Energy Efficiency

DOI 10.1007/s12053-016-9497-9

ORIGINAL ARTICLE

Analysing energy intensity trends and decoupling of growth

from energy use in Indian manufacturing industries
during 19731974 to 20112012
Shyamasree Dasgupta & Joyashree Roy

Received: 23 February 2016 / Accepted: 16 November 2016

# Springer Science+Business Media Dordrecht 2016

Abstract This paper has two research objectives: first, it
derives and analyses energy intensity trends for seven
energy intensive manufacturing industries and the aggre-
gate manufacturing sector in India for the period 1973
1974 to 20112012 and compares the same with best
practice benchmarks. Second, based on Index Decompo-
sition Analysis, it studies the extent to which the energy
efficiency has contributed in the decoupling of industrial
activity growth from growth in energy use. The study
finds faster decline in energy intensity in all the seven
industries during the recent years (19981999 to 2011
2012). Aluminium, cement and fertilizer industries are
found to operate close to the global best-practice energy
intensities with transformational changes in process tech-
nology. Iron and steel and pulp and paper are found to be
lagging behind with only incremental transformation in
technology in place. The decomposition results show that
activity growth is the major driver of growth in energy
demand with marginal impact coming from structural
S. Dasgupta (*) : J. Roy
Department of Economics, Jadavpur University, 188 Raja S C
Mullick Road, Kolkata 700032, India
e-mail: shyamasree.dasgupta@gmail.com
S. Dasgupta
e-mail: shyamasree@iitmandi.ac.in
J. Roy
e-mail: joyashreeju@gmail.com
J. Roy
ICSSR National Fellow, Global Change Programme, Jadavpur
University, 188 Raja S C Mallick Road, Kolkata 700032, India
change. However, declining energy intensity has been
able to neutralize a major portion of the growing energy
demand resulting in decoupling trends, especially in re-
cent years, with more energy efficiency-related voluntary
and mandatory policies in place).
Keywords Indian manufacturing industries . Energy
intensity . Activity growth . Decomposition . Decoupling
Introduction
Energy efficiency plays a pivotal role in energy use
reduction, designing mitigation strategies and sustainable
development policies across the globe (Fischedick et al.
2014; Fleurbaey et al. 2014; UNEP 2011; Bernstein et al.
2007; IAEA 2005; Phylipsen et al. 1997). However, there
are empirical evidence which show that in spite of sub-
stantial gains in energy efficiency, absolute levels of en-
ergy use and related CO2 emissions continued to rise
significantly in the past for most countries due to eco-
nomic growth and population growth (Csereklyei et al.
2014; Fischedick et al. 2014; Allcott and Greenstone
2012; IEA 2012; Voigt et al. 2014; Roy et al. 2010; Roy
et al. 2013; Roy 2007; Dasgupta and Roy 2002a, b;
Dasgupta and Roy 2001; Dasgupta and Roy 2000). This
highlights the need for assessing the extent to which
energy efficiency can play a role in decoupling economic
growth from energy use in a case-specific manner.
There is a range of studies dealing with energy effi-
ciency trends of industries in the context of OECD and
other developed countries (Howarth et al. 1993; Farla

