Economic Policy and Energy Efficiency : The Case of the Manufacturing Sector in India

Pricing the negative externality has always been a concern and subject to debate. It is because, theoretically and empirically, there are differences in the effectiveness of different pricing schemes. After the Paris agreement and COPs, country-specific solutions are suggested. However, Indian studies do not explain sector-specific heterogeneity. In this context, we explain the role of price reforms in the Indian manufacturing sector. We fill this research gap by addressing the following questions: 1. Whether the PAT scheme helps emission reduction?; 2. Does PAT is the main reason for the emission reduction?; 3. Will any price reform help Indian manufacturing to reduce 100 percent emissions or not? We use the data from CMIE Prowess IQ and validate these questions. Using the IPCC (2006) approach, we estimate emissions from different sources at the firm level, one of the unique contributions to policy making. Our estimates suggest: i. emission has increased for both the PAT and non-PAT industries over time; ii. Emission from all the sources, except the waste, is high for the non-PAT industries; iii. Energy prices are roughly increasing but with a volatile growth rate; iv. Neither a higher-emitting firm should always be charged more, nor a lower-emitting firm should always be charged less; v. Industries under the PAT schemes emit 25 percent less compared to its counterfactuals; vi. Existing energy prices are partly responsible for emission reduction; vii. A scheme such as PAT is helpful in the short run; viii. Dynamic price reform is required along with complementary policies. Otherwise, the maximum feasible emission reduction will be 50 percent