Is efficiency the key for a sustainable energy policy in India?

Updated on Dec 27, 2022 06:36 PM IST

The article is based on the study done by Nicholas Ryan. He has field-worked with J-PAL South Asia at IFMR.

The Government of India places a high priority on energy efficiency in manufacturing. (REUTERS)
The Government of India places a high priority on energy efficiency in manufacturing. (REUTERS)
ByHindustan Times

As of 2016, coal consumption in India had tripled and energy consumption more than doubled. These figures are expected to rise significantly in the coming years due to a growing population (soon to be the world’s largest) and a period of rapid economic growth.

In a fossil fuel-dependent country like India, are there ways to ensure more efficient and sustainable energy-use? Renewable alternatives, which often demand large investments in infrastructure and an overhaul of existing systems, may not always be feasible.

One widely proposed solution to this problem is to make the country’s existing energy infrastructure more efficient by reducing or decarbonising energy consumption.

Both international climate policy and national energy policy in India have long focused on energy efficiency, that is, reducing the amount of energy required for a given energy output (Think: requiring fewer units of electricity to achieve a given level of cooling using an energy efficient air conditioner). Under the United Nations Framework Convention on Climate Change (UNFCCC), high income countries have focused their efforts on funding mitigation efforts around energy efficiency in low and middle income countries like India. The rationale? Investing in energy efficiency can reduce pollution by reducing the demand for fossil fuels in the production of electricity or thermal power.

The Government of India places a high priority on energy efficiency in manufacturing. The Bureau of Energy Efficiency (BEE), under the ministry of power, has also launched the National Mission on Enhanced Energy Efficiency across many energy-intensive industries in the country. Indian states also subsidise energy efficiency both in collaboration with and independently of the national-level policy.

Despite significant policy momentum around energy efficiency programmes, there is limited evidence of their real-world effectiveness in factory settings and of how firms respond to energy efficiency upgrades.

An alternative school of thought in energy economics suggests that the drive for energy efficiency may be misguided when it comes to reducing industrial emissions. Energy efficient technologies, it argues, may actually increase energy demand and consumption by making each unit of electricity less expensive.

A study by J-PAL affiliated researcher, Nicholas Ryan (Yale University) tested this theory through a field experiment that offered energy consulting to raise energy productivity among manufacturing plants in Gujarat and evaluated its impact on firms’ energy use.

Jointly undertaken with the Gujarat Energy Development Agency (GEDA) and the department of climate change, government of Gujarat, this randomised evaluation was carried out with over 400 large and energy-intensive textile and chemical manufacturing plants in the state that incurred roughly $200,000 in annual energy costs.

There are many ways to promote energy efficiency. For instance, energy audits—thorough, on-site reviews of how firms use energy and how they can profitably use less—act as a tool for analysing energy flows to reduce the amount of energy consumed. Similarly, providing capital subsidies can also incentivise firms to invest in more efficient equipment and technology.

The study tested the impact of GEDA’s existing policy that subsidised 50 percent of the cost of energy audits for firms, up to 20,000 (about $ 450). The researcher analysed firms’ response to these audits and evaluated their impact on energy productivity—the amount plants can produce with each unit of electricity— and consequently, on plants’ energy use.

Free energy audits were offered to half of the plants in the study, chosen at random. A consultant then prepared an audit report suggesting measures for incorporating more efficient processes and technologies, prioritised by their projected economic return.

A random half of plants that completed energy audits and were interested in implementation were also offered a free energy manager to help implement the audit recommendations. The energy manager identified the most promising recommendations, procured equipment, and oversaw installation and the training of staff on any equipment or process changes.

After two years, data on energy consumption were compared between the plants that received the energy audits and management services and those that didn’t to determine the effectiveness of the energy efficiency programme.

The plants that received the energy management services ran for longer hours, demanded more skilled labour, and used 9.5% more electricity (as opposed to the projected 10% reduction in energy use). This suggests that firms respond to increases in energy productivity by using more energy, not less. Counterintuitively, gains in productivity lead plants to run more intensely and for longer hours.

Increases in energy use may also change a plant’s labour requirements. The firms that received the energy management services tended to modernise their input mix: These plants witnessed a significant increase in the demand for skilled labour, including both managers and technical and supervisory workers.

Policies that subsidise energy efficiency through information, capital, or technology, have been at the centre of recent international climate agreements. Evidence from this study suggests that their benefits in real-world settings may be less than expected.

Moreover, increased energy-use resulting from greater efficiency and productivity can also affect personnel requirements at manufacturing plants. Installing new, modernised equipment changes the on-site workforce in two ways: By substituting manual, unskilled work and necessitating more skilled workers to monitor and manage it. There is a need, therefore, to consider how manual workers whose jobs have been substituted by more modern equipment can be transitioned to alternative forms of employment.

Alternatively, policies like energy taxes that price energy at its social and environmental cost might be worth considering and testing.

Link to published paper: https://images.hindustantimes.com/images/app-images/2022/12/w24619.pdf

The article is based on the study done by Nicholas Ryan. He has field-worked with J-PAL South Asia at IFMR.

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