et al. 1997; Worrell et al. 1997; Schipper et al. 1998, 2000;
Sun 1999; Liaskas et al. 2000; Miketa 2001; Phylipsen
et al. 2002; Allcott and Greenstone 2012; IEA 2012; Voigt
et al. 2014). In the context of developing countries,
Sheerin (1992), Bhattacharyya and Ussanarassameeb
(2004), Huang (1993), Sheinbaum and Rodriguez
(1997), Ang and Zhang (1999), Al-Ghandoor (2012),
Calili et al. (2014) and UNIDO (2010) analysed the trends
of energy intensity in manufacturing industries in Thai-
land, China, Mexico, Taiwan, Jordon, Brazil and in a
group of developing countries, respectively. In India,
while there are some studies dealing with the energy
intensity of the overall manufacturing industries
(Dasgupta and Roy 2000, 2002a, b; Bhaduri and
Chaturvedi 2002; Kumar 2003; Mukherjee 2008;
Goldar 2010) and their disaggregate counterparts includ-
ing aluminium, iron and steel, cement, paper and textile
industries (Sahu and Narayanan 2009; Reddy and Ray
2010, 2011), there is dearth of comprehensive literature
analysing long-term trends in energy intensity comparable
with the best available technology in the world for a
comprehensive set of industries at a disaggregate level.
India has been focusing on energy efficiency
both in policy and practice, especially for the
industrial sector, for long. The history of energy
efficiency policies in the country can be traced
back to 1991 when Energy Conservation Award
was introduced. This programme encouraged in-
dustrial units to voluntarily adopt energy efficiency
measures both to save energy cost and to win the
award to build goodwill in the market place
(Chakraborty and Roy 2012). It was followed by
a number of similar policies such as Energy Con-
servation Act in 2001 (EC Act) and mandatory
policy interventions such as Perform, Achieve
and Trade (PAT) in 2008 (BEE 2012; GOI 2001;
GOI 2008a). EC Act identified a set of designated
consumers and suggested mandatory energy audits
and encouraged adoption of energy efficiency mea-
sures. These designated consumers are industrial
units with energy consumption higher than a
threshold level (varying across industries). Subse-
quently, PAT set mandatory energy efficiency tar-
gets to be achieved during a 3-year compliance
period starting from April 2012. PAT had a pre-
announced component of trading of energy saving
certificates between over-achievers and under-
achievers. Among the manufacturing industries,
selected units from seven most energy intensive
Energy Efficiency
industries, namely aluminium, cement, chlor-alkali,
fertilizer, iron and steel, pulp and paper and tex-
tile, fall under the purview of the first cycle of
PAT.
Given the coverage of PAT, the present study focuses
on similar seven manufacturing industries in India.
These are the most energy intensive manufacturing sec-
tors, and together, they account for 40% of Indias
primary energy consumption (GOI 2012a, b). However,
power sector, the most energy intensive industry, is also
covered under PAT, but it does not come under the
purview of the present study as the scope of this study
is limited to manufacturing industries. Against this
backdrop, the present study provides a comprehensive
analysis of energy intensity (EI) trends of these
manufacturing industries prior to implementation of
PAT and draws a comparison with respective best prac-
tice EIs (BPEI) acting as an international benchmark.
The findings are substantiated by an industry-specific
analysis of the major drivers of the change in EI. Fol-
lowing this, the paper also analyses the extent to which
this changing EI has been able to deliver the decoupling
of industrial activity growth from corresponding energy
use. It contributes to the energy efficiency and
decoupling literature by providing evidence based on
EI trends for a set of significant energy intensive
manufacturing industries in India for a period of almost
four decades (19731974 to 20112012). By giving an
account of the historical trend of EI during a period with
no mandatory EI reduction policy in place, it creates a
comparable case for any future research which intends
to address the issue of additional energy efficiency gain
that can be achieved by mandatory energy policies such
as PAT.
The paper uses the concepts enhanced energy effi-
ciency and decline in EI interchangeably.
In BAnalytical framework^, the methods of analysis
are presented. BResults and discussion^ summarizes the
results and discusses the significance of the results.
Conclusions and policy implications are provided in
BConclusion^.
Analytical framework
Measuring EI
EI in industrial sector (i.e. energy use per unit of pro-
duction) has been perceived in many ways: measuring
Energy Efficiency
both energy inputs and activity in monetary units (EI1);
measuring both energy inputs and activity in physical
units (e.g. GJ/ton) (EI2); measuring activity in monetary
terms while measuring energy use in physical units (e.g.
MJ per thousand money value of sales or production)
(EI3). A review by Freeman et al. (1997) shows that
there are both advantages and limitations associated
with each of the measures. Choice of any particular
approach is therefore much dependent on the availabil-
ity of data and the purpose of the study.
In India, the most comprehensive industry level out-
put and energy use data are available from the Annual
Survey of Industries (ASI) published by the Central
Statistical Organization (Industrial Statistics wing),
Ministry of Statistics and Programme Implementation,
Government of India. This paper first focuses on EI1
indicator expressed as the ratio of fuel expenditure to
value of output (both in constant prices). EI1 defined this
way has the advantage that it can be used for any
aggregate industry group producing a range of outputs.
This indicator has been widely used in past studies from
India (Roy 1992; Roy et al. 1999; Dasgupta and Roy
2000; Roy 2007; Sahu and Narayanan 2011; Dasgupta
et al. 2011).
E1
EI 1 1
Y1
where E1 = fuel expenditure in constant price and
Y1 = value of total output in constant price.
Decline in EI1 can be affected by the decline in the
relative price of fuel with respect to price of output
leading to a less accurate description of the change in
energy technology. This paper therefore uses the second
indicator EI2. Although it is difficult to construct EI2 for
an aggregate industry group or any industry group pro-
ducing diversified final products, it is a better represen-
tation of the state of the technology and is comparable
with global benchmarks. In absence of appropriate offi-
cial long run industry level data for estimating EI2, this
paper has considered secondary sources for this
(Table 1).
E2
EI 2 2 demand is attributed to three drivers: activity,
Y2
where E2 = energy use in physical units and Y2 = phys-
ical units of output produced.
In the context of industrial management, the term
benchmark has been defined and used in two different
ways: internal benchmark and external/competitive
benchmark (Ten Raa 2009). While internal bench-
mark can be derived on the basis of energy-saving
potential available with a particular production unit,
the external benchmark is a competitive one and can
be set in terms of the best practice energy use on a global
level. While the internal energy efficiency benchmarks
set by energy policies such as PAT are useful, the global
sustainability goal goes beyond achieving such internal
benchmarks. Potential energy efficiency that can be
achieved by setting an external/competitive bench-
mark representing the best practice EI (BPEI) is always
larger as compared to achieving an internal benchmark.
On the basis of EI2, this paper analyses the performance
of Indian industries if BPEI of the year 2008 (BPEI2008)
is taken as an external/competitive benchmark. The
comparison also allows assessing the time frame within
which EI2 of a particular industry in India is likely to
converge with the respective BPEI2008. This benchmark
is, however, a dynamic one and is expected to have
become stricter with the progress of time and
technology.
Based on the methods developed by UNIDO (2010),
an index of energy efficiency improvement potential
(EEIP) is then calculated for the industries under con-
sideration.
BPEI it
EEPI t 1 3
EI i2;t
where BPEIit is the BPEI for industry/industrial processes
i prevailing in the year t and EI i2;t is the EI2 indicator of
the same industry/industrial processes in the same year.
Decomposition of energy use
Index Decomposition Analysis (Ang and Zhang
2000; Ang and Xu 2013) provides an effective
tool to assess systematically the drivers of change
in energy demand in industries. It is effective in
indicating the contribution of energy efficiency
change in the decoupling of growth in production
activity from energy use. The change in energy
structure and energy intensity. While activity
growth will push up total energy demand, a falling
EI will pull it down, other things remaining con-
stant. If the sectoral shares of energy intensive
industries increase, then the structural effect will
Table 1 EI2 indicators for Indian industries and respective BPEIs (in GJ/ton)*

Year Aluminum Cement ( Rao Fertilizer ( TERI 2006; Schumacher and Iron and steel (CSE Pulp and paper ( Reddy and Ray 2011)
(CSE et al. Sathaye, 1999b; CSE 2010c; Nand and 2010a; Roy et al.
2010b; 2009; Worrell Goswami 2008; Worrell et al. 2008) 2013;
Worrell et al. Worrell et al. 2008)
et al. 2008) Natural Naphtha Fuel Coal Average Writing and Paper and Paper Newsprint Kraft Average
2008) gas oil printing paperboards paper
paper

