Decomposition of Energy Consumption and Energy Intensity in Indian Manufacturing Industries

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1 WP Decomposion of Energy Consumpion and Energy Inensy in Indian Manufacuring Indusries Binay Kumar Ray and B.Sudhakara Reddy Indira Gandhi Insue of Developmen Research, Mumbai December 2007

2 Decomposion of Energy Consumpion and Energy Inensy in Indian Manufacuring Indusries Binay Kumar Ray and B.Sudhakara Reddy Indira Gandhi Insue of Developmen Research (IGIDR) General Arun Kumar Vaidya Marg Goregaon (E), Mumbai , INDIA (corresponding auhor): Absrac Of he oal final energy consumpion in India, he indusrial secor accouns for abou 37 percen, of which he manufacuring secor consumes abou 66 percen ( figures) wh chemicals and perochemicals, iron and seel, pulp and paper and cemen indusries being he larges energy users. In he recen pas, energy inensy in he manufacuring secor has been decreasing. This decline is mainly due o fuel subsuion away from coal in some of he secors, mos noably cemen. While indusrial producion in developed counries sabilizes and declines, he indusrial oupu in he developing world coninues o expand owing o rising populaions and caching up on economic growh. This can resul in higher energy use energy provided primarily by he combusion of fossil fuels and hereby higher carbon-dioxide (CO 2 ) emissions. Using he decomposion analysis we show ha mos of he inensy reducions are driven purely by srucural effec raher han energy inensy. 2

3 Decomposion of Energy Consumpion and Energy Inensy in Indian Manufacuring Indusries Binay Kumar Ray and B.Sudhakara Reddy 1. INTRODUCTION The oil crisis of 1970s has joled he globe and led policymakers o bring he energy quesion back on able. Global discussion gained furher momenum following he Kyoo conference. Since hen, a quanaive assessmen of facors ha conribues o changes in energy consumpion has become imporan. I helps in undersanding he pas rends in energy use for measuring he effeciveness of energy-relaed policies, o forecas fuure energy demand and carbon emissions and o improve he overall efficiency of energy use (Park, 1992 and Farla e al. 1996). The hree main facors ha play a significan role in affecing he level of energy consumpion in an economy are: he level of overall acivy or producion, he composion or srucure of he economy, and he oupu or acivy per un of energy consumed (Nooji e al, 2003). Since he indusrial secor is a major consumer of energy, improvemens in s service/ acivy/oupu are imporan o enhance producivy and reduce environmenal impacs. In his regard, energy inensy indicaors play a significan role o sudy he rend and he changes in he acivy/oupu levels. In India, he indusrial secor conribues abou 30 percen of gross domesic produc (GDP) (manufacuring accouning for 80 percen) and consumes abou 35 percen of oal energy. In he indusrial secor, energy inensy, i.e., energy/power coss per value added, and energy efficiency, i.e., energy consumpion per un of goods produced is he indicaor of energy-inensy levels. Toal energy consumed in a secor, for example, is a produc of energy inensy per un of oupu and he oal amoun of oupu provided. Energy inensy is hough o be inversely relaed o efficiency, he less energy required o produce a un of oupu or service, he greaer he efficiency. A logical conclusion, hen, is ha declining energy inensies over ime may be indicaors of improvemens in energy efficiencies. The CO 2 emission is anoher ho issue in oday s world due o change in he concenraion of CO 2 in he amosphere where he concenraion of CO2 is rising every year a he rae of 0.5 percenage per year and he main effec of anhropogenic emission of CO2 comes from combusion of fossil fuel for energy. The World Bank poins ou ha CO2 emission level of 26.9 billion ones of CO 2 in he year 2004 is a significan increase from 21.2 in 1990 showing an annual increase of 1.7 percen 3

4 (Lle Green Daa Book 2007). In India CO2 emissions increased by 57% from 1990 (1.06 billion onnes) o 1998, accouning for 4.4 percen of world s share. Similarly for China an increase of 73% in CO2 emissions beween 1990 and Even hough India and China are on fas growh pah as for as CO2 emissions are concerned boh he counries are sill very low on per capa erms. On an average, India and China em 6 and 16% of he emissions of USA and are very low compared o he developed world (Lle Green Daa Book 2007). The per capa emission levels for India and China increased from 0.8 o 1.2 and 2.1 o 3.2, respecively beween 1990 and 2003 (World Bank, 2003). In many cases, echnologies and processes use a lo more energy han he heoreical minimum energy requiremen. Major energy-inensive indusries in India, are: iron and seel, chemicals, exiles, aluminum, ferilizers, cemen, paper and non-ferrous meals. Whin he indusrial secor, he main end-uses of energy are: moors (47 percen), elecrical heaing/ meling (28 percen), air compression (10 percen) and lighing (4 percen). Indusrial energy inensy is affeced by a number of facors: echnology design, age and sophisicaion of equip-men, mechanical and chemical consrains, and exernal facors such as operaing environmen, mainenance and repair pracices. These facors can be grouped under wo broad groups, srucural and economic change. The quesion ha arises hen is how hese wo changes have affeced energy inensy in India. To dae, no sudies have examined his dimension of energy use in India hus leaving a gap in India s energy leraure. The decomposion of he overall change ino hese wo caegories can provide policymakers wh he informaion needed o design appropriae sraegies for reducion in energy use while helping o migae he environmenal impacs of indusrial energy use. In he ligh of his, his sudy examines he usefulness of energy-inensy indicaors as policy ools in he conex of issues relaed o he efficiency of India s indusrial secor. The challenge is o reduce global GHG emissions whou affecing he required energy services. 2. ENERGY INTENSITY AND DECOMPOSITION STUDIES: LITERATURE OVERVIEW One of he index mehods available o compare and decompose energy consumpion and energy inensy is he Divisia index model (Difference and raio). This sudy uilizes an exising mehodology, oal differeniaion model, o calculae he changes. Choi and Ang 4

