This study analyses the energy consumption increase by using a physical production index (PPI) based decomposition method. The energy efficiency of the Korean industry deteriorated to a large extent in the 1992 to 1997 period. This outcome, however, does not contradict the result of a previous study that the physical energy intensities (measured by energy use per production unit) decreased in four Korean energy intensive industries such as steel, cement, petrochemical and pulp and paper in the same period. Although the physical energy intensities in four industries considered decreased significantly, the energy efficiency of the Korean industry deteriorated because the increase in the value-added production was smaller than that in the physical production except for the steel industry. This outcome suggests that the reduction in the physical energy intensity alone will not result in reducing the economic energy intensity, thereby reducing the increase in the energy consumption of the Korean industry. Therefore, it necessitates to restructure the Korean industry towards a higher value-added production and to strengthen energy efficiency improvement efforts in the Korean industry. As the overinvestment in the energy intensive industries caused a deep price fall of Korean products and a reduction of the value added of the Korean industry and with it an increase in the economic energy intensity, a decrease in this intensity will highly depend on reducing the overcapacity in the energy intensive industries which was partly responsible for the currency and economic crisis of 1997.