1990/1991 100.2 3.6 40.2 49.0 56.5 166.1 48.5 41.9

1992 39.8 49.0 58.2 178.7 47.7 75.4 52.5 49.8 86.1 16.1 59.7
1993 39.3 48.1 59.4 166.1 48.1
1994 38.7 47.2 59.8 46.0
1995 90.8 3.4 34.2 37.6
1996
1997
1998 73.9 51.6 48 76.1 16.1 57.4
1999
2000 85 85 33.3
2001
2002
2003 72.5 50.8 46.4 68 16 55.2
2004 27.2
2005 83.2 3.1 29.1
2006
2007 37.5
2008 23 27.3
BPEI in 70.6 2.9 20.9 28 16.9 23 22.6 22.7 31.1 24.9** 22.5
2008

*Figures coverring multiple years represent the avergae during the period
**World best is higher because it corresponds to a better quality kraft paper (Reddy and Ray 2011)
Energy Efficiency
Energy Efficiency

further reinforce the upward push on energy de- constructed as fuel consumed/total output. Both
mand. The framework is as follows: values are deflated using appropriate yearly whole-
Total energy use at period t is expressed as follows: sale price indices (WPI) published by the Office of
Economic Advisor, Government of India. This in-
Y i;t E i;t
E t E i;t Y t Y t S i;t I i;t 4 dicator is constructed for seven energy intensive
i i Y t Y i;t i
manufacturing industries, namely, aluminium, ce-
where ment, chemical (without fertilizer and pesticide),
Et = total industrial energy consumption. fertilizer and pesticide, iron and steel, pulp and
Ei,t = energy consumption in industry i. paper and textile. The coverage of the industries
Yt = total industrial production. is almost similar with the coverage of the
Yi,t = production of industry i. manufacturing industries under PAT. Therefore,
S i.t = Yi,t/Yt = production share of industry i the group of industries has been referred to as
It = Et/Yt = EI of the aggregate industry sector. PAT industries. The EI1 indicator for aggregate
Ii.t = Ei,t/Yi,t = EI for industry i manufacturing sector is also constructed. The study
The subscript t denotes the time period. period 19731974 to 20112012 is divided into
The change in energy use can be theoretically three sub-periods 19731974 to 19881989,
decomposed using additive and/or multiplicative 198990 to 19971998 and 19981999 to 2011
methods with similar implications. The present paper 2012. The logic behind the selection of sub-
adopts the additive formulation with Log-Mean Divisia periods is related to both the timing of economic
Index (Ang and Choi 1997; Ang 2012) that gives perfect and energy policies and the timing of changes in
decomposition, satisfies the factor reversal test and is the categorization of industries under National In-
consistent in aggregation. dustrial Classifications (GOI 1970, 1987, 1998,
2004, 2008b) in India. A detailed discussion on
Change in energy demand E T E 0 ETE the coverage of the industries, industry codes used
E OE E SE E IE 5 and the timeframe can be found in Dasgupta and
Roy (2015).
where To derive EI2, physical quantity of energy con-
ETE is the total change in energy use (TE). sumed and physical quantity of output produced
EAE is the activity effect (AE), i.e. change in energy by the industries are required. While it is quite
use due to the change in the level of production/ straightforward to gather yearly data to construct a
 
YT time series of EI 1 from ASI, no such published
activity wi ln annual official database is available on the basis of
i Y0
ESE is the structural effect (SE), i.e. change in which a time series for EI2 can be constructed for
energy use due to change in relative contribution of Indian industries. While there are a few studies that
energy intensive industries in total industrial focused on this indicator in the context of Indian
 
S i;T industries (GOI 2012a; GOI 2013; Bhattacharya and
production wi ln Cropper 2010), there is a dearth of historical official
i S i;0
EIE is the energy intensity effect (IE), i.e. change in data which can be used to construct the industry
energy use due to change in EI of the production level EI2 indicator over a long period of time. There-
  fore, based on existing literature, the intensity values
I i;T
process wi ln at different points of time are collated (Table 1). In
i I i;0
E i;T E i;0 the absence of yearly data, we assume that EI 2
where wi lnEi;T lnEi;0:
indicators have been changing at a constant rate
per year between the years for which the data are
Coverage, data and variables available. For example, EI2 for the iron and steel
industries was 41.9 GJ/ton of crude steel in 1990
ASI publishes the value of output and fuel expen- and 37.6 GJ/ton of crude steel in 1995. So, for the
diture data for each of the industries as total years in between, it is assumed that there was a
output and fuel consumed, respectively. EI1 is uniform compound rate of decline per annum. EI2
 Energy Efficiency