5 (2003) have proved ha here is symmery beween raios mehod and differences mehod of decomposion analysis. Thus, wh proper choice of formula raios and differences, which consue decomposion, hese wo alernaives can be used almos inerchangeably. Reddy (1998) used his approach o decompose Fiji s energy inensy change ino hese wo caegories. Jing e al. (1990), Boyd e al.(1988), Park e al. (1992) and Lin and Chang (1996) have also applied he decomposion mehod. Rose and Caser (1996) have summarized various ypes of decomposion mehods According o De Bruyn (2000), if he inpu and oupu daa were no available, hen one can use some index numbers for decomposion. In all hese sudies, residual erm is considered as zero. Ang and Lee (1994) observe ha a major par of he observed changes in he energy consumpion being decomposed is lef unexplained. This means ha he residuals give large esimaion error in he decomposion analysis. Park (1992) has shown ha he srucural effec, calculaed as a residual by he RRS (developed by Reler, Rudolph and Schaefer) raises a number of logical quesions. Firs, he RRS mehod akes he mean value of he variable in quesion beween he base period and he end period. Like he ne effec, srucural change on indusrial energy consumpion beween any wo periods can be isolaed by measuring a change in energy consumpion associaed wh a change in he indusrial composion during he period. This can be done while holding all oher variables of he base period consan a heir inial values (energy inensies of he individual indusry branches and oal indusrial oupu in his case). Similarly, separae indusrial oupu effec can be measured by allowing he indusrial oupu o change, while he values of oher variables are kep consan a heir inial values. In shor, RRS mehod may relae more closely o his ceeris paribus change concep. Second, and more imporanly, he RRS mehod failed o inroduce srucural change explicly as a variable in he equaion. As a resul, he RRS mehod may yield esimaes a variance wh hose obained from a mehod ha incorporaes he srucural change variable. Hence he srucural effec calculaed as a residual by he RRS mehod conains more han he effec of srucural change (including he join effecs of oher variables.). Sun (1998) has used a complee decomposion model where residuals are decomposed by he joinly creaed and equally disribued rule and compared he resuls wh he general decomposion modeling. In he analysis we use he Sun mehod (see he decomposions equaion) of oal decomposion analysis. Bhaacharya and Paul (2001) used he oal decomposion approach on energy consumpion and energy inensy a secoral level (agriculure, indusry, ranspor, ohers). They have shown ha he inensy effec conribues significanly o energy conservaion. However, hey have no disaggregaed he analysis a indusry level and for CO2 emissions and CO2 inensy. Bu in his sudy we 5

6 decompose he energy consumpion, energy inensy, CO2 emission and CO2 inensy a indusry level over he years. The paper follows he boom-up approach o aggregae he energy consumpion, inensy, and emissions from micro level daa o macro level (more deails in daa secion). Tha means he daa represened in his paper are aken from demand side consumpion insead of he supply side. In his sudy, we firs analyze he energy consumpion of he Indian indusry and assess he increases in energy use ha come wh growh in oupu, and he environmenal impacs ha accompany he increase in fuel consumpion. This informaion has been used o develop deailed energy as well as carbon inensy indicaors for he mos energy-inensive indusries, viz., iron and seel, aluminum, copper, exile, pulp and paper, cemen, and ferilizer for he years Through he use of hese indicaors, he governmens may be able o idenify which indusries need o be argeed for improving energy efficiency levels. The rends in carbon inensy, and he major facors ha affec (srucural and economic changes), can provide climae change policy-makers wh he informaion needed o se CO2 arges for various indusries, as well as design appropriae CO2 abaemen sraegies. Hence, hese serve no jus as monoring ools, bu also as a basis for energy efficiency policies and regulaions aimed a achieving greaer energy conservaion. As a resul, hese indicaors, paricularly cross-counry comparisons of hem, are increasingly being oued as very useful and necessary insrumens for policy-making. Finally, measuring changes in energy inensy can provide policy-makers wh he informaion needed o design appropriae energy conservaion sraegies. 3. METHODOLOGY OF THE STUDY The approach adoped in his sudy is o esimae and evaluae economic energy inensy indicaors using decomposion analysis a indusry level. The analysis uilizes an empirical mehod, as explained in he leraure review, o examine he facors (srucural, acivy or echnological changes) ha play a significan role in reducing he energy consumpion and inensy wh respec o he oupu value. The concep of indusrial energy inensy denoes he amoun of energy required o produce one un of oupu. Comparisons of energy inensies among indusry or counries or agains bes pracices benchmark can indicae opporunies for improvemens in energy and process efficiencies. Two basic 6

