Does carbon intensity affect technical efficiency? An empirical assessment of manufacturing industries in Maharashtra, Odisha, and India

Abstract

Technical progress has a tremendous potential to reduce carbon dioxide emissions by reducing energy consumption, a major concern across production units. However, the existing empirical literature concerning technical efficiency and carbon intensity is scanty. Thus, this paper examines the relationship between technical efficiency and carbon intensity for the organized manufacturing sector of two states, Maharashtra and Odisha, and the all-India level from 2001 to 2018. The paper uses data envelopment analysis to estimate technical efficiency scores. It applies the 2006 Intergovernmental Panel on Climate Change Tier 1 methodology for estimating carbon intensity for each 3-digit manufacturing industry in all three sample cases. The study has used static panel regression and fractional logit regression techniques to examine the deterministic relationship between technical efficiency and carbon intensity. The result shows that technical efficiency is highly sensitive to carbon intensity in the Indian manufacturing industries. The findings also addressed that the size of the industries also reduces the technical performance of manufacturing units. This paper also confirmed that increased profit could boost the Indian manufacturing industries’ technical efficiency. Thus, this study addresses that carbon intensity as a proxy for the manufacturing sector’s potential to affect climate change plays a crucial role in explaining the technical efficiency variations across industries. Thus, it calls for better policies aimed at reducing the emissions of industries specifically to achieve sustainable growth for the Indian manufacturing sector.