is expressed as GJ/ton of production unless specified Results and discussion

otherwise. A compilation of EI2 and BPEI2008 indi-
cators is presented in Table 1.
The coverage of the industries is similar to that
of EI1 barring few exceptions. Chemical industry
and aggregate manufacturing are not considered as
they produce a range of heterogeneous final prod-
ucts that those cannot be aggregated at a physical
level. Textile industry is also dropped from the
analysis due to lack of existing international
benchmarks given diverse final products and pro-
cesses used (UNIDO 2010). An analysis of energy
intensity trends of textile industries in India can be
found in Reddy and Ray (2011). The EI2 trend of
ammonia-based fertilizers is considered here to
replace the category Fertilizer and Pesticide in
case of EI1.
For decomposition analysis, the coverage of
industries, timeframe considered and output and
energy variables are similar to that of EI1. The
decomposition analysis is undertaken for two sets
of industries: aggregate manufacturing and PAT
industries. For the first group, the structural
change represents change in the share of PAT and
other energy intensive industries in the
manufacturing sector. For the second group, the
structural change refers to changing share of rela-
tively higher energy intensive PAT industries such
as cement, iron and steel as compared to the
others.
EI1 trends
PAT industries along with aggregate manufacturing
sector exhibit consistently declining trends of EI1
with yearly fluctuations during 19731974 to
20112012 (Table 2 and Fig. 1). Aggregate
manufacturing accounts for a decline from 0.082
in 19731974 to 0.02 in 20112012 (76%). The
disaggregated industries exhibit varied range of
decline during the same period: from 84% in fer-
tilizer and pesticide industry to 42% in pulp and
paper industry. The rate of decline is also high in
cement and chemical (without fertilizer and pesti-
cide) industriesboth accounting for 77%. There
are significant gains in terms of reduction in EI1
during the second (19891990 to 19971998) and
third (19981999 to 20112012) sub-periods as
compared to the first one. During the first sub-
period, aluminium, pulp and paper and chemical
(without fertilizer and pesticide) industries actually
experienced increase in EI1 with compound annual
rate of increase being 3%, 1.5% and 0.1% respec-
tively. Further, textile industry experienced an al-
most stagnant EI 1 during the first sub-period
showing no energy efficiency gains. But all of
them showed signs of recovery during the second
sub-period (19891990 to 19971998) and subse-
quently exhibited even higher rates of energy

Table 2 Decline in EI1 indicator in Indian industries

Industry Energy intensity (EI1) Compound annual rate of decline# Total decline
during
197374 198990 199899 201112 Between Between Between 19731974
1973 1989 1199899 to 20112012
and 74 and and 90 and and
198889 199798 201112

Aggregate manufacturing 0.082 0.069 0.053 0.020 1% 3% 7.5% 76%

Aluminium 0.132 0.209 0.168 0.108 3% 2.5% 3.5% 52%
Cement 0.347 0.253 0.150 0.079 2% 5.5% 5% 77%
Chemical (without Fertilizer and 0.173 0.178 0.101 0.039 0.1% 6% 7% 77%
pesticide)
Fertilizer and pesticide 0.153 0.132 0.063 0.025 1% 8% 7% 84%
Iron and steel 0.137 0.095 0.090 0.053 2% 1% 4% 61%
Pulp and paper 0.128 0.161 0.145 0.074 1.5% 1.5 5% 42%
Textile 0.066 0.066 0.047 0.032 0% 4% 3% 52%
#
While positive value implies a decline in EI1, a negative value implies an increase in EI1
Energy Efficiency
0.40
0.35
0.30
Energy Intensity (EI1)
0.25
0.20
0.15
0.10
0.05
0.00
Aggregate Manufacturing
Cement
Fertilizer and Pestiside
Pulp and Paper
Fig. 1 EI1 trends of aggregate manufacturing sector and PAT industries in India (19731974 to 20112012), Source: Annual Survey of
Industries, Ministry of Statistics and Programme Implementation, Government of India, various years
efficiency gain during the third sub-period (1998
1999 to 20112012). This trend is important given
the fact that the industrial policies adopted since
early 1990s encouraged production growth in these
energy intensive manufacturing industries but there
was no thrust on any mandatory energy efficiency
policy per se. Therefore, the declining trend of EI
during the second sub-period clearly suggests that
the massive growth in production in these indus-
tries during the era of economic liberalization was
accompanied by gains in energy efficiency. Gains
in energy efficiency during this period with rela-
tively stable energy prices also have implications
towards uptake of new process technologies (Roy
et al. 2013). Although analysis of the relationship
between the competitiveness and energy efficiency
is beyond the scope of this paper, it shows that
even without specific energy efficiency policy im-
petus during 1990s, industries took actions to re-
duce EI when production increased. This is also
supported by a primary survey-based study by
Chakraborty and Roy (2012) where industries sug-
gested that they had to deploy the options for
energy efficiency to remain competitive in the
market. Therefore, when an energy efficiency
Aluminium
Chemical (without Fertilizer & Pesticide)
Iron and Steel
Textile
policy with mandatory targets and market incen-
tives such as PAT is implemented, it becomes
important to understand whether the policy is able
to generate additional behavioural response in the
industries to enhance the energy efficiency efforts
over and above the historical trend.
EI2 and catching up with the global benchmark
The direction of change in EI1 is also supported by
the trends of EI2 (Table 1 and Fig. 2). The trends of
EI2 show that while aluminium, fertilizer and ce-
ment industries are operating close to their respec-
tive BPEI2008; iron and steel and pulp and paper are
off from the same. We have also estimated the
potential for further improvement in energy intensity
(EEIP) with respect to BPEI2008 and the time frame
within which Indian industries are likely to converge
with the same if the historical trend is maintained.
Table 3 gives an account of these two indicators.
EEIP is found to vary between 59% in paper indus-
tries and 6% in cement industry. Diverse energy
intensity reduction strategies adopted by individual
manufacturing industries underlie such trend. While
some industries adopted significant changes in the
 Energy Efficiency

Aluminium Ammonia (for Fertilizer)

50

GJ/tonne of aluminium
100

GJ/t on of ammonia
40
80
60 30
BPEI2008
70.6 20
40 BPEI2008
20 10 20.9

0 0

1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Cement 50 Iron and Steel
4

GJ/ ton of crude steel

40
GJ/ ton of cement

3
BPEI2008 30
2 2.9
20
1 10 BPEI2008
16.9
0 0

1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014

60 Paper
50
GJ/t of paper (avearge)

40
30
20 BPEI2008
10 22.7
0
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014

Fig. 2 EI2 trends for select energy intensive manufacturing industries in India and their respective BPEIs, based on Table 1

process technology (aluminium, cement), some Aluminium

opted for change in inputs (cement) and fuel switch
(fertilizer) (Table 3). A more detailed industry-wise The EI2 indicator exhibits a decline from 100.2 GJ/ton
analysis is provided in the following sub-sections. of aluminium in 1990 to 83.2 GJ/ton in 2005. If the

Table 3 When can Indian industries catch-up with their respective BPEIs?