7 approaches are used o express indusrial energy inensy per un of physical produc and per un of economic oupu. When oupu is measured in physical uns, an esimae of physical energy inensy is obained (e.g., PJ/onne). Economic energy inensy, on he oher hand, is calculaed using moneary value of oupu measures (e.g., PJ/Rs.billion). However, is no possible o develop an aggregae measure of energy inensy when numerous oupus/services are produced by various caegories of indusries. Even if he oupu produced by a sub-secor is he same (like onnes, for example), he energy-consumpion process o obain ha oupu is very differen. Hence, for he presen sudy we used economic oupu indicaor o measure he inensy. To develop economic inensy indicaors, energy consumpion and physical producion daa for various caegories of indusries are obained for he period All he daa have been colleced a firm and specific energy consumpion level. The daa have been colleced from secondary sources Cener for Monoring Indian Economy (CMIE) (Prowess) and energy profiles published by. Foureen ypes of manufacuring indusries have been seleced ha include: (1) chemical indusries (ferilizer, inorganic chemicals, organic chemicals, pesicide, cosmeics, plasic produc, polymers, yre and ube), (2) beverages and obacco, (3) food producs, (4) machinery, (5) aluminum and aluminum producs, (6) copper and copper producs, (7) iron and seel, (8) mining, (9) cemen, (10) oher non-meallic and mineral producs, (11) paper and paper producs, (12) services, (13) exiles, and (14) ranspor equipmen. The indusries and sub-indusries included in he analysis are deermined solely by he availabily and qualy of daa. The daa have been aggregaed ino four ypes of energy carriers (i) coal (ii) elecricy (iii) peroleum producs and (iv) gaseous producs. The firm-level oal energy consumpion is done by sum produc of all specific energy wh corresponding energy conversion value. The energy consumpion daa have been aggregaed from firm level and hen a laer indusry level by adding all firm energy consumpion of he given indusry. Similarly he CO2 emission is calculaed by muliplicaion wh emission facor. The used emission facor daa is based on energy ypes only and we have no aken ino consideraion he emission arising ou of process. The energy consumpion daa consiss of he following ypes of energy: Coal is he aggregae of bagasse, coal, coal and ligne, coke, and firewood from differen energy uns (ones, million kcal, kg) o same un in mega joules Elecricy is he aggregae of elecricy purchased - GWh 7

8 Peroleum and gaseous produc s are he aggregae of fuel oil, furnace oil, High speed diesel (HSD) and ligh diesel oil (LDO), Low sulphur heavy sock (LSHS), ligne, and ohers (inernal generaion, peroleum coke, diesel) from differen energy uns (kls, ones GWh ) o same un in mega joules The daa aken here are a micro level and are more reliable han macro level because very ofen he macro level daa are aken from supply side of he energy of a secor and is no a rue represenaive of he acual consumpion level a firm and indusry level (leakage, socking ec). 4. TOTAL DECOMPOSITION ANALYSIS MODEL The approach applied for decomposing change in oal energy consumpion and energy inensy in manufacuring secor in Indian indusry beween periods ( ) is a simple oal differenial mehod. In his echnique, he residual obained is due o join effec (combinaion of wo and hree effecs) disribued equally among he oupu effec, inensy and srucural effec. The manufacuring secor energy inensy and produc mix effec are aken as major componens for decomposion of he manufacuring secor change in energy inensy. Decomposions of oal energy consumpion and oal Carbon emission are given as: E E E = = = m i = 1 m i = 1 m i = 1 E e n j = 1. α P E. P ij. m P i = 1 P m i = 1 P Where E P = Energy cosumpion or Carbon emission by h indusry a ime = Toal value of oupu in h indusry a ime P = Toal value of oupu a ime e = Energy inensy or Carbon inensy of h indusries a ime α = Shares of value of oupu for h indusries a imes J denoes he ypes of energy 8

9 The oal decomposion in differen facors can be given as Δ E Δe ΔO ΔST = Δ O = m effec Δe + Δ e effec + Δ ST effec (( P. α ) + 1 / 2( ΔP. α + P. Δα ) + 1 / 3( ΔP. Δα )) effec, i = 1 = m ΔP (( e. α ) + 1 / 2( Δe. α + e. Δα ) + 1 / 3( Δe. Δα )) Δα (( P. e ) + 1 / 2( ΔP. e + P. Δe ) + 1 / 3( ΔP. Δe )) effec, i = 1 = m effec, i = 1 Where Δ Change in energy consumpion or Carbon emission due o oupu effec O effec, Δe, effec ΔST effec, ΔE Change in energy consumpion or Carbon emission due o energy inensy effec Change in energy consumpion or Carbon emission due o srucural effec Change in oal consumpion Decomposion of Energy inensy and Carbon Inensy: e = m n i = 1 j = 1 E P ij e = m i = 1 n j = 1 P E ij m P. = m e. α i = 1 P i = 1 The manufacuring secor energy inensy and produc mix effec are aken as major componens for decomposion of he manufacuring secor change in energy inensy. Taking oal differeniaion of previous inensy equaion w.r. ime Δ e oal = Δ e TMPeffec + Δ e STeffec Δ Δ e e TMPeffec STeffec = = i = 1 m m i = 1 Δ Δ e α ( α ( e / / 2 2 ( ( Δ Δ α e )) )) where Δe TMPeffec Change due o echnology managemen and pracice effec a ime 9

