000, 2005 and 2009 respectively

while the Agriculture share in the GDP dropped from 28 % in 1970 to 25, 15, 13, 9,

10 and 8 % in 1980, 1990, 1995, 2005 and 2009 respectively. The Services sector

declined from 42% in 1970 to 39% in 1980, increasing to 46 and 51% in 1990 and

1995 respectively but declining to 47% in 2005 and then remarkably increasing to

57% in 2009 which indicates the continuing role of the government in supporting the

high demand in the services sector. All the sectors showed changes during the last

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two decades, particularly the Agriculture and Mining sectors. In the mining sector,

tin production has declined and has been replaced by crude petroleum to become the

major contributor to the Malaysian economy.

Table 1.2: Malaysian gross domestic products by industry, 1970-2009

(RM million in 2000 prices)

Year 1970 1980 1990 1995 2000 2005 2009

Average

annual

growth rate

(%)

1970-2009

GDP 45,392 100,375 179,383 282,039 356,401 449,250 519,218 11

Primary sector

Agriculture, forestry,

livestock and fishing

3,051 9,513 18,120 28,810 30,225 35,835 39,260 7

(28) (25) (15) (13) (9) (10) (8)

Mining and quarrying 735 3,912 14,111 13,864 37,527 42,472 42,176 11

(7) (10) (12) (6) (11) (10) (8)

Secondary sector

Manufacturing 1,554 7,189 28,847 58,684 111,900 137,940 141,934 12

(15) (19) (24) (26) (33) (31) (27)

Construction 395 1,571 4,649 13,747 13,890 14,685 16,071 10

(4) (4) (4) (6) (4) (3) (3)

Services sector 4,489 14,736 55,268 112,337 165,796 230,043 303,695 11

(42) (39) (46) (51) (48) (47) (57)

Unemployment (%) 7.4 5.7 5.1 3.1 3.1 3.5 3.4

Sources: Economic Report, various issues, Ministry of Finance, Kuala Lumpur, and Economic Planning Unit

Figure in parenthesis is percentage (%).

The Manufacturing sector has been transformed from agriculture based to the

manufacture of electrical and electronic components, petroleum products and palm

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oil products. Export was a significant contributor to growth particularly of

manufactured goods which contributed 75.7% percent of the total export in 2009

(MITI, 2009). Electrical and electronic products became the major export of

manufactured products, followed by chemical products, machinery, metal, wood

products and scientific equipment. With the expansion of the manufacture of

electrical and electronic products and services sectors, the unemployment rate has

declined despite the shrinkage of the agriculture and mining sectors. Consequently, it

has affected the Malaysian household through employment creation especially when

the Malaysian economy has undergone major structural changes since 20 years ago.

The quality of life has improved due to the strong growth in the manufacturing and

services sector. The Malaysian household has benefited through increase in its

income as well as improvement in its standard of living resulting in a change in

consumption pattern. And with increased consumption, the environment is bound to

be strongly affected.

Recently, the general public, policy-makers and governments have expressed their

concerns about the environment and pressed for sustainable development, wary of

the fact that mega-development projects like the Bakun dam project are seldom

environmentally sound. The main objective among the developing countries is

economic growth through utilizing the natural resources for energy. Energy is the

engine of development but its utilization, especially through fossils fuels and plant

biomass, gives rise to CO2 emissions which in turn are responsible for global

warming. Global warming is caused not only by the combustion of fossil fuels but

also human activities such as deforestation and agriculture operations. The main

attention given by the Intergovermental Policy on Climate Change (IPCC) is on

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carbon dioxide emission rather than other emissions due to its contribution to most of

the global warming since pre-industrial times (IPCC, 2001).

As CO2 is produced all the time through the mechanisms stated above, its emission is

expected to increase for three reasons. Firstly, with greater production, most of the

gas that cannot be filtered or cleaned efficiently will be released to the atmosphere.

Secondly with the high dependence on fossil fuels, more will be burnt. And thirdly,

with the positive relationship between economic growth and CO2 emission

(Enviromental Kuznet Curve), as countries like Malaysia develop, more CO2 will be

emitted.

The environmental problem concerns not only international societies, governments

and policy-makers but also individuals (households) due to their increased income

levels, changes in consumption pattern and increased standard of living. Goods and

services including energy are the major consumer items of most households. Energy

is consumed by households and non-households in the form of electricity, gas,

petroleum products, coal and crude oil. Energy is the major driver of economic

development for a country. Energy has changed the level of value added through the

production activities and lifestyles of households all over the world. Nevertheless,

energy also gives an execrable impact on the environment through its direct and

indirect consumption, with direct and indirect impacts on CO2 emission.

The issue of the effects of energy consumption in Malaysia on CO2 emissions is not

new but has been growing for the last two decades since the transformation of

Malaysia from agriculture to an industrial economy. Thus the government has

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proposed a strategy to reduce energy consumption as well as CO2 emission through

energy efficiency among the environmental issues in the 10th Malaysia Plan.

