Energy efficiency: The balancing act between industrial growth and pollution control

22 Jan 2018

Industries, both big and small, require energy efficiency to not only meet pollution control norms but also stay competitive in a global market by reducing energy costs

Industry, the key to national development in many countries, is the powerful engine that drives economic growth, spurs innovation and entrepreneurship, and provides direct and indirect employment to vast number of people. Industry is also among the largest consumers of energy, for instance in India, the industrial sector accounts for nearly half of the nation’s commercial energy consumption. Energy costs typically make up a substantial chunk of production costs in many different industries (10%–40%); this is particularly true for energy-intensive industrial sub-sectors. In order to remain competitive in a globalized market and to overcome the challenges posed by ever-rising fuel costs and increasingly stringent pollution control norms, there is a dire need for all industrial units, whether large-scale plants or micro, small, and medium enterprises (MSMEs), to find ways to switch over to energy efficient technologies and practices.

India is amongst the fastest-growing major economies and the demand for energy has grown at a rapid pace during the last decade. The commercial energy consumption in the country has increased from 192 million tonnes of oil equivalent (MTOE) in 2000/01 to 397 MTOEmtoe in 2013/14 (TEDDY 2015/16).

The industry sector is the largest consumer of total commercial energy in the country. From 77 mtoe in 2000/01, the industrial energy consumption has increased to 184 mtoe in 2013/14 (TEDDY 2015/16). The National Manufacturing Policy envisages enhancing the share of manufacturing in gross domestic product (GDP) to 25 per cent, besides creating 100 million jobs by 2021. ‘Make in India’, the flagship initiative of the Government of India, is further expected to guide policy initiatives to promote and strengthen manufacturing in the country. In a business as usual scenario, this would result in an increase in industrial energy demand, leading to increased resource consumption. Industry in India is a highly diversified sector and consists of large as well as Micro, Small and Medium Enterprises (MSME) sub-sectors. Iron and steel, cement, fertiliser, petrochemicals, aluminium, etc., are among the energy guzzling large industries. However, the MSMEs too are an important component of Indian industries. It is estimated that over 51 million MSMEs contribute more than 33% to the total manufacturing output and provide employment to more than 111 million people in the country (MSME, 2017). Enhancing energy efficiency in manufacturing is seen as one of the key elements that can contribute to reducing energy requirements and the associated environmental implications. India’s Nationally Determined Contributions (INDCs) also emphasize on energy efficiency as the key to managing the energy demand. Increasing energy efficiency can be considered as one of the best ways to optimize rising energy demand without affecting growth.

The Energy Conservation Act, 2001, as a key policy intervention of the Government of India, provides a legal mandate for implementation of the energy efficiency initiatives through the institutional mechanism of the Bureau of Energy Efficiency (BEE) and State Designated Agencies (SDAs). Similarly, the National Mission on Enhanced Energy Efficiency (NMEEE), one of the eight missions in the National Action Plan for Climate Change (NAPCC), encompasses numerous initiatives for enhancing energy efficiency. Under NMEEE, Perform, Achieve and Trade (PAT) is one of the initiatives that focuses on improving energy efficiency of energy-intensive industries. This is a market-based mechanism that mandates Specific Energy Consumption (SEC) reduction targets to large industrial consumers of energy (known as Designated Consumers or DCs). Nearly 740 such DCs are participating in the PAT scheme presently and this number is likely to increase in the coming years with inclusion of more such consumers.

Compared to the large organized industries’ sub-sector, the MSME sector can be said to be almost synonymous with the unorganized sector. It also continues to use conventional technologies and operating practices that are inefficient and result in higher energy consumption. Foundry, brick, brass, refractories, forging, food processing, chemicals, ceramics, glass, secondary aluminium and steel, etc., are examples of sub-sectors where energy costs have a significant share in overall manufacturing cost. Several studies by national and international agencies have indicated that a potential of 10%–20% energy savings exists in many energy-intensive MSME sub-sectors. Lack of data on energy consumption and other operational parameters in MSMEs, on a national scale, limit focused initiatives on improving their energy efficiency. However, national agencies, such as the Bureau of Energy Efficiency and Ministry of Micro, Small and Medium Enterprises (MoMSME) as well as international agencies, such as GEF, the World Bank, United Nations Industrial Development Organization, United Nations Development Programme, SDC, etc. have initiated programmes, over the past few years, to support adoption of energy-efficient technologies and practices in this sector.

Increased competition following liberalization, higher energy prices, and policy initiatives, such as the Energy Conservation Act and NMEEE, are contributing to the increasing penetration of energy-efficient technologies and practices in Indian industry sector. Some of the units in energy intensive industrial sub-sectors, such as fertilizer and cement, have adopted state-of-the-art technologies and are competing with the world’s best plants in terms of their energy performance. While there still exists a vast potential that needs to be tapped to improve Indian industries’ energy performance, the new capacity additions in large industries are adopting the best available technologies and existing units are reinventing themselves to improve their energy efficiency.