10 Δe STeffec Δe oal Change due o srucural effec a ime Change in oal Energy inensy a ime 5. PATTERN OF ENERGY CONSUMPTION AND OUTPUT IN INDIAN INDUSTRY 5.1 Energy use In India, beween and , he primary energy consumpion has increased from 6,274 o 18,668 PJ, a a compound growh rae of 3.7 percen per annum (Table1). The increase in primary energy consumpion is abou half of commercial energy use (4.66 percen per annum compounded). Toal commercial energy consumpion increases seadily a abou 3.65 percen per annum. The reasons for he growh of commercial energy more han he primary energy can be explained by he following facors: (i) subsuion of non-commercial energy wh commercial energy (ii) increase in commercial energy use due o changing life syles (Sudhakara Reddy, 2005). The share of commercial energy in he oal energy consumpion is increasing a he rae of 1.05 percen per annum. Table 1: Toal Primary and commercial energy consumpion in India ( ) (PJ) Energy use Year Annual growh rae (percen) Primary energy consumpion Commercial energy consumpion Percen Shares - commercial Toal Commercial energy Consumpion by indusry Indusry share in oal commercial energy Consumpion Source:: Cenre for Monoring Indian Economy Repors The share of commercial energy use in indusry is more han any oher secor followed by ranspor, household, agriculure and commercial secors (Table 2). There is a significan change in he energy use among various secors. Each secor displays an increase in energy consumpion beween 1960 and While household and agriculure use increased by 5.30 and 8.29 percen, respecively, indusrial and ranspor energy consumpion acually decreased by 4.25 and 3.39 percen, respecively. Even hough indusry is he main consumer of commercial energy, s share in he oal decreased a he rae of one percen per annum. The reasons for his are changes in he per-capa consumpion of goods and services, shif in he 10

11 disribuion of producion of indusrial goods and changes in indusrial economic efficiency and energy inensy. Table2: Secor wise energy consumpion in India (PJ) Secor Year Annual growh rae ( percen) Indusry 685(41.3) 1235(49.6) 1418(41.2) 2609(38.8) 3596(36.3) 4.25 Transpor 664(40.2) 701(28.2) 943(27.4) 1473(21.9) 2501( Household 160(9.7) 304(12.2) 389(11.3) 878(13.1) 1248(12.6) 5.30 Agriculure 27(1.6) 67(2.7) 253(7.4) 610(9.1) 625(6.3) 8.29 Oher 116(7.0) 181(7.3) 437(12.7) 1153(17.2) 1941(19.6) 7.32 Toal Source: CMIE, 2005 Noe: Figures in parenheses represen percenages In he indusrial secor, coal has he highes share among all fuels (Table 3). Alhough consumpion increased over he sudy period, coal los fuel share o naural gas. Wh a compound growh rae of 15.6 percen per year, gas increased s share of oal energy from 2.7 percen in 1980 o 19.3 percen in The consumpion of peroleum producs which includes diesel, ligh fuel oil, heavy fuel oil, peroleum coke, ec., has been around 22 percen and ha of elecricy around 12 percen. Manufacuring secor is he larges consumer of energy in he indusrial secor which includes iron and seel, pulp and paper, non-meallic minerals, non-ferrous meals, chemical and perochemical, food and obacco, exile and leaher, machineries as well as oher manufacuring indusries. Alhough energy is used in he indusrial secor o produce variey producs, here are a few major sub-secors which use a sizable share of he secor s overall energy demand. They include: chemicals and perochemicals, iron and seel, pulp and paper and cemen. In he manufacuring secor, hea producion is one of he mos imporan uses for energy. For end uses such as heaing, reaing, meling and smeling, and cemen calcinaions, direc hea and seam are used. Oher imporan end uses are machine drive and elecrolyic processing. There are oher uses such as venilaion, air-condioning, lighing of indusrial facilies and on-se ranspor. Variaions in energy use in indusrial secor resul from echnical and process changes ha affec indusrial secor acivy, energy use, and emissions. Changes are made in he fuel ypes used by indusries in response o change in 11

12 echnologies, economic suaions, or environmenal regulaions. For he presen sudy, we analyze 13 sub-secors ha include iron and seel, chemicals, pulp and paper, cemen, ec. accouning for abou 66 percen oal indusrial energy use in Table 3: Uilisaion of various energy carriers in Indusry - PJ ( ) Year Coal Share (%) Elecricy Share (%) Pero. Prod. Share (%) Gas Share (%) Toal Source : CMIE, 2005 Table 4 shows he disaggregae consumpion in oal manufacuring by each caegory. During , oal indusrial consumpion has increased by 4.76 percen per annum. This is largely due o increase in exiles, chemicals and paper 20, 8.5, and 6.9 percen, respecively. The larges percen increase per annum in energy consumpion is in exiles, jumping 20 percen since 1992 because he indusry shifed from manpower and mechanical use o energy and auomaion. Iron and seel, and cemen show declining share in oal energy consumpion in he year 2002 compared o 1992 by 13 and 4 percen, respecively. Oher manufacuring secor which includes services, elecronic and elecommunicaion, consrucion, plasic, shipping, film, food, leaher, apparel, gem and jeweler, cosmeic, ec., consumed 36 percen of oal energy during he year Pulp and paper consumes large 12

