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ENERGY CONSUMPTION PATTERNS INDUSTRY SECTOR

(P RAJSHEKHAR)
INTRODUCTION TO ISSUE

Industrial sector is one of the major consumers of the energy in any country. In India
it accounts for more than 50% of the total energy consumed annually. Industrial
sector is also one the important sectors for contributing towards GDP. In literature
review, the sections covered under our classification for purpose of energy
consumption patterns constitute a major share of economic activities that provides
employment to people also. We will also see the relationship between energy
consumption and growth to ascertain the point of importance of this study.

IMPORTANCE

The relation between energy consumption and economic growth is not as straight
forward as it seems. But in long run sufficient literature evidence has been found
and established to justify a positive causality relation between the energy
consumption of the economy and growth of the economy. But from literature studies
we know energy consumption is heavily dependent throughout the world on fossil
fuels, leading to emission issues, a trade-off between growth and environmental
issues is the call of the hour. This leads us to the concept of sustainable
development. The Burndtland Commissions definition of sustainable development
is given as to make sure to meet the needs of today without hurting the prospects
of upcoming generations to meet the needs of tomorrow. Hence the job of an
energy economist is like that of a compass, to pin point the sustainable growth path
for the society. This fact must be sensitizing enough towards the importance of our
motive behind this term paper.

LITERATURE REVIEW

We have seen the definition of sustainable development we have the motive to start
exploring the existing pool of knowledge for our term paper.

First we will explore the ambiguous relation between the energy consumption and
economic growth. The ambiguity of the relation was first clearly stated by Pokharel,
2006. All this literature review starting from Kraft and Kraft 1978 to Ghosh 2005,
who have used various time series techniques have resulted into unidirectional
causality on either side, no causality or bi directional causality on various pool data
collections have been summarized in Trends and Patterns of Energy Consumption
in India by Santosh Sahu in 2008. The author concludes his literature with remark
that data of short run have shown no causality, whereas medium run studies have
shown most ambiguous results where as long run has shown a bidirectional
causality.

According to EIA (United States Energy Information Administration) outlook report


the industrial sector consumes more energy than any other sector in the economy.
This turn our key interest towards study of energy consumption patterns across
industrial sector. According to the same report a classification for the industrial
sector has also been provided. The three classes of this classification are:

Energy Intensive Industries including steel and iron, refining, non-ferrous


metallic, chemical-pulp, food based industries and non-metallic
manufacturing based industries (eg, plastic).
Non energy intensive manufacturing (Agriculture and domestic industries
from our country).
Non-manufacturing industries/ service sector based (eg, IT, e-commerce etc).

Since the main aim of EIA report was to cover all the energy consuming economic
output producing units of the economy while our aim is to focus mainly on core
industrial sector we will restrict our studies to Energy Intensive Industries.

According to Ray and Reddy (2008) overall energy consumption of the economy is
determined by: level of production, structural aspects of the economy and activity
per unit energy consumed. The last component is defined as energy intensity. So
reduction in intensity means more production per unit of energy. Mathematically it is
given by:
