Enhancing energy efficiency of Indian industries: Effectiveness of PAT scheme

Abstract

India adopted Cap and Trade in energy intensity via a scheme called Perform Achieve and Trade (PAT) to improve the energy efficiency of energy intensive industries through target setting and allowing trade in energy saving certificates. The first cycle ran from April 2012 to March 2015, where the Bureau of Energy Efficiency assigned targets to identified firms in eight industrial sectors. This paper aims to examine the effectiveness of the PAT scheme in inducing firms to reduce energy intensity in the Cement, Fertilizer, and Pulp and Paper Industries. Using a difference-in-differences model, we do a firm level analysis for three industries over an 11 year period (2005 to 2015) and estimate the average treatment effect of the PAT scheme on the firms that were assigned the targets. We find that the PAT scheme improved the energy intensity of the designated firms by 2.7 percent and 1.6 percent in the cement and the fertilizer industry, respectively. The associated CO2 emission savings was about 22.5 million metric tons in the cement industry. However, the scheme was not effective in causing an additional decline in energy intensity in the pulp and paper sector. Another robust result is that the energy intensity of firms is declining in research and development investment.