13 amouns of energy in he form of biomass fuels, namely spen pulping liquor and solid wood wase. Over he sudy period, shares of energy consumpion in oher caegory decreased slighly (1.1 percen beween 1992 and 2002) while consumpion in chemicals increased from 20 percen. Consumpion in he peroleum refining indusry dropped significanly during his period. Table 4: Disaggregae consumpion by various caegory of indusries in PJ Secor 1992 Share in manufacuring secor (%) Share in manufacuring secor (%) Aluminum Beverages and obacco Cemen Chemicals Copper Food producs Iron and seel Machinery Mining Oher non-meals 32 2% Paper Texiles Trans equipmen. Toal Oher indusries Grand oal The specific composion of energy use in he indusrial secor is shown in able 5. In 1992, final energy consumpion was dominaed by coal wh 76% and declined o 55% in year The overall specific energy consumpion increase in perol, gas and elecricy secors are: from 8 o 22, 6 o 7, 10 o 16% beween respecively. This may impac he overall energy consumpion and inensy levels even if he echnology is no changed. 13

14 Table 5: Specific Energy Consumpion - secor wise in PJ ( ) Secor Coal Elec. Gas Pero. Toal Coal Elec. Gas Pero. Toal Aluminum Beverage and obacco. Cemen Chemicals Copper Food producs Iron and seel Machinery Mining Oher non-me Paper Texiles Trans.equip Toal Source: CMIE (Prowess) Table 6: Indusry oupu by various caegories Rs.billion ( ) Indusry GRPA Aluminum Beverages and obacco Cemen Chemicals Copper Food pro Iron and seel Machinery Mining Oher nonmeal Paper Texiles Trans. equipmen Toal Noe: GRPA = Average growh rae per annum Table 6 shows he value of oupu in various caegories of indusry. The main argumen for using value-added as an oupu measure is ha relaes more closely o he producive acivy of he plan. In a sable macro- and microeconomic climae, such a measuremen could be safely used as an indicaor of producion and a valid energy inensy esimae could be derived. From 1992 o 2002, along wh increase in energy use of 5.02 percen per annum compounded while, he value of oupu has increased from Rs.1,797 o 4,223 billions a a 14

15 compound growh rae of 9 percen per annum. The growh rae of oupu is more han ha of commercial energy use which means ha here is an overall decrease in energy inensy in manufacuring secor. Chemical indusry producion increased by 10 percen p.a., while ha of exiles rose by seven percen p.a A growh rae of 7.4 percen was recorded in he producion of paper producs. The oupu of cemen indusries rose by 3 percen p.a. The oupu of copper and aluminum indusries advanced by 10 and 5.5 percen, respecively. 5.3 Energy Inensy The firs sep owards idenifying energy efficiency rends is o calculae overall energy inensy, a general indicaor of energy end-use. Energy inensy is defined here as he amoun of energy (in energy uns, Joule) used o produce a un of oupu (in moneary uns, Rs.). Energy inensy values in Indian indusries over he sudy period ( ) are provided in Table 7. Table 7: Energy Inensy in various caegories of indusries (TJ/Rs. billion) GRPA Indusry (%) Aluminum Beverages and obacco Cemen Chemicals Copper Food pro Iron and seel Machinery Mining Oher nonmeals Paper Texiles Trans. Equipmen Toal Noe: GRPA = Growh rae per annum The mos energy-inensive indusry is aluminum, he oher wo being iron and seel, and cemen. The leas energy-inensive are ranspor equipmen and machinery. A noable feaure of he comparison shown in his able is he rend owards declining energy use per un of oupu, as plans in he sub-secor are modernized. The energy inensy of producion of all he caegories excep Mining and exiles has declined beween 0.4 and 10.3 allowing grealy 15

16 expanded producion of hese producs whou a subsanial increase in energy use. Taking ino accoun variaions in he qualy of domesic fuels and he profabily of he commodies produced by each sub-secor, he daa show ha energy inensies appear o have subsanial room for improvemen. 5.4 Carbon emissions Since energy consumpion is responsible for roughly 90 percen of CO 2 emissions, is imporan o esimae carbon emissions and emission inensy indicaors which can be used for environmenal monoring. The emissions are calculaed by muliplying he energy consumpion of each fuel by he fuel s emission conversion facor. Energy efficiency improvemens are an imporan ool for migaing greenhouse gas emissions. In his sudy, carbon emissions from indusry are calculaed for all caegories of indusries and have been calculaed for all fuel consumed by end use secors using he IPCC norms (Coal: 111 CO 2 /TJ, Peroleum Producs: 77 CO 2 /TJ, Gas: 69 CO 2 /TJ and Elecricy: 316 CO 2 /TJ (assuming a conversion efficiency of 24.8% in a coal-fired hermal power plan, equivalen o he use of 0.72kg coal /KWh)) (Das and Kandpal (1997a), Das and Mehra e.al. (1993), and Mehra and Damodran (1993)). The calculaion of CO2 emissions is based on only he CO2 conens in differen ypes of fuels and are considered he process-relaed emissions. The daa on energy consumpion and carbon emissions are used o calculae inensy raios (energy or emissions over oupu), which are based on moneary uns and indicae general rends over ime. Table 8 shows ha emissions from boh seel and cemen indusries have grown nearly 1.18 and 1.29 imes, respecively, in he en years beween 1992 and 2002, while hose from copper, chemical and exile indusry have more han doubled. Ineresingly, exile indusry has now emerged o be he leader (increased by 6.93 imes beween 1992and 2002) in erms of carbon emissions. Emissions from food, beverage and mining have grown even more. Of all of he indusrial sub-secors, only nonmeals show a decline. Overall, he emissions paern shown in he able reinforces he message ha emissions from he indusrial secor are growing, rapidly and, as such, are imporan candidaes for adoping energy-efficiency measures. 16

