Energy Efficiency for Sustainable Development of small Industry Clusters: What Factors Influence it?

Abstract

Small Scale Industries (SSIs) are a crucial component of the Indian economy and the majority of them exist in clusters. Survival and growth of such clusters in the current globalized era hinges on three vital dimensions of sustainability viz. Economic, Environmental, and Social. In energy intensive SSIs, the first two dimensions depend on effective utilization of energy, a key input in their operations. The improved Energy-Efficiency (EE) helps not only in enhancing competitiveness through cost reduction, but also in minimizing environmental degradation. But, a good understanding of factors influencing EE is essential for its improvement. This paper attempts to probe these factors in an energy intensive Brick and Tile cluster in India. Based on the primary data from 44 SSIs, the importance of energy input is established using a Cobb-Douglas production function. The energy consumption pattern and associated environmental pollution are also studied. The variables influencing EE are classified a priori under four categories viz. Technical Factor (TF), Economic Factor (EF), Human Resource Factor (HRF) and Organizational and Behaviour Factor (OBF). While the TF comprises variables like age of plant and machinery, quality of energy used, and process specific variables, the EF includes plant capacity utilization, resource use efficiency, and production volume. Similarly, the HRF involves labour skill level, owner/supervisor education, and business experience of the owner, with OBF encompassing variables such as work-practices, layout and housekeeping, importance attached to energy, and the external interaction level. Regression analysis is adopted while assessing the significance of these factors in explaining the variation in EE. The production function revealed energy as the most important contributor to the value of output amongst all inputs. Though all the hypothesized factors are found significant, EF and OBF obtained the top two ranks. These results have useful policy implications for ensuring Sustainable growth of the SSI sector.