Tuesday, September 4, 2012

Energy Savings Potential and Policy for Energy Conservation in Selected Indian Manufacturing Industries

NIPFP Working Paper 105

Manish Gupta and Ramprasad Sengupta
September 2012


Minimization of damage from the rising trend of global warming would warrant two kinds of action for a country like India: a) abatement of greenhouse gas emissions and b) adaptation to climate change so as to reduce climate change related vulnerability of the people. The target of low carbon economic growth of India in terms of declining energy and carbon intensity of GDP assumes, therefore, a special significance in such context. Of the different options for lowering carbon intensity of GDP, the option of energy conservation through reduced energy intensity of output happens to be cheaper in most cases than the carbon free energy supply technology options. As the industrial sector has the largest sectoral share of final energy consumption in India this paper focuses on the assessment of energy savings potential in seven highly energy consuming industries. The paper estimates the energy savings potential for each of these industries using unit level Annual Survey of Industries data for 2007-08. The paper further develops an econometric model admitting substitutability among energy and other non-energy inputs as well as that among fuels using translog cost function for the selected industries and also for the manufacturing sector as a whole to study the behavioural response of the industries to changes in factor prices or fuel prices. The model uses time series data at the aggregate level of the concerned industry for the period 1991-92 to 2008-09. The results of the model point mostly to the significant response of energy consumption to own price increases and to the insignificance of the responsiveness of the corresponding capital requirement to effect such energy conservation. Besides, a large part of the growth of factor productivity as estimated by the model has been found to be induced by energy price changes, the price neutral component of technical change being negligible. All these have important policy significance in respect of the relevance and direction of fiscal, monetary or other policy instruments for energy conservation in India for abating global warming.