Therefore, by year 2020, Malaysia aims to reduce its carbon dioxide (CO2) emission

by up to 40 percent of the 2005 level. Energy and the environment are interrelated

issues which must both be taken into consideration as stated in the Kyoto Protocol.

This issue is fast becoming the focus of extensive attention in a global concern. It is

very important that consumers manage their energy use efficiently while for

industries their efficiency of energy consumption needs to be enhanced from the

point of view of environmental preservation. Households can change their attitudes

or consumer behaviors by choosing products with lower environment impact such as

products with energy saving and environmental-friendly features.

In order to reduce CO2 emissions, there two major ways; one is to reduce the

consumption of energy particularly of petroleum products and electricity, and the

other is to replace fossils fuels with renewable energy source (solar power) and

nuclear power. These energy forms have lower CO2 intensities (CO2 per unit of

output) compared to current energy sources which contain carbon.

1.3 Sustainable Development and Population

The basic issue between economic growth and environment is the concept of

sustainable development. The concept of sustainable development is a broad view of

human well-being, a long-term perspective about the consequences of present

activities and full participation of civil society to reach possible resolutions. There

has been much elucidation of the concept (see, for example, Barry, 1977), the most

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popular formulation being given by the World Commission on Environment and

Development (WCED) on the subject of the sustainable development basic concept:

―development that meets the needs of the present generation without compromising

the ability of future generations to meet their own needs‖ (WCED, 1987, p. 43).

In economics, the concept of sustainable development implies the important

relationship between economic growth and environmental protection in conducting

economic activities and utilizing natural resources to fulfill human needs. In

Malaysia, sustainable development cannot be achieved if economic growth, social

development and environmental protection work separately. Hence, the policy on

environment has been developed to take into consideration the incorporation of these

three actions. Through sustainable development, the Malaysian Government plans to

continue enhancing the economic and social performance and quality of life of its

people (National Policy on Environment, 2002).

The issue of environment in terms of global warming, destruction of the ozone layer,

deforestation and population pressure is crucial for policy-makers in their effort to

appear "green". A number of competing measures and possible solutions to threats

ranging from air to water, ground and noise pollution, radioactivity, toxic wastes,

pesticides, and endangered species have been implemented (Khalid, 2007).

Most of the important goals of sustainable development such as providing a high

quality of life for present and future generations have been achieved but the

economic and social problems still exist. The economic and social problems faced by

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Malaysia were mostly from the lack of development and insufficient infrastructure in

its early period of industrialization. The rapid economic development through

urbanization, industrialization and other land-use activities since the 1980s later

caused water, air and land pollution, which has remained serious environmental

problems in Malaysia (Khalid, 2007). These problems related to the lack of

development in Malaysia gave rise to environment impacts due to inadequate

hygienic facilities and lack of proper housing particularly in the rural areas.

The same situation appeared in urban settlements where unchecked sprawling growth

resulted in crowded conditions and pollution of rivers by human beings. Human

beings need clean water and hygienic services because these are very important to

ensure good health and proper living. Figure 1.1 shows that the quality of life index

performed better from 1992 to 2002, while environment index did not perform well

due to the rapid economic growth. Environment index dropped to -4.3 percent from

1990 to 2007 and this should be taken into consideration.

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Source: Malaysia Quality of Life, 2004, Economic Planning Unit (EPU),Malaysia

Figure 1.1: Malaysia quality of life index and environment index values, 1990-

2000

Moreover, environmental problems are also closely related to industrial activities

directly and indirectly by households. Direct environmental problems by household

are associated with the consumption of energy goods and services (electricity, gas

and petroleum products) while indirect environmental problems by households are

associated with the production of non-energy goods and services by the economic

sectors. According to economist, the purpose of production is to feed consumption or

household demand. Evaluation of the environmental and social impacts of

households needs to account for both the direct impacts of the household, such as

disposal of household wastes and the emissions arising from fuel combustion in a

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household, and the indirect impacts which are caused during the production of the

goods and the delivery of the services to the household.

In Malaysia, production activities are the most responsible for worsening industrial

pollution in Malaysia (Khalid, 2007). Some studies suggest that population growth is

one of the major factors causing CO2 emissions (York et al., 2002; Shi, 2003; Cole

and Neumeyer, 2004), but the growth of population in Malaysia can also contribute

to the worsening of natural resources or systems of biological life support. As

population increases, the symptoms of ecological pressures and scarcity of natural

resources will surface including deforestation, soil erosion, overfishing and

overcrowding as well as economic stress as indicated through lower output, higher

inflation, higher unemployment and social problems.

Due to the increasing population, pressure builds up for increased production from

land use, hence the results from these activities will worsen soil erosion and

degradation. These activities are not limited to the destruction of land but also to a

decline in the flow of rivers, increased flood levels and silting of reservoirs and dams

(Khalid, 2007). A growing population also leads to increase in energy consumption

especially electricity, to meet the increased demand and to service the new

development areas. For instance, motor vehicle ownership also increases with a

growing population that becomes more affluent, consequently contributing to greater

pollution, particularly in generating CO2 emissions.

