Sectoral Shift-Share Analysis of Fossil Energy Consumption and Economic Growth in Croatia

In the context of European climate policy and sustainable development goals, the question of the relationship between economic growth and consumption of non-renewable energy sources becomes crucial for understanding the dynamics of the transition towards a carbon-neutral economy. Croatia, as a member of the European Union, faces the challenge of balancing economic growth and decarbonization as fossil fuels still represent the main source of energy in most sectors. Although the existing literature is rich in analyses at the European Union level, there is relatively little research that examines sectoral patterns of fossil energy consumption and their relationship with economic growth in Croatia. The purpose of this paper is to analyse the relationship between fossil fuel consumption and economic growth in Croatia and to assess the extent to which decoupling of economic activity from non-renewable energy consumption has been achieved. The paper contributes to the literature by using a shift-share analysis to investigate energy changes at the sectoral level. The analysis is based on data for the period 1995-2023 and focuses on Croatia while EU-27 data are used as a benchmark. The shift-share method was applied which decomposes the total change in fossil energy consumption into three basic components: European, structural and competitive. Additionally, diagnostic indicators of energy intensity (EI) and fuel mix (FM) are included to better assess how sectoral trends contribute to fossil fuel dependency. The results indicate a relative decoupling of economic growth and fossil fuel consumption. Most sectors in Croatia show a decrease in energy intensity and the share of fossil fuels, indicating progress in the transition towards a more sustainable energy system. However, the transport sector remains the main source of growth in emissions-intensive activities thus neutralizing the positive effects of decarbonization in industry households and services. The findings suggest that further reduction of dependence on fossil fuels will require deeper structural reforms, especially in transport, as well as an accelerated diversification of the energy mix in line with European climate goals.