Pattern of Inter-Fuel Substitution in Energy Intensive Manufacturing Industries in India ( )

Transcription

1 40 th IAEE International Conference June, 2017 Singapore Pattern of Inter-Fuel Substitution in Energy Intensive Manufacturing Industries in India ( ) Shyamasree Dasgupta Shivam Satija Prateek Gauba Indian Institute of Technology Mandi, India 1

2 Motivation 2008 Indian launced National Action Plan on Climate Change Perform Achieve and Trade (PAT) as an energy efficiency policy Aluminium, Cement, Chlor Alkali, Iron and Steel, Fertilizer, Pulp and paper, Textile Dasgupta and Roy (2015): Technological progress and change in input price shaped the energy demand behaviour of these sectors during pre-pat era. However, considered energy to be an aggregate intermediate input Build on the previous work to explore the responses of these industries to changes in disaggregated fuel price and the pattern of inter-fuel substitution during

3 Research question What is the possibility of inter-fuel substitution in these energy intensive manufacturing industries as triggered by the change in fuel price? Important region-specific parameters for partial and general equilibrium models and integrated assessment models of climate change Extensive use in studies related to rebound effects Can we really assume that the cross price elasticises are symmetric? 3

4 Analytical Framework Well behaved production function weakly separable in energy and other factors of production and hence, a well behaved dual cost function weakly separable in factor prices: Given weak separability, a separate energy cost as a function of multiple fuel prices can be used to replace The energy sub-model is estimated with Translog specifications 5

5 Using Shephard s Lemma (assume fuel prices are exogenously determined through a competitive fuel market) Stochastic model: Error specification (Seemingly Unrelated Regression Equations) 6

6 Measures of elasticity Allen elasticity of substitution (AESij) and price elasticity (Eij) Morishima partial elasticity of substitution (MESij) MES leans more towards substitutability assuming Ejj<0, MaFadden s shadow elasticity of substitution (SESij) McFadden s elasticity parameters are in conformity with AES. For details, see full paper. 7

7 Data Annual Survey of Industries MoSPI, Government of India Seven energy intensive manufacturing industries Fuel: Coal, petroleum, electricity, other (natural gas, coke oven gas, biogas, fuel-wood, wood residues and by-products, charcoal and baggase) Table 1: Industry codes under National Industrial Classifications in India Years (NIC) Nonferrous metal Cement Chemical (W/o fertilizer & pesticide) Fertilizer & Pesticide Iron & Steel Pulp & Paper Textile

8 Selected results and discussion 9

9 Figure 1: Cost shares 100% 80% 60% 40% 20% 0% Non-ferrous metal Cement Chemical Fertilizer & Pesticide Iron & Steel Pulp & Paper Textile Other fuel Petroleum Electricity Coal 10

10 Table 1: Own price elasticity Nonferrous metal Cement Chemical Fertilizer & pesticide Iron & Steel Pulp & Paper Textile Coal Electricity Petro Other fuel

11 Table 2 : AES based inter-fuel substitution Non-ferrous metal Cement Chemical Fertilizer & pesticide Iron & Steel Pulp & Paper Textile C-E C- P C-O E-P E-O P-O

12 Table 3: MES based inter-fuel substitution Non-ferrous metal Cement Chemical Fertilizer & Pesticide Iron &Steel Pulp &Paper Textile C-E E-C C-P P-C C-O O-C E-P P-E E-O O-E P-O O-P

13 Three key findings Electricity is mostly found to be a substitute of coal and petroleum. Mitigation efforts from the industrial sector (energy demand sector) will be partly contingent upon the transition of the energy supply sector in the country. Generally low values of cross price elasticity estimates If technology remains the same, price policies will remain insufficient to trigger behavioural response towards fuel substitution in this set of manufacturing industries in India. Asymmetry in response to each others price change Coal cess or biogas incentive? Since it may not be feasible to have diversified price policies for different industries for a single fuel, a policy maker must take into consideration the aggregate effect. 14

14 Thank you! Shyamasree Dasgupta Assistant Professor School of Humanities and Social Sciences Indian Institute of Technology, Mandi Himachal Pradesh, , India