Industry EEIP Converges Main drivers for energy intensity decline

(in to
2008) BPEI2008 Change in process technology Change in input and fuel switch

Aluminium 14% By 2015 Replacement of Soderberg process by the energy efficient Pre-
baked process of smelting
Cement (dry 6% By 2015 Shift from wet to dry process of Cement making Started use of wastes like fly ash (from
plants) Within dry process: retrofitting and adoption of energy efficient power plant) and slag (from blast
equipment along with better operational control and furnace) as blending materials
optimization, up-gradation of process control and instrumen-
tation facilities
Fertilizer 9% By 2015 Fuel switch from coke oven gas and
(natural gas- naptha to natural gas as feed-stock
based ammo-
nia)
Iron and steel 38% Beyond Process change gradual decline in the proportion of BF-BOF Use of scrap steel as input
2020 and increase in the proportion of EAF process (the transfor-
mation is not significant
Paper 59% Beyond NA NA
2020
Energy Efficiency
historical trend continued, then EI2 of this industry is
expected to catch up with the BPEI2008 (70.6 GJ/ton)
approximately by 2015 (Fig. 2 and Table 3). The decline
in EI2 in this industry is typically associated with re-
placement of Soderberg process by the energy efficient
pre-baked process of smelting (Fig. 3). This played a
crucial role as more than 80% of energy consumed in
this industry is the secondary source of energy
(electricity) used for smelting (TERI 2006). Although
this industry is relatively close to the external bench-
mark of energy efficiency BPEI2008, 14% EEIP still
exists. There are in fact huge inter-plant variations in
existing technology of aluminium plants in India. EI
within the smelting plants varies from 0.18 to 6.4 GJ/
ton of aluminium (Roy et al. 2013). Also, fuel consumed
in the refinery for alumina production is still very high.
This implies that there is still potential for adoption of
efficient technology in Indian aluminium industry, both
in relatively inefficient smelting plants and in refineries.
The path of technological transition suggests that his-
torically, this industry has experienced energy efficiency
gain through a transformational change in process
technology.
Cement
Energy efficiency of dry cement plants in India has gone
up over the years, and currently, they operate very close to
the best practice technology. Figure 2 shows that the EI2
indicators can easily converge to BPEI2008 by 2015 if the
historical trend continues. The overall improvement in the
average EI of the industry is contributed by significant
transition of process technology from wet to dry process
over the past five decades (Fig. 4). In the 1960s, energy
efficient dry cement plants contributed only 1% to total
production while in 2008, the share went up to 97% (Roy
% contribution to total production
Fig. 3 Process technology
transition in aluminium smelting
in India, Source: TERI 2001,
2004, 2007, 2010
Soderberg
Pre-baked
et al. 2013). Also, energy efficient mini cement plants
came into operation since 1990s in India. Not only was
there a shift in process technology, there was efficiency
gain in the implemented technology (dry cement plants)
as well. The efficiency arose mainly due to retrofitting and
adoption of energy efficient equipment along with better
operational control and optimization, upgradation of pro-
cess control and instrumentation facilities, etc. (CII 2013).
Both production of clinker primarily from limestone and
production of cement form clinker started operating with
high levels of efficiency for the dry plants in India. As a
result, there exists only 6% EEIP in this industry. A low
improvement potential, however, implies that while there
are scopes for further reduction in EI in this industry, the
best that can be achieved through process change alone is
rather limited given the existing technological practice
and knowhow. Here comes the role of diversification of
policies. For a transformational change in energy use
behavior further in this industry, policy focus needs to
be on the direction of recovery, use and management of
waste. There is a high potential of energy use and emis-
sion reduction for the Indian cement plants by increasing
the proportion of blended cement in total production
(reducing the demand for energy intensive clinker) and
by increasing the use of waste such as fly ash and slag as
blending material (Schumacher and Sathaye 1999a). Al-
though there is a steady increase in the proportion of
blended cement and a subsequent increase in the use of
waste material in cement production in the county, huge
untapped potential still exists. In 20082009, cement
plants utilized only 34 million tons out of 130 million
tons of fly-ash generated by coal fired power plants and
approximately 8 million tons out of 13 million tons of
blast furnace slag generated by the steel industry. Full
utilization of fly-ash and blast furnace slag in the cement
industry has the potential of reducing CO2 emission by
100%
80%
60%
40% Soderberg
Pre-baked
20%
0%
1999-00 2002-03 2005-06 2008-09
61% 48% 40% 27%
39% 52% 60% 73%

