Impact of climate policy on cost and competitiveness of energy intensive industry in India

Abstract

Climate policy framed under the National Action Plan on Climate Change (NAPCC) in newline2008 has imposed an indirect cost on the energy-intensive industry, for which energy is a significant share of total production cost. This could have a negative impact on the cost and competitiveness of energy-intensive sectors of Indian economy. India announced NAPCC with eight missions designed to deal with different aspects of climate change. This document has been widely expected to lead to a directional shift in India development pathway. One of the eight missions is the National Mission on Enhanced Energy Efficiency (NMEEE), under which the Bureau of Energy Efficiency (BEE) framed a scheme called Perform Achieve and Trade (PAT) in April 2012 for incentivising energy efficiency. Under this scheme, specific energy reduction targets have been given to designated consumers (DCs) in eight energy-intensive sectors collectively accounting for 25 per cent of country s GDP and 45 per cent of its commercial energy use. DCs are issued tradable Energy Savings Certificates (ESCerts)so that the units that outperform will be able to earn money by selling them and those that cannot achieve the desired efficiency will have to buy them to fulfil their obligation.This study is an attempt to find the impact of climate policy instruments on three selected sectors electricity, iron and steel and cement which accounted for 49 per cent of India s total emissions and had 88 per cent share of energy consumption in PAT Cycle I. A part of emissions of other major emitters, viz. transport, domestic and agriculture, which are highly diverse and spread out, is covered under electricity. For this study, policy and competitiveness parameters of 106 DCs (60 in thermal power, 24 in iron and steel have and 22 in cement) during five years from financial year 2010 to newline2014 have been statistically analysed. The study also applied Data Envelopment Analysis (DEA) to find the efficient and inefficient DCs. The present investigation clearly shows the impact of climate