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Sources: United Nations Statistics Division, IMF/2005

Figure 1.2: The total number of newly registered motor vehicles and energy

consumption per capita, 1980-2004

From 1980 to 2004, a general increase in CO2 emissions was experienced by

Malaysia1. Only in 1998/1999 was there a decline to about 17.6% (Figure 1.2). At

this time, there was also a drop in the number of newly registered private motor

vehicles and energy consumption as shown in Figure 1.2. This indicates that a

reduction in the use or ownership of motor vehicles will reduce energy consumption

(of petroleum) and thereby the generation of CO2. In order to reduce the CO2

emissions, many policy-makers have implemented various pollution control policies,

for example by improving the public transportation system and increasing the oil

price. However, the best way to reduce CO2 emission is to reduce energy

consumption by households direct and indirectly. The next section will discuss the

1 The figures of total registered transport are provided by the Department of Road Transportation (JPJ), Transportation and

Communication and population by DOS.

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Energy Consumption

(ktoe)

Total of motor vehicles ('000)

Year

Motor vehicles Energy

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Malaysian household income and consumption patterns because when income

increases automatically the pattern of consumption changes.

1.4 Malaysian Household Income and Consumption Pattern

Since its remarkable change from an agriculture country to an industrialized country,

Malaysia has seen its GDP has grown from RM100 billion in 1980 to RM519 billion

in 2009. There is a strong relationship between income and expenditure because

when incomes increase, expenditure patterns tend to change (Sanne, 1998). Figure

1.3 shows the Malaysian mean annual household incomes between 1985 and 2007.

Households benefited from the continued increase in disposable income arising from

high export earnings and positive economic growth which also generated full-

employment and income-earning opportunities among Malaysians. Moreover, the

competitive credit provided further support to more household spending. Malaysian

economic growth and structural transformation have wide implications for the

employment growth and labour force distribution by sectors as well.

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Sources: Economic Planning Unit (EPU)

Figure 1.3: Malaysian mean annually gross household incomes, (RM),

1985-2007

The increase in income level caused the monthly consumption per household to

grow from RM731 in 1980 to RM1,935 in 2005 (Department of Statistics,

HES1980/82, HES1993/94, HES 1998/99 and HES 2004/05). Income grew at an

average rate of 4% from 1997 to 2007. According to the Economic Planning Unit,

household income in 2004 was around RM38,988. This suggests that the average

household in Malaysian was relatively capable of managing its budget and avoid

over-expenditure. In 1980/82, the average household expenditure was about

RM732 monthly, compared with RM412 in 1973.

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

1985 1990 1995 1997 1999 2002 2004 2007

Ringgit Malaysia

Year

Income

(RM)

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Table 1.3: Malaysian annual household expenditures in Ringgit Malaysia, 1982 -

2005 (in 2000 prices)

No Main item 1982/83 1993/94 1998/99 2004/05

1 Food 2251 3117 4415 4712

2 Beverages and tobacco 253 340 365 421

3 Clothing and footwear 371 465 668 707

4 Housing and water 1163 1296 3781 4324

5 Electricity 136 296 459 712

6 Petroleum products 102 95 106 119

7 Household equipment 486 760 1031 998

8 Medical care and health expenses 101 263 370 325

9 Transportation 1503 2497 3381 4436

10 Communication 37 304 709 1231

11 Recreation and cultural services 49 55 108 176

12 Entertainment 439 490 624 758

13 Education 69 246 419 491

14 Restaurants and hotels 580 1725 2535 2628

15 Miscellaneous goods and services 1086 2585 3507 4352

Total 8,627 14,535 22,479 26,389

Sources: Reports on Household Expenditure Survey 1980/82, 1993/94, 1998/99 and 2004/05, DOS.

The increasing household expenditures during the 1994 -1999 period were not

caused by the rises in price only but also by the purchasing power when income

rises due to positive economic growth (shown in Table 1.3). In real terms,

households recorded a 3.4% growth in expenditure, during the 1994-1999 period

after adjusting for inflation. The higher spending of households in 1999 was

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related to the increase in the basket of goods purchased and not just because of

higher prices. The pattern of consumption by households will be explained in

more detail in the next section.

1.4.1 Household consumption pattern

Generally, the definition of consumption is expenditure by households on goods

and services, not including spending on new houses or land. However in this

study, spending on real estate is considered because this item is one of the most

consumed by households for example in lease and rental. Consumption of goods

and services in the economic system is important to maintain the standard of

living of households. With increasing income, however, consumption for most

households in developed countries is motivated by further than what almost

anyone would define need as for households in developing countries. On the other

hand, this does not mean that households do not consider that almost all their

consumption is compulsory. Gatersleben and Vlek (1998) have nevertheless

shown that once households obtain new possibilities to consume, this

consumption quickly becomes a necessity which they are not willing to give up.