100%
% contribution to total production
80%
60%
40%
20%
0%
1960
Other 5%
Wet 94%
Dry 1%
Fig. 4 Process technology transition in Indian Cement industry, based on Roy et al. (2013)
33.6 million tons per annum (Parliament of India: Rajya
Sabha 2011).
Fertilizer
India produces both nitrogenous (urea being the most
important one) and phosphate fertilizers with a dominant
share of the former. Production of ammonia itself involves
almost 80% of energy consumption in the manufacturing
processes of a variety of final nitrogen fertilizer products,
and hence, it is one of the key determinants of the overall
energy efficiency of fertilizer production (Patel 2014;
Schumacher and Sathaye 1999b). The average EI of
ammonia production has declined from 48.5 GJ/ton of
ammonia in 1990 to 37.5 GJ/ton in 20072008 (Nand and
Goswami 2008). There was a penetration of energy effi-
cient natural gas-based technology in the industry with
increasing efficiency of the plants. The EI of natural gas-
based plants has declined almost 43% during 19902008
(from 40.2 GJ/ton of ammonia to 23 GJ/ton of ammonia),
and BPEI2008 (20.9 GJ/ton of ammonia) can be achieved
by this industry before 2015 if the historical trend con-
tinues. In practice, urea can be produced using several
feedstocks such as coal, fuel oil, naphtha, natural gas and
coke oven gas among which so far natural gas is the most
efficient one. There has been a steady transition from
carbon intensive coal-based feedstocks like coke oven
gas (contributing 30.3% of total production capacity)
and naphtha (contributing 43.5% of total production ca-
pacity) during 1965 (TERI 2006) to predominantly natu-
ral gas (contribution more than 70% of total production
capacity) in recent years (Chander 2008) (Fig. 5). There
Energy Efficiency
Other
Wet
Dry
1980 1990 2008
8
6% 3% 1%
61% 21% 2%
33% 76% 97%
%
was a huge penetration of natural gas-based technology
since the mid-1980s in the country with gradual retire-
ment of older technologies based on coal, lignite, coke
oven gas and electric power. Percentage share of natural
gas-based processes increased from 10% in 1970 to ap-
proximately 72% in 20072008.
Therefore, energy efficiency gain in this industry has
been guided by the fuel change. It is, however, interesting
to note that coal as feedstock was introduced in the system
during the mid-1970s and stayed operational for only
three decades. Also, during 1960s and 1970s, some am-
monia plants in India used water to produce hydrogen
through the process of electrolysis. In these cases, elec-
tricity used for electrolysis was considered to be feedstock
energy use. This process, however, has now become
obsolete in India. The investments made therefore sup-
ported these very short-term unsustainable technologies in
its transition path. The potential to reduce energy use in
ammonia production through upgradation of existing nat-
ural gas-based plants is rather limited. But replacement of
other feedstock-based plants by natural gas-based plants
would be an important strategy here. However, the avail-
ability of natural gas stands as one of the important
binding constraints for the industry to do so.
Iron and steel
The EI2 indicator declined in iron and steel industry
from 41.9 GJ/ton steel in 1990 to 27.3 in 2008. If the
current rate of decline continues, then the BAT2008
(16.9 GJ/tcs) cannot be achieved by this industry even
within 2020. Similar to the cement industry, the process
Energy Efficiency

100

production capacity
y
90
80
p Fuel oil
o
70
60 Coal
50
% share in p

Lignitte
40
30 Coke oven gas
20
Electrric Power
10
0 Naturral Gas
19965 1970 1975 19800 1985 1990
1 1995 2000 20077-08
Fuel oil 00.0 0.0 0.0 20.1
1 20.5 15.4 14.2 11.5 10.5 htha
Naph
Coal 0
0.0 0.0 0.0 10.2
2 8.0 5.9 5.3 2.9 0.0
Ligniite 122.2 5.2 2.7 0.0 0.0 0.0 0.0 0.0 0.0
Cokee oven gas 300.3 13.3 7.3 1.4 1.1 1.0 1.5 1.5 0.0
Electtric Power 144.0 6.0 3.1 1.7 1.4 1.1 0.0 0.0 0.0
Natu
ural Gas 0
0.0 10.2 13.7 13.4
4 24.8 444.4 50.2 50.7 72.2
Naph
htha 433.5 65.3 73.2 53.1
1 44.1 32.2 28.9 33.4 17.3

Fig. 5 Feedstock use transition in ammonia production in India, based on Chander (2008) and TERI (2006)

transformation in steel making has significant implica-
tions towards energy use and carbon emission. There are
mainly two processes of modern steel making: the pri-
mary route and the secondary route. Blast furnace-basic
oxygen furnace (BF-BOF) process is known as the
primary route of steel production and is extremely ener-
gy intensive because of the production of iron through
blast furnaces. Electric arc furnaces (EAF) are used for
steel making in smaller plants through conversion of a
variety of products into steel. The production of steel
from scrap steel in EAF is by far less energy intensive
because it avoids the energy intensive production of
iron. It uses only 30 to 40% of the energy of the primary
route. In smaller-scale industries, the electric induction
furnace (IF) is also often used instead of the EAF. There
are persisting problems in the capital cost intensive older
BF-BOF plants set up in the 1960s and 1970s with non-
indigenous technologies which have gradually become
outdated. However, this conventional route still domi-
nates steel production in India given the technology
lock-in and slow penetration of alternative energy effi-
cient and less emitting process technologies (Fig. 6). IFs
were first introduced in India in the mid-1960s, but it
took 15 more years before indigenous manufacturing
began and actual penetration took place. Since 1990s,
due to the rapid growth in steel demand as well as
governmental policies, the share of non-blast furnace
routes increased. The rate of capacity utilization in steel
making units with non-blast furnace routes, however,
remained lower than integrated steel plants operating
through the BF-BOF route (GOI 2011). This calls for a
need to induce/stimulate technology deployment at a
much faster pace as compared to the historical rate in
this sector.
Pulp and paper
This is one of the energy intensive manufacturing in-
dustries in India that primarily uses forest and agro-
based material. There are 30 large integrated paper mills
accounting for about 31% of production and using
wood-based/bamboo-based pulp. One hundred and fifty
mills, contributing 22% of production, use agro-based
(bagasse and straws) raw material, and the remaining
473 mills, accounting for 47% of production, use
recycled fiber or waste paper for paper production.
Hence, both energy and material efficiency are crucially
important in this industry. The nature of EI for this
industry varies depending upon the final product as
almost 65% of the total energy is consumed in the
process of recovery which is contingent upon the type
of paper. The rest of the energy is consumed in pulping
(26%) and bleaching (7%). Figure 7 depicts trends of
energy intensity decline for various types of papers.

