40th IAEE International Conference
18-21 June, 2017
Singapore
Pattern of Inter-Fuel Substitution in Energy Intensive
Manufacturing Industries in India (2000-01 – 2011-12)
Shyamasree Dasgupta
Shivam Satija
Prateek Gauba
Indian Institute of Technology Mandi, India
6/21/2017
1
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 2000-01-2011-12
6/21/2017
2
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?
6/21/2017
3
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
6/21/2017
5
• Using Shephard’s Lemma (assume fuel prices are exogenously
determined through a competitive fuel market)
• Stochastic model:
• Error specification (Seemingly Unrelated Regression Equations)
6/21/2017
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.
6/21/2017
7
Data
•
Annual Survey of Industries MoSPI, Government of India
•
Seven energy intensive manufacturing industries - 2000-01 – 2011-12
•
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
Cement
Chemical
(W/o
fertilizer &
pesticide)
Fertilizer &
Pesticide
Iron
&
Steel
Pulp &
Paper
Textile
Years (NIC)
Nonferrous
metal
2000-01- 2003-04
272
2694
2411
2412+2421
271
2101+2102
171
2004-05 - 2007-08
272
2694
2411
2412+2421
271
2101+2102
171
2008-09- 2011-12
242
2394
2011
2012+2021
241
1701+1702
131
6/21/2017
8
Selected results and discussion
6/21/2017
9
Figure 1: Cost shares
100%
80%
60%
40%
20%
0%
Non-ferrous
metal
Cement
Other fuel
6/21/2017
Chemical
Fertilizer & Iron & Steel
Pesticide
Petroleum
Electricity
Pulp &
Paper
Textile
Coal
10
Table 1: Own price elasticity
Nonferrous
metal
Cement
Chemical
Fertilizer
Iron &
& pesticide Steel
Pulp &
Paper
Textile
Coal
-0.04
-0.75
0.67
0.33
-0.77
-0.12
0.14
Electricity
-0.04
-0.40
-0.48
-0.36
-0.02
-0.17
-0.43
Petro
-0.94
-1.80
-1.12
-1.03
-0.37
-1.11
-1.38
Other fuel
-1.01
-2.98
0.60
0.45
1.88
3.72
-2.75
6/21/2017
11
Table 2 : AES based inter-fuel substitution
Non-ferrous
metal
Cement
Chemical
Fertilizer &
pesticide
Iron & Steel Pulp &
Paper
Textile
C-E
-0.20
0.16
0.87
1.11
0.60
0.80
-0.70
C- P
0.43
0.35
0.57
0.41
0.15
0.11
0.16
C-O
-0.19
-0.23
-2.11
-1.85
0.02
-0.80
0.39
E-P
0.09
0.10
0.18
0.11
0.11
0.14
0.16
E-O
0.16
0.04
0.22
0.48
0.11
0.09
0.15
P-O
0.55
0.50
0.54
0.54
-0.80
0.01
0.60
6/21/2017
12
Table 3: MES based inter-fuel substitution
Non-ferrous
metal
Cement
Chemical
Fertilizer &
Pesticide
Iron
&Steel
Pulp
&Paper
Textile
C-E
-0.16
0.63
1.36
1.46
0.61
0.97
-0.26
E-C
-0.08
0.55
-0.39
0.47
0.97
0.74
-0.26
C-P
1.36
2.22
1.69
1.45
0.52
1.22
1.54
P-C
1.09
2.09
-0.24
0.16
1.04
0.38
-0.05
C-O
0.81
0.69
-2.70
-2.30
-1.86
-4.52
3.14
O-C
-0.31
-3.24
-1.97
-0.74
0.80
-1.60
0.14
E-P
1.03
1.97
1.30
1.14
0.48
1.25
1.54
P-E
0.45
0.76
0.90
0.53
0.59
0.60
1.05
E-O
1.17
0.96
-0.38
0.03
-1.77
-3.63
2.90
O-E
0.11
0.47
0.58
0.44
0.08
0.21
0.53
P-O
1.56
1.42
-0.05
0.09
-2.68
-3.71
3.34
O-P
1.33
3.32
1.57
1.13
-0.21
1.12
2.11
6/21/2017
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.
6/21/2017
14
Thank you!
Shyamasree Dasgupta
Assistant Professor
School of Humanities and Social Sciences
Indian Institute of Technology, Mandi
Himachal Pradesh, 175005, India
[email protected],in