In general, consumption is obviously something good and the more the

consumption the better enhanced is the lifestyle. With increasing consumption

households have been able to extend out and enlarge their possibilities further

than what was previously possible (Affredson, 2002). In Malaysia, most families

having more children spend a lot of their total consumption expenditure on

housing, food, recreation and travel, a consumption pattern that is different for

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small households with fewer children living in small houses and spending most of

their money on travel and using a large part of their food expenditure on dining

out. The next section will provide more details on the consumption pattern by

households in Malaysia.

According to the survey on household expenditure (HES) conducted by the

Department of Statistics (DOS), items are grouped into nine main categories, i.e

food; beverages and tobacco; clothing and footwear; gross rent fuel and power

(housing, water and electricity); furniture; medical care expenses; transport and

communication; recreation and education; and miscellaneous goods and services.

However, the household expenditure survey has disaggregated the nine items into

fifteen items (foods, beverages and tobacco; clothing and footwear; housing and

water; electricity; petroleum products; household equipment; medical care and

health expenses; transportation; communication; recreation and cultural services;

entertainment; education; restaurants and hotels; and miscellaneous goods and

services). By doing so, we can identify the items such as electricity and petroleum

products that are directly consumed by households. Either, electricity and

petroleum products were clumped together with gross rent. The three major

groups are food; housing and water, and transportation which represent almost

61% of the total household expenses. According to the 2004/05 HES, a household

spent an average amount of RM23,436 per year on consumer goods. This shows a

rise from the RM7,945 per year found in the 1982/83 HES.

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Table 1.4: Average annual expenditures per household in Malaysia for

selected products, 1980/82-2004/2005 (in percentage)

No Category 1982/83 1993/94 1998/99 2004/05

1 Food 26.1 21.4 19.6 17.9

2 Beverages and tobacco 2.9 2.3 1.6 1.6

3 Clothing and footwear 4.3 3.2 3.0 2.7

4 Housing and water 13.5 8.9 16.8 16.4

5 Electricity 1.6 2.0 2.0 2.7

6 Petroleum products 1.2 0.7 0.5 0.5

7 Household equipment 5.6 5.2 4.6 3.8

8 Medical care and health expenses 1.2 1.8 1.6 1.2

9 Transportation 17.4 17.2 15.0 16.8

10 Communication 0.4 2.1 3.2 4.7

11 Recreation and cultural services 0.6 0.4 0.5 0.7

12 Entertainment 5.1 3.4 2.8 2.9

13 Education 0.8 1.7 1.9 1.9

14 Restaurants and hotels 6.7 11.9 11.3 10.0

15 Miscellaneous goods and services 12.6 17.8 15.6 16.5

Total consumption 100 100 100 100

Sources: Reports on Household Expenditure Survey, DOS (various issues)

The major items that households spend on are food, housing and water,

transportation, and miscellaneous goods and services. Food is a necessity and uses a

lot of energy through the home refrigerator, cooking, stove and oven. The second

largest household spending is on housing and water where electricity is much used

for running home electrical appliances as shown in Table 1.4. Due to this,

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households have become the largest consumer of final energy in Malaysia, directly

and indirectly. For instance, in residential areas, electricity demand is driven by the

growing number of households and the growth in their income distribution as shown

in Figure 1.4.

Sources: Economic Planning Units (2008), and Pusat Tenaga Malaysia, 2006

Figure 1.4: Income distribution and electricity consumption by households in

Malaysia for selected years

Whether in the home or power plant, a switch in fuel from non-renewable to

renewable energy such as solar or nuclear has resulted in CO2 emissions reduction

from household energy consumption, regardless of a long-lasting rise in the energy

consumed particularly in urban area. However, the major contributor to the overall

greenhouse gas emissions comes mainly from energy consumption by industrial

sectors but in this study focus was on consumption by the household directly (from

0

1,000

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4,000

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1995

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2004

2007

Electricity

(Ktoe),Income distribution

(RM)

Income Electricity

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the household side) and indirectly (from the production side). Reducing the impacts

on the environment from households energy consumption is the greatest challenge

particularly to changes in their lifestyle and consumer behaviour. The third largest

household spending is on transportation in Malaysia that is experiencing an era of

rapid growth but the 2004/2005 HES found this item to be the second larger

spending on. Mobility has received a great deal of attention in the sustainable

development agenda due to its rapid growth and the congestion, noise and urban air

pollution problems it brings.

Moreover, the largest capital investment for most Malaysian households comes from

expenditure on motor vehicles (cars or motorbikes) after investment on the home.

Besides the home, the car reflects the character, status and class of the household.

However, the car has also become a strong component of the normal household

consumption. Changes in motor vehicle technology often focus on improvements in

energy efficiency and in special cases in renewable energy consumption. Spending

on other items such as medical needs, education, furniture and furnishing only covers

less than 10% of the average monthly expenditure.