17 Table 8: Carbon emissions (Million ones of CO 2 ) Indusry ype Coal Elecricy Gas Perol. Toal Coal Elecricy Gas Perol. Toal Aluminum Bav. & ab Cemen Chemical Copper Food produc Iron & Seel Machinery Mining Oh nome Paper Texiles Transpor Toal As he indusrial secor expanded during he sudy period, energy consumpion as well as carbon emissions increased. An imporan observaion is eviden when one considers he proporion of energy use and emissions conribued by he indusry. The paerns of energy use and carbon emissions from indusrial energy consumpion, broken down by major subsecors, are shown in Table 9. As he able shows indusrial energy use and greenhouse gas emissions are concenraed in major indusrial sub-secors. During he sudy period, a he secondary level, economies have been subsuing away from coal owards oher fossil fuels wh lower carbon conen. Iron seel indusry is he bigges CO2 emer among he all bu due he conservaion measures and echnical upgrading of iron and seel indusry heir share is dropping significanly from 36.6 o 24.8 percen beween 1992 and Among ohers, exile and chemical indusry are he bigges emers wh share increasing from 14.9 o 19.1 and 7.9 o 17.6 percenages, respecively, in oal CO2 emissions by manufacuring indusry beween 1992 and Aluminum indusry was he nex wh 13 percen and 23 million onnes of CO 2 and shares in more or less he same wh energy use. The cemen was a disan fourh a 19 percen and 34.2 million onnes and boh emission level and shares increased over year s.the drasically high and significan increase was in he share and level in exile indusries which grew from 4.4 o 17.6 and 8 o 55M of CO2. The increase in he share and CO2 emission in exile indusry is because he indusry has shifed from old mehod of producion o highly mechanized mehod and requires more energy and ems more CO2. 17

18 Table 9: Changes in energy use and carbon emissions ( ) Secor Energy Share of Co 2 (million Share of Energy Share of Co 2 (million Share of use (PJ) indusry (%) ones) indusry (%) Use (PJ) indusry (%) ones) indusry (%) Aluminum Beverages and obacco Cemen Chemical Copper Food produc Iron and Seel Machinery Mining Oher nonmeals Paper Texiles Transpor Toal Carbon inensy Table 10 provides an addional example of changing carbon inensies, his ime expressed in erms of energy use per un of indusrial oupu (value of oupu a consan price 1992). Here, inensies in some sub-secors increase subsanially over he period shown, ohers decrease, and some ohers rise and fall over ime. One should recall ha carbon inensy per un of economic oupu combines rends in energy inensy per un of physical oupu wh rends (or variaions) in he value (or marke price) of he goods produced. Exra care mus herefore be aken when inerpreing carbon-inensy rends expressed in economic erms, paricularly when comparing resuls from caegories of indusries. 18

19 Table 10: Carbon Dioxide Emission inensies (000Tonnes CO 2 /billion's Rs. of oupu) Indusry GRPA Aluminum Beverages and obacco Cemen Chemicals Copper Food pro Iron and seel Machinery Mining Oher nonmeal Paper Texiles Trans. Equipmen Toal Noe: GRPA=Growh Rae Per annum Table 11 provides informaion on energy consumpion, value of oupu, inensies of energy and CO 2 emissions beween 1992 and 2002 a aggregae level in manufacuring secor. The real value of oupu (Rs. billion) increased by 2.35 imes (from o 4,223), while energy consumpion (PJ) increased by only 1.63 imes (from 1,414 o 2,309). This shows ha he overall inensies of energy (PJ/Rs.billion) and CO2 have dropped from 787 o 547 (TJ/Rs billion) and 99.7 o 73.6 (000 onne CO 2 /Rs Billion), respecively. The inensies of energy and CO2 declined during he sudy period ( ) by 240 and 26 respecively. From he able we can infer ha energy requiremen in year 2002 was 3,323 PJ when here is no change in he energy inensy 1 of he indusry and srucure change 2 in he indusry. This figure has been obained by muliplying he inensy in year 1992 (787 TJ/billion Rs) wh he value of oupu in 2002 (4,223 Rs.bilion) convered in PJ. Bu he oal energy requiremens in year 2002 are only 2,309 PJ. This shows ha here was increase in oupu whou a significan increase in energy use; may be due o srucural shif or increase in he use of energy efficiency or boh. The CO 2 emission in year 2002 would be million ones if here were no changes in he CO 2 inensy and srucural changes in he indusry. This figure has been obained by muliplying he inensy in year 1992 ( CO 2 /Rs.Billion) wh he value of oupu in 2002 (4,223) convered in million ones of CO 2. Bu he oal CO 2 emission in he year is only 311 million onnes of CO 2. 1 Indusries using efficien echnologies, fuel swch and good energy managemen pracice 2 Percenage change in shares of he differen indusries (produc mix in economy changes )Produc mix in he economy 19