While the decline of EI is most visible in case of news-
prints, there is hardly any improvement for kraft papers.
Although in all types of final papers (writing and
printing paper, newsprint, paper and paper board
etc.), there was significant decline in EI, they are
yet to catch up with the BPEI for each of the
categories (Reddy and Ray 2011). The technological
gap, in fact, is so high that if the historical rate of
decline continues, then in none of the categories will
the Indian paper industries be able to achieve
BPEI2008 in the coming decades. As a result, the
EEIP for production of paper is found to be as high
as 59%. Further investigation showed that it is in
fact hard for the Indian paper mills to catch up with
the global best practice technology. Because the best
practices are achieved in bigger mills and it is hard
to scale those technologies down to suit the Indian
mills profitably (CSE 2010b; Reddy and Ray 2011),
more than 80% of running plants in India are small
and of the capacity of less than 60 tons of paper per
day and only 11% can produce more than 100 tons
per day (GOI 2009). This means that the average
capacity of an Indian paper mill is less than one-
seventh of a European paper mill and one-fifteenth
of an average paper mill in the USA (CSE 2010b).
So, it might be more meaningful not to target a
catch up with global best practice but to target
customized innovation to improve the energy effi-
ciency for the existing units.
100%
% share in production capacity
80%
60%
40%
20%
0%
2004 2005
Induction furnace 27.1% 29.0%
Electric Arc Furnace 16.3% 18.9%
Basic Oxygen Furnace 56.6% 52.1%
Fig. 6 Process technology transition in iron and steel industry in India, based on Roy et al. (2013)
Energy Efficiency
Decomposition of energy demand
While EI trends of Indian manufacturing industries (both
EI1 and EI2) exhibit steady decline with potential for
further improvements, the question still remains to what
extent such trend has contributed to decoupling of energy
demand from industrial activity growth. Contributions of
activity effect (AE), structural effect (SE) and EI effect
(IE) with respect to the total change in energy demand
(TE) are depicted in Figs. 8 and 10 for aggregate
manufacturing and PAT industries, respectively.
Figures corresponding to AE in panels A, B and C of
Fig. 8 are 114%, 173% and 297%, respectively. These
percentages are subject to interpretation. In all the figures,
AE, SE and IE will always add up to 100%. So, net
increase in energy demand due to combined impact of
AE, SE and IE is denoted by 100%. Given this,
AE = 114% (panel A, Fig. 8) will imply that had activity
been the only driver causing changes in energy demand,
with no change in structure or energy intensity, increase in
energy demand would have been 114% instead of 100%
during 19731974 to 19881989. This implies that 14%
of energy demand out of 114%, caused by increase in
activity, has been neutralized by structural effect and
energy intensity effect. Further, the figure (panel A,
Fig. 8) shows, out of this 14%, 4% reduction in caused
by structural effect, i.e. decrease in the share of high
energy intensive industries within the manufacturing sec-
tor and 10% reduction in caused by gains in energy
Induction furnace
Electric Arc Furnace
Basic Oxygen Furnace
2006 2007 2008 2009 2010
29.0% 30.3% 31.4% 31.0% 32.0%
18.4% 19.7% 20.3% 24.0% 24.0%
52.6% 50.0% 48.3% 45.0% 44.0%
Energy Efficiency

100.0

80.0
Energy consumption in GJ/ton

60.0

1991-95
1996-00
40.0 2000-05

20.0

0.0
Writing and printing Paper and paperboards Newsprint Kraft paper
paper
Fig. 7 Energy intensity transition in various paper products in India, based on Table 1

intensity. Therefore, the estimates suggest that had there sub-periods, respectively. The corresponding figures for
been no structural change and no energy efficiency im- PAT industries are 1, 105 and 103% (represented in the
provements, energy demand of the aggregate manufactur- figure by AE = 101, 205 and 203% in Fig. 10).
ing would have increased by 14, 73 and 197% more of The manufacturing activity has been growing over past
actual increase (represented in the figure by AE = 114, decades in India. During the first sub-period (19731974
173 and 197%, respectively, in Fig. 8) during the three to 19881989), only a small portion of increase in energy

A B C
300%

250%
Activity effect, structural effect and EI effect

200%
2%
150% 297%

100%
114% 173%
50%

0% -4%
-10% -24%
-75%
-50%

-100%
-173%
-150%

-200%
1973-74 -1988-89 1889-90 - 1997-98 1998-99 - 2011-12

Energy Intensity Effect Structural Effect Activity Effect

Fig. 8 Decomposition of increase in energy use in aggregate manufacturing sector in India
 Energy Efficiency

demand caused by such activity growth was neutralized
by energy efficiency gains (panel A in Figs. 9 and 11,
respectively). This period witnessed negligible decline in
EI resulting in coupled growth of activity and energy use
in aggregate manufacturing sectors as well as in PAT
industries. It is also evident from the IE trend line remain-
ing close to the horizontal axis and AE trend line over-
lapping TE trend line in panel A in Figs. 9 and 11. During
this period, while only a small part (4%) of the activity
effect was neutralized by structural effect in the aggregate
manufacturing sector, in case of PAT industries, the struc-
tural effect led energy demand to further grow by 10%.
However, the second sub-period (19881989 to
19971998) marked significant change in the scenario.
This period witnessed a much higher rate of decline of
EI, especially after 19911992. As a result, the process
of decoupling of activity growth from energy demand
became visible for both aggregate manufacturing sector
and PAT industries. Energy intensity effect neutralized
75 and 102% of energy demand caused by activity
growth for these two sets of industries, respectively.
This is also reflected in a gradual downward shift in
the IE trend line off the horizontal axis and divergence
between the TE and AE trend lines (panel B in Figs. 9
and 11). The structural effect marginally contributed to
the change in energy demand in both the groups during
this period.
The trend of decoupling is more evident during the
third sub-period (19981999 to 20112012) with
emerging energy and climate policy regime in the coun-
try. To note, the slowdown in the trend in industrial
activity during 20082009 coincides with the period of
global recession. During this sub-period, there is signif-
icant divergence between activity growth and growth in
energy demand with faster decline in EI. While in ag-
gregate manufacturing sector, the EI effect was able to
neutralize a portion as high as 173% of actual increase,
the figure is 112% for PAT industries. Moreover, during
this period, the structure of the aggregate manufacturing
also shifted in favor of non-energy intensive industries
contributing to further neutralization of energy demand.
It neutralized energy demand generated from activity
growth to the extent of 24% of actual increase in aggre-
gate manufacturing sector (panel C in Fig. 8). Although
structural effect moved in the similar direction for the
PAT industries as well, the contribution remained much
lower (panel C in Figs. 10 and 11). This is expected
because PAT industries by definition are all energy
intensive industries, and structural change within the
group is relatively less important from any policy per-
spective. What is more interesting is that the EI effect in
case of PAT industries (which are more energy inten-
sive) is lower as compared to the aggregate
manufacturing.