1.4.2 Household energy consumption pattern

The rapid economic growth in Malaysia has largely impacted energy supply and

consumption. The annual growth rates of GDP and total household primary energy

use are 5.7 and 7.5% respectively in the 1990s as shown in Table 1.5. However, the

economic growth slowed down from 1996 to 2000 due to the economic crisis of

1997 in the Asian region. The annual average total primary energy supply (TPES)

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growth from 1991 to 2000 was due to major investments, particularly in the

transportation and manufacturing sectors.

Table 1.5: Income and energy supply and consumption in Malaysia

Annual growth rate in %

1991 2000 2008 1991-

2000

2000-

2008

1991-

2008

GDP in Ringgit Malaysia at 2000

constant prices (Million)

205,312 356,401 476,182 5.7 2.94 8.78

Total primary energy supply (Ktoe) 26,335 50,710 69,846 6.8 3.25 10.25

(Per capita TPES in Ktoe) 1.39 2.17 2.59 4.6 1.77 6.41

Total household primary energy

use (Ktoe)

13,961 28,705 42,901 7.5 4.10 11.88

(Per capita total household energy

in Ktoe)

0.74 1.23 1.59 5.2 2.59 7.94

Direct household primary energy

use (Ktoe)

843 1,650 2,565 6.9 4.51 11.77

(Per capita direct household energy

in Ktoe)

0.04 0.07 0.10 4.7 3.10 9.04

Carbon dioxide (CO2) emission (in

Kt- CO2)

67,659 126,360 194,317 6.45 4.90 6.04

Sources: Department of Statistics Malaysia and own calculations.

The trends of energy use in Malaysia are relatively the same as found in many

developing countries such as Korea by Park and Hi-chun (2007) and India by

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Pachauri and Spreng (2002). The total energy supply (TPES) in Malaysia increased

from 5 to 10 Mtoe between 1991 and 2008. The enormous growth rates of Asian

economies have produced a large impact on their energy consumption. In the 1990s,

petroleum production and consumption as well as hydroelectric power and coal in

generating electricity increased enormously for Malaysia. The consumption of

energy increased tremendously from 1991 to 1997 as shown in Figure 1.5. The large

amount of investment in electrical and electronic infrastructures and motor vehicles

has caused primary energy consumption to reach approximately 27.23 million tonnes

and electricity generation to almost 6 Mtoe in 2000 and will continue to rise.

Source: Malaysia Energy Centre, 2006

Figure 1.6: Total energy consumption and GDP in Malaysia from 1991 to 2006.

0

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The future economic growth for any country is hard to depict but to generate

estimation, firstly the physical and economic growth of the nation must be presented.

Malaysia is projected to grow at 5.7% annually and will continue at this rate for

many years. The total primary energy demand is set to increase by nearly 7%

annually corresponding with the increasing rate of urbanization. Moreover,

development and political stability will continue to drive the economy onwards. The

Malaysian Ministry of Energy suggests that to provide for the citizen‘ energy

demands, RM4.86 billion will be required over the next 10 to 15 years: 60% allotted

to energy generation and the remainder to transmission and distribution of energy.

Such enormous economic growth and expanding infrastructure and demand will

likely send the total energy use to well over 100 Mtoe in the year 2020. The growth

rate of urbanization shows that the industrial sector of the economy remains

unchanged to require large portions of the total amount of energy used in the nation.

The industrial sector could increase contributing to upwards of 50% of the nation‘s

economy in continuing competition. The switch towards public transportation in

urban areas will potentially cause a decline in the percentage of the economy

occupied by private car ownership. The energy use of residential and commercial

sector remains relatively constant occupying only 13-14% of the total energy use.

Vision 2020 stipulates the targets and standards for the country‘s future as a whole.

By the year 2020, Malaysia is expected to become a completely developed and

united country. In line with to this, Malaysia has to raise the living standard of the

rural and urban peoples as well as reduce poverty, finally leading to an increase in

the total household primary energy consumption all over the nation. The annual

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growth rate of total household primary energy consumption was 7.5% and direct

household primary energy consumption about 6.9% from 1996 to 2000. As

household income and consumption expenditure increased, the household energy

requirement increased too. Energy consumption leads to a variety of environmental

stress and is also a major source of greenhouse and acidic gases. Coal is the most

polluting fuel in generating of CO2, SO2, NOx and particulate emissions followed by

petroleum products.

Households are responsible for the increasing levels of primary energy use due to the

growth of household electricity usage, but fuel switching2 in the power sector is also

very important to reduce environmental impact. For example, power plants are also

shifting to gas (renewable energy source) after using coal and oil for a long time.

Another technique to reduce environmental impact is changing the fuel mix in the

supply of household energy. In general, coal and oil combustion is polluting

compared to gas combustion which is safer and cleaner. However, the growth of

nuclear energy generation involves an increase in radioactive waste production.