20 This shows ha we had increase oupu whou a significan increase in energy use/co 2 emissions. This may be due o srucural shif or increase in use of energy efficiency or boh. Table 11: Energy consumpion, oupu, energy use and CO 2 inensies a aggregae level Toal energyco 2 emissionsvalue of oupu Energy inensy CO 2 Inensy (000 Year Consumpion (PJ) Million Tonnes (Rs.Billion) (TJ/Rs. Billion) CO 2 /Rs. Billion) The oal increase in CO 2 emission is only 131 M beween 1992 and The emissions are 78.5 M less han he increase in CO 2 emission due o only acivy level effecs while all he oher facors remain consan over ime. This means ha he rend in he manufacuring secor shows improvemen in CO 2 emission inensy wh srucural changes. This decreasing rend over he years for CO 2 inensy is noed for all indusries excep aluminum, cemen, machinery and exiles. 6. DECOMPOSITION OF TOTAL ENERGY CONSUMPTION AND CO 2 EMISSIONS Increase in energy consumpion, in general, is an indicaor of energy end use and of energy efficiency. However, higher energy use does no always imply less efficien use of energy. Energy consumpion rends are driven by change in acivy level (oupu level in he indusry), change in energy efficiency and due o srucural change in he indusry (change in produc mix in he indusry) The impac of srucure and pure inensy effecs should be isolaed o deermine heir conribuion o overall energy inensy changes. There are many mehods o esimae and isolae he differen effecs and creae he index. All he mehods deal wh creaing he index for energy inensy by decomposing energy consumpion and energy inensy. Srucural changes by eher he mix of acivies or he mix 20

21 of producs produced by he indusry in an economy affec energy inensies. In his paper, he decomposion analysis has been presened for he years wh a 10-year gap and he calculaion was done separaely for he join acivy, inensy (echnology and fuel mix effecs), and srucural effecs. While his sudy esimaes he change in acual values over he years o undersand he amoun and he exen of change ha has happened in he pas. For he presen sudy, we applied oal differeniaion decomposion analysis model since energy conen varies across fuels and he subsuion of one energy carrier wh anoher affecs he oal energy consumpion. Edwards and Pariah (Energy Policy, 1978) show ha he possibilies of subsuion beween fossil fuels on one hand and elecricy on he oher are less han hose among fossil fuels, bu here would be cerain complemenaries. Hence, a more logically consisen mehod has been formulaed for decomposing energy consumpion and energy inensy in he manufacuring secor. Many a imes, such changes do no reflec efficiency improvemens. For example, if he producion share of energy-inensive indusries declines over a cerain period of ime, hen here will be an overall decrease in energy inensy. This gives an impression ha here is an improvemen in energy efficiency. Bu he fac is ha he producion of energy-inensive goods has declined (a srucural change), no necessarily rue because, echnical energy efficiency has improved. Hence is imporan o find ou he conribuion of hese changes. Decomposion mehods aemp o separae changes in srucural effecs from changes in pure energy inensy for he change in energy inensy level while he same mehod separaes all he srucural effecs, inensy effecs and acivy level effecs. Such mehods are useful for sudying and undersanding he evoluion of indusrial energy consumpion paerns and for forecasing energy demand. They are also effecive a separaing and idenifying he relaive conribuions of various facors o changes in eher oal energy consumpion or aggregae energy-inensy. Using decomposion mehods we can develop economic-inensy indicaors and esimae he impac of energy efficiency which is free of srucural effecs. Decomposing he change in oal energy consumpion beween wo periods of ime resuls in hree separae componens or effecs: (i) acivy effec (change in he producion level), (ii) energy inensy effec (Joule of energy consumed per Rs of value of oupu) which also accouns for change in fuel shif/mix in he indusries, (iii) srucural effec (share of value of oupu change across he secor wh in a given ime) (Ang and Lee, 1994). This implies ha he changes in energy consumpion during he sudy period can be fully explained by acivy, energy inensy and srucural changes. The srucural effec measures changes in produc mix 21

22 in he economy, which was induced by changes in he composion of manufacuring subsecors. Economies producing large amouns of energy-inensive producs like iron and seel, non-ferrous meals and cemen are expeced o consume more energy per un of oupu han economies wh srucures favoring less energy-inensive indusries like elecronics and exile indusries. In general, if he srucural effec is posive, he energy inensy has increased compared wh he base year. The pure inensy effec measures improvemens in energy efficiency, changes in echnology, fuel mix changes, efficien energy managemen pracice as well as any oher facor which is no relaed o acivy or srucure. If his effec is posive, hen implies a worsening energy efficiency scenario. A negaive pure inensy effec poins o improvemens in energy use. The resuls of energy consumpion decomposion analysis are presened in Tables 12 and Fig 1. Figure 1 shows chaining and decomposion (beween wo consecuive years) annualized rends in pure energy consumpion a he macroeconomic level. The mos impressive declines in energy inensy, of abou 315 and 53 percen, were realized in iron and seel, and cemen, respecively. The chaining decomposion analysis in Fig. 1 shows ha he inensy effec mos of he imes is srucural effec and inensy effec was negaive impac and oupu effec is posive impac on he oal energy consumpion beween wo consecuive years. Tha means he overall level of energy consumpion is pulling back he srucural and inensy effecs and hence he oal energy consumpion is no an increase as should be whou hese wo negaive facors. 300 OE EI ST Toal Pea Joule Year Fig 1: Decomposion of change in oal energy consumpion ( ) 22