25
A B C
Change in energy demand and the contribution of activity,

20

15
structural and energy intensity effect

10

-5

-10

-15
Year

Energy Intensity Effect (EI) Structural Effect (SE)

Activity Effect (AE) Total Change in Energy Demand (TE)

Fig. 9 Decomposition trend of increase in energy use in aggregate manufacturing sector in India
Energy Efficiency

250%
A B C
Activity effect, structural effect and EI effect 200% 9%

150%

100% 10% 205% 203%

50% 101%

0%
-11% -3%

-50% - 102% - 112%

-100%

-150%
1973-74 -1988-89 1989-90 - 1997-98 1998-99 - 2011-12

Energy Intensity Effect Structural Effect Activity Effect

Fig. 10 Decomposition of increase in energy use in PAT industries

Conclusion become faster in recent years. This trend enabled the

industries to approach the global best practice. However,
In India, over the past four decades, there have been there is variation across individual industries. While
improvements in EI indicators in the aggregate aluminium, cement and fertilizer are operating very
manufacturing as well as in the individual energy inten- close to their respective global best practices, iron and
sive industries. The energy efficiency gains have steel and pulp and paper are lagging behind. It can be

10 A B C
Change in energy demand and the contribution of activity,

8
structural and energy intensity effect

-2

-4

-6
Year

Energy Intensity Effect (IE) Structural Effect (SE)

Activity Effect (AE) Total Change in Energy Demand (TE)
Fig. 11 Decomposition trend of increase in energy use in PAT industries

observed that the decline in EI is associated with two
stages of change: first, a transformational shift from a
less efficient process technology/fuel use to a more
efficient one and second, the incremental efficiency gain
of this adopted technology/fuel. Once the transforma-
tional shift has been attained, catching up with the
global best practice benchmarks becomes a matter of
time in most of the cases. It can be noticed that alumin-
ium (from Soderberg to pre-baked), cement (from wet to
dry cement plant) and fertilizer (from coal based to
natural gas-based ammonia production) industries have
gone through such transformational shifts during the
past decades. Among the rest, while iron and steel is
gradually adopting more efficient EAF, COREX pro-
cess technologies, pulp and paper industry with very
different technological requirements in presence of
small units need special attention for local innovations.
Operating close to the external benchmarks inherent-
ly implies that there is limited scope to achieve further
energy efficiency given existing technological
knowhow. For the industries operating close to the
external benchmark, the question that immediately fol-
lows is how they can manage their energy use more
efficiently, even they met the world benchmark. The
process transition paths of these industries give useful
insights regarding the choice of appropriate policy in
this regard. In case of aluminium industry, while the EI
is very close to the external benchmark , this industry
operates with huge inter-plant variations. Therefore,
mandatory energy efficiency policies such as PAT en-
couraging the industrial units to achieve the internal
benchmark can play a crucial role here. On the other
hand, the transition pathway of cement industry clearly
indicates that policy has an important role to play when
energy efficiency potential lies beyond process
upgradation. There is a clear need for comprehensive
policy guidelines on how this industry can realize and
achieve further energy efficiency through recovery, use
and management of waste which can contribute to the
goal of reduction of energy demand.
The decomposition results show that both in case of
aggregate manufacturing and PAT industries, declining
EI was the major driving factor that neutralized a sig-
nificant portion of energy demand growth resulting from
growth in industrial activity. With stronger declining
trend of EI during recent years, the strength of
decoupling has also been enhanced. However, in the
historical trend, it is not enough to offset the entire
activity growth effect. Given this background, it will
Energy Efficiency
be interesting to observe how the mandatory energy
efficiency policy PAT can contribute in enhanced energy
efficiency gains in these industries to reinforce the
decoupling trend. This can in fact lead to a very inter-
esting future research.
Finally, there was no significant contribution of struc-
tural change to reduce energy demand only except some
for the aggregate manufacturing sector during the recent
years. To reduce total energy demand further in India,
policies need to go beyond targeting EI alone. It requires
planned structural shift within manufacturing sector,
behaviourial change leading to substitution of high en-
ergy intensive commodities produced by the
manufacturing sector by low energy intensive commod-
ities, new innovation for manufacturing products with
longer service life, etc.
Acknowledgments Authors duly acknowledge the anonymous
reviewers for their valuable comments that helped in improving
the paper. Authors acknowledge the active cooperation and timely
data support of the Computer Center, Central Statistical Organiza-
tion (CSO), Ministry of Statistics and Programme Implementation,
Government of India. Shyamasree Dasgupta acknowledges the
fellowship grant of Sasakawa Young Leaders Fellowship Fund
(SYLFF) during her doctoral research. Joyashree Roy acknowl-
edges Indian Council for Social Science Research.
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