Besides that, petroleum products used in motor cars directly or indirectly by

households also cause side effects on the environment.

The growth rate of motor car ownership in the established markets tends to slacken

over time as the diffusion rate increases. It is the same trend seen for most other

household durables as they near the point of dispersion. Increased transport usage,

combined with inadequate road systems, has caused unendurable traffic congestions

in large cities such as Kuala Lumpur. This in turn has effected huge economic

2 Definition of fuel switching is ―The substitution of one type of fuel for another, especially the use of a more environmentally

friendly fuel as a source of energy in place of a less environmentally friendly one‖. Sources:uk.encarta.msn.com/dictionary_1861824568/fuel_switching.html

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losses as well as worsened the environment in Malaysia. Private motor vehicles

pollute environment by emitting CO2 and other greenhouse gases (GHG) from fuel

combustion, fuel supply, vehicle manufacture and disposal. Motor vehicle noise also

disrupts animal habitats and migration routes. The transportation sector involving

motorbikes and cars is the most significant contributor to the environment impact in

Malaysia.

1.4.2.1 Direct energy consumption pattern by household

Households consume energy directly for heating and cooling, lighting and operating

electrical appliances (Shove and Warde, 1997; Shove, 2003.). This consumption is

the hidden energy use resulting from the householder's pursuit of comfort,

convenience and cleanliness. Many factors influence energy consumption by the

household such as household size (the number of family members), lifestyle and age.

Household size is the main factor that influences the consumption of energy. Due to

the growth of household size and new housing areas also rapidly developing, energy

consumption and energy costs also rise. In the overall household income, energy cost

is a small element of the expenditure; thus only the households with the lowest

incomes are price-sensitive in their energy demand compared with wealthier

households. A large portion of direct energy consumption by households in Malaysia

is electricity compared to petroleum products. A study by MOSTE in 1998 estimated

that an average family in a low-cost house spent about RM65 per month, while the

electricity used in the medium cost house was approximately RM110 per month, and

that for a detached house can go up to RM350 per month. As household income

rises, expenditure on electrical appliances increases at a faster rate (Annas, 1999).

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The average amount of energy used by various appliances and their daily costs are

shown in Figure 1.6. From this figure, refrigerators represent about 22% of

household electricity demand in Malaysia. Thus, the best way to save energy by

households is to use the right refrigerators and storing food in them correctly so that

the electricity used can be reduced. Energy efficient or energy-saving refrigerators

have been promoted by the government and NGOs.

Air-conditioners accounted for about 14% of the overall energy use by Malaysian

households in 2008 and became the second largest household electricity consumer in

Malaysia. From the energy demand point of view, air-conditioners are exclusive

because their use depends on the weather. Nowadays, some of them have reached 13

energy efficient ratios (EER) due to their very advanced technology. Air-conditioners

with 13 EER will save about 40% of the total energy consumption and become more

efficient than the ordinary products. Air-conditioners also can contribute to a large

reduction on the consumption of electricity in the household sector in Malaysia by

setting energy efficiency standards.

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Source: Environmental Quality Report. Ministry of Science, Technology and Environment (MOSTE) Malaysia, 2009.

Figure 1.6: Percentages of energy consumption by electrical appliances, 2008

In Malaysia, the fan is the third largest household electricity consumer. It accounted

for about 9% of the total household electricity consumption. There are various fan

brands and types usually used in the household, i.e. ceiling fan, stand fan, table fan,

box fan and wall fan. A new introduction in fan technology can save up to 40%

electricity consumption when compared with the old-style ceiling fan.

Lighting by light bulbs (8%) and fluorescent lamps (6%) is also a large electricity

consumer in Malaysia which accounted for about 14% of the total household

electricity consumed. In the rural areas, most households are lighted by radiant bulbs.

Radiant bulbs are very inefficient compared with advanced technology lamps.

Compact fluorescent lamps (CFL) are an alternative to reduce energy consumption in

Malaysian households. The more common of these bulbs are U-shaped, luminescent,

fluorescent tubes; halogen, long twin tubes; and high intensity release bulbs. The

Water heater

2%Hifi radio

5% Flouresant light

6% Rice cooker

7%

Washing machine

7%

Television

8%

Light bulb

8%

Iron

3%

Fan

9%

Air-conditioner

14%

Refrigerator

22%

Others

9%

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residential electricity demand growth could decrease by pushing manufacturers to

adopt more efficient lighting technologies. For example, replacing radiant bulbs with

compact fluorescent light bulbs could save 60 to 75% of electricity. Radiant lamps

have life-spans of about 750 to 1000 hours while CFLs last twelve times longer but

cost more. However, the prices may be reasonable to the consumers through the

intervention of government subsidies.

