Technological change and energy consumption in India: a decomposition analysis

Abstract

Increasing demand for energy from its fast growing economy notwithstanding, India is committed to reduce energy consumption on account of the concerns for climate change. It is often held that growth in energy demand could be moderated through autonomous changes in production technology. This paper analyses the sector-wise changes in production technology and its effect on the demand for direct and embodied energy by using structural decomposition analysis in a constant price hybrid Input–Output framework. Results support the hypothesis that changes in production technology contribute significantly to reduce additional energy requirements of the economy. The differences in magnitude, direction and rate of change in production technology between energy and non-energy inputs highlight their varying contributions to energy savings. The significant efficiency impact of embodied consumption in non-energy sectors highlights the scope of technological changes in these sectors, which has a cascading effect in the production chain. Therefore, the focus of policies shall be on lowering the consumption of embodied energy.

Keywords:

• energy
• India
• technological change
• input–output
• decomposition analysis

Acknowledgements

Authors are thankful to the anonymous reviewers for very useful comments that helped to improve the paper considerably. Authors also acknowledge the financial support extended by ICSSR through Doctoral Fellowship Award to Anjali Tandon. However, views expressed are solely of the authors.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. Refers to the speech of Mr Jairam Ramesh at UN Climate Conference, Copenhagen on 16 December 2009 as quoted at http://www.toxicswatch.org/2009/12/full-text-of-copenhagen-accord.html.

2. The terms, sector, process, industry and production activity are used interchangeably.

3. Based on projections for 2047 on the base year 2012 under the ‘Determined Effort Scenario’ of current policy settings.

4. The UN manual recognizes electricity from hydro and nuclear sources as a source of energy.

5. While I–O refers to the methodological framework, IOTT is generally used to refer to the matrix of inter-industry transactions.

6. Output values for energy sectors are alternately available from NAS which match very closely with the IOTT values.

7. Conversion efficiencies allow accounting for the energy loss during the transformation process.

8. This has the limitation that the impact of price changes cannot be studied within the given framework. However, this is beyond the scope of the present research.

9. There are 115 sectors in the IOTTs 1993–1994 and 1998–1999.

10. Refer Lin and Polenske (1995), Mukhopadhyay (2004), Parikh et al. (2009), Murthy, Panda, and Parikh (1997) and Tiwari (1999).

11. Economic reforms were initiated in 1991.

12. The NPS scheme replaced the RPS policy in the fertilizer industry through an alternate mechanism of providing subsidy based on the fertilizer product as compared with the earlier policy of subsidy based on a cost plus basis.

13. The Bharat emission norms are based on Euro emission norms.

14. Changes are measured with reference to the base year, 1993–1994.

15. Minor exceptions are noted for changes in final demand effect of crude petroleum and natural gas during the period 1998–1999 to 1993–1994.

16. Changes in production technology for individual sectors are discussed for the time period 1993–1994 to 2007–2008.

17. The sectors are relatively less significant in terms of energy savings due to the production technology effect.