23 Energy inensy and srucural effecs have negaive impac on changes in oal energy consumpion. Consequenly, he real energy consumpion increase is only 895 PJ. This is less han he increase in energy consumpion due o acivy level effecs while all he oher facors remain consan over ime. The inensy effec in all he indusries, excep exile and mining secor, is negaive. A he aggregae level srucural effec has negaive impac in oal energy consumpion for chaining decomposion resul and no chaining decomposion resul excep for some indusries (Chemical, Copper, food produc and oher non meals ). This means ha for he overall period of he sudy, , he srucural and inensy effecs are negaive. This is due o shif in oupu shares, from high energy inensive o low inensive indusries and overall gain in energy efficiency (posive energy conservaion measures aken), respecively. The changes in energy consumpion shares are: 180,-25 and -55% which come from he acivy, inensy and srucural effec, respecively.. Table 12: Decomposion of change in energy consumpion secor wise (PJ) ( ) Acual value Shares in Toal indusry (%) Shares in Toal effec (%) Indusry OE IE SE Toal OE IE SE Toal OE IE SE Aluminum Beverages and obacco Cemen Chemicals Copper Food pro Iron and seel Machinery Mining Oher nonmeals Paper Texiles Trans. Equipmen Toal Noe: OE = Overall effec; IE = Inensy effec; SE = Srucural effec If he energy inensy and srucural effec are fixed a he base year, hen he quany of energy required o mainain he increased amoun of acivy levels is given by only acivy level effec. In a similar way, he oher wo effecs also can be defined. As shown in Table 12 acivy/oupu effec always influences he consumpion of energy while he srucural effec decreases he overall energy consumpion. The inensy effec someimes has expansion effec and oher imes 23

24 depression effec; however he laer offses he former. This means ha, for he overall period of he sudy, due o acivy effec, boh he inensy and srucural effecs have depressed he change in oal energy consumpion. The srucural effec has more impac han he inensy effec (approx wice) on changes (depressing) in oal energy consumpion. During , here was a significan improvemen in energy efficiency among iron and seel, chemical, aluminum, oher meals, cemen and paper indusries. The exile indusry has significan (posive) effec on increase in energy consumpion by acivy effec and inensy effec bu he srucural effec is negaive. Overall, a he aggregae level, he inensy effec is negaive (decreasing) because he sum of inensy effec due o iron and seel, cemen, chemical, aluminum and non meals has more han posive (increasing) effec of exile and mining indusries. If he CO 2 emission inensy and srucural effecs were fixed a he base year, hen he quany of CO 2 emission would be 420.9MT CO 2 o mainain he increased amoun of acivy levels. Table 13 shows ha acivy/oupu effec always influences he CO 2 emission while he srucural effec and CO 2 emission inensy effec decreases he overall CO 2 emission level. The CO 2 emission inensy effec someimes has expansion effec and someimes depression effec on o CO 2 emission level, bu he depression effec offses he expansion effec. This means ha for he overall period of he sudy boh he inensy and srucural effecs have depressed he change in oal energy consumpion. Table 13: Decomposion of change in CO 2 emission secor wise 000TCO 2 ( ) Acual value % Shares in oal indusry % Shares in oal effec Indusry OE IE SE Toal OE IE SE Toal OE IE SE Aluminum Bev. & ob Cemen Chemicals Copper Food pro Iron & seel Machinery Mining Oh.nome Paper Texiles Trans. eqp Toal

25 co OE EI ST Toal Year Fig 2: Decomposion of change in oal emission in 000TCO 2 over consecuive year The CO 2 inensy effec in all he indusries, excep Aluminum, Bev. and Tobacco, Copper, Machinery, oher non-meal and exiles are negaive. Bu in he oher indusries, he inensy effec is more han ha of hese indusries and hence overall he inensy effec has negaive (decreasing) impac on he CO 2 emissions and hence a he aggregae level srucural effec and inensy effec negaive impac in oal CO 2 emissions. Tha is for he overall period of he sudy, beween 1992 and 2002, he srucural and inensy effecs are negaive This is due o shif in oupu shares, from high energy inensive o low inensive indusries and he overall gain in energy efficiency (posive energy conservaion measure, fuel shif ), respecively. The changes in CO 2 emission shares a aggregae level are: 160, -14 and -46 percen which come from he acivy, inensy and srucural effec, respecively. The decrease in energy inensy has significan impac on reducing energy consumpion bu he srucural effec has five imes more impac han he inensy effec on reducing overall energy consumpion. 7. DECOMPOSITION OF THE CHANGE OF ENERGY AND CARBON INTENSITIES Energy inensy, in general, is an indicaor of energy end-use and hus energy efficiency. Energy inensy rends are driven by energy efficiency changes. The impac of srucure should be isolaed/separaed form energy inensy effecs o deermine heir conribuion o overall 25

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