Besides the above, other appliances that consume energy are Hi-fi and TV. These

two entertainment appliances consumed about 13% of electricity in Malaysia. These

electrical appliances can save a large amount of electricity in the residential sector by

setting minimum stand-by leaking electricity or stand-by power. The rice cooker

consumed about 7% of electricity. Iron and water heater consumed 3 and 2% of

electricity consumption respectively. Other electrical appliances took about 9% of

total household electricity consumption in Malaysia. The energy consumed by the

iron can be saved by adopting new efficient products, while the water heater can be

saved by replacing the electric water heater with solar water heater as an alternative.

Although, at present solar panels are very expensive to install they are worth it in the

long term. Malaysia as a tropical country has much sunshine which can be tapped to

provide an alternative source of energy.

1.4.2.2 Indirect energy consumption pattern by household

From the household perspective, sectors like the Industrial, Transportation,

Commercial, Non-energy and Agriculture sectors are considered as indirect energy

consumers. In 2006, the Household sector consumed only 6% of the total national

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energy requirement compared with the other sectors. The final energy demand in

2006 increased by 4% to settle at 40,318 Ktoe compared with 38,285 Ktoe in 2005.

The share in energy demand was highest for the Industrial sector at 41%, followed by

that of the Transportation sector at 40%, the commercial sector at 8%, the Non-

energy sector at 5% and the Agriculture sector at 1%. All sectors showed increases

compared with the previous year.

Energy consumption by the Transportation sector only competes with that by the

Manufacturing sector. In Malaysia, the Manufacturing sector represents the largest

consumer of energy by activities in all manufacturing subsectors such as mining and

quarrying, construction, iron and steel, and others. However, energy used for

Transportation by manufacturing is not covered in the manufacturing sector but is

recorded under the transportation sector. The energy consumption by the

transportation sector represents energy used for all kinds of transportation except

international marine bunkers. This sector covers road, air, railway, internal

navigation, transport in the Industry sector, and energy used for transport of materials

by pipeline and non-specified transport.

The energy consumed by wholesale and retail trade; post and telecommunications;

the operation of hotels and restaurants; real estate; the collection, purification and

distribution of water; renting and business activities; maintenance and repair of

motor vehicles and motorcycles; sewage and refuse disposal; public administration

and defense; financial intermediation, pension funding and insurance; education;

computer and related activities; and other community, personal service activities;

health, and social welfare is considered as energy consumed by the commercial

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sector. Non-energy uses cover the energy consumed by the use of petroleum products

such as bitumen, paraffin waxes, white spirit, lubricants, and other products, as well

as coal (non-energy use). It is assumed that the use of these products is exclusively

non-energy use3.

Petroleum coke is recorded under non-energy use only when there is evidence of

such use; otherwise it is shown under energy use in manufacturing or in other

sectors. Carbon black, graphite electrodes, etc. are recorded in the non-energy use of

coal and are also shown separately by sector. The indirect consumption of energy in

the Malaysian grew at an average annual rate of 6.9% during the period 1991-2008.

1.5 Impact of Consumption Pattern on CO2 Emission s

The consumption of electricity and petroleum products by households can be

classified as direct energy consumption by household, while in order to produce the

goods (physical products) such as food, beverages and tobacco, clothing and

footwear, household equipment and transportation, indirect energy is required.

Similarly, all the goods consumed are also related to energy consumption. If we

analyse deeply, the consumption by the Services sector seems not to require energy

(such as communication, recreational, healthcare, education, entertainment,

restaurant and hotel, and miscellaneous goods and services) but the materials used

require energy.

3 This definition is taken from ―Earthtrend.wri.org‖

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The measurement of energy used by the production sectors depends on the character

of the consumption product and the technology. If the energy resources contain any

fossil fuel, subsequently the energy consumption will generate CO2 emissions. A

plentiful supply of energy has long been considered as an essential requirement for

economic growth. As a result economic growth (in terms of GDP) and energy

consumption are much correlated (Noorman, 1995: Hall et al., 1986). This view

strongly states that economic growth is possible if the energy supply develops at a

pace that is the same as or higher than the economy as a whole (Affredson, 2002).

On the other hand, positive economic growths in GDP and zero or negative energy

growth rate are not practicable in the long period because energy is an essential input

in all production activities. However, the energy used in output differs between

production activities. Consequently, the relationship between economic growth and

energy consumption can differ between countries due to different economic

structures and levels (Kroeger et al., 2000).

The relationship between energy use and total economic activity has declined

relatively in many industrialized countries since 1950 (Cleveland et al., 2000). This

decline indicates that the relationship between energy use and economic activity is

comparatively weak. This argument is doubted by others who argue that the decline

in energy/GDP ratio is overstated and that the ratio ignores the change in energy

quality. Energy-use change from low quality to high quality fuels is argued to be the

most significant factor following rising economic profits per energy unit. In

Malaysia, periods of positive economic growth in general have seen high growth in

energy consumption. The rapid economic growth in Malaysia has largely impacted

the energy supply and consumption. The annual growth rates of GDP and total

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household energy primary use are 5.7 and 7.4% respectively in the 1990s. However,

the economic growth slowed down from 1996 to 2000 due to the economic crisis of

1997 in the Asian region. The annual average total primary energy supply (TPES)

growth increased much from 1991 to 2000 due to major investments particularly in

the transportation and industrial sectors, at 41.8 and 37.7% respectively.

Many developing countries follow relatively the same trend in energy use as

Malaysia. The total primary energy supply (TPES) in Malaysia increased from 5 to

10 Mtoe between 1991 and 2008. This increase indicates that energy conservation

fixed to technological change leads to much improved energy efficiency (Schipper

and Grubb, 2000). So the pattern of energy consumption will affect the pattern of

CO2 emissions. The relationship between energy and CO2 emission is positively

linear for a given fuel mix. For instance, an increase in energy consumption will

cause a similarly large percentage increase in CO2

emissions. Recently, Malaysia has

introduced clean energy such as biomass, which is seen as one to the most significant

future energy sources. Moreover, middle-income country, Malaysia also emits higher

quantities of CO2

per capita (51st of world per capita CO2 emission ranking).

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Sources: United Nation Statistic Division, WDI (2009)

Figure 1.7: Relationship between energy consumption and carbon dioxide (CO2)

emission

Nowadays, many countries struggle to emit zero carbon from energy consumption

but this is very difficult to achieve. Although, carbon dioxide can be cleaned, this

requires both short- and long-term investments (Radetzki, 2001) and is mainly for

countries with high GDP. Between 1997 and 1999, the total level of CO2

emissions

in Malaysia decreased by approximately 18% as shown in Figure 1.7. Also CO2

emissions per unit GDP declined by approximately 13% between 1997 and 1999.

This reduction was due to the global economic crisis mainly in the Residential,

Manufacturing, and Services sectors, in both total CO2

emissions and emissions per

GDP. The trade-off between economic growth and environmental degradation is a

dire concern before it reaches a point of no return. It is very important to save the

-

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Energy use (kt of oil equivalent) CO2 emissions (Kt-CO2)

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environment through efficient energy management and consumption before the drop

in quality of the environment becomes irreversible.

Environmental problems are among the challenges faced by Malaysians although

Malaysia has experienced one of the least environmental problems in Asia. However,

with the magnitude of the Malaysian structural change of recent years through

industrialization, agriculture, tourism and export activities, the country has recorded

positive economic growth over the years. Economic growth has caused pollution in

many sectors, for instance air pollution from industrial activities and motor vehicle

emissions as well as water pollution from raw sewage. The continuous rise and

accumulation of pollution could have many damaging effects. One of such effects

that have occurred is global warming due to the increase in CO2 emissions. The

impact of global warming is felt by us and might harm plants and animals living in

the sea or land due to the rise in temperature. It also could change the world climatic

patterns, causing floods, droughts and an increase in damaging storms.

In terms of well-being and health, human diseases such as malaria and dengue could

spread, and crop yields could decline. Longer-lasting and more intense heat waves

could cause more deaths and illnesses as well as increase hunger and malnutrition.

All of these disasters are mainly caused by human activities and will continue

growing if there is no appropriate control. Disasters such as floods, landslides,

erosions and extreme heat often occur in Malaysia and these can destroy many things

like houses, cars, home appliances and infrastructure.

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Most floods that occur are natural disaster of cyclical monsoons during the local

tropical wet season that are characterized by heavy and regular rainfalls such as from

October to March. However, the floods that occured from December 2006 to January

2007 in Southern Johor were believed to be due to the recent global warming effect

and unplanned development, for example inadequate drainage in many urban areas.

Meanwhile, the disasters such as landslides that have occurred in many parts of

Malaysia were due to deforestation for development activities on hill sites and those

which had been abandoned for long periods, affecting the maintenance of the

unstable slopes. All these impacts are caused by human activities in satisfying their

never-ending needs. In order to combat this worsening environmental problem,

particularly with regard to CO2 emissions, firstly we have to change the direct and

indirect consumption pattern by households through changing consumer behaviors.

1.6 Research Design

1.6.1 Problem statement

The concept of sustainable development involves the important relationship between

economic growth and environmental protection in conducting economic activities

and utilizing natural resources to fulfill human needs.

There have been a number of studies that examined the relationship between

economic growth and environmental degradation. Meadows et al. (1992) stated that

far from being a hazard to the environment in the long term, economic growth

emerges to be necessary to maintain and improve the environmental quality.

However, there are growing concerns about the adverse environmental impacts of

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economic growth. For example, Grove‘s (1992) concerns have led to a rich stream of

research on the notion of environmentally sustainable economic development. Some

studies have found that the trade-off between economic growth and environmental

quality is not invariant to policies. It is possible to mitigate greatly this trade-off

through appropriate policies which are particularly significant for the middle income

countries (Shafik, 1994; Antle and Heidebrink, 1995; Grossman and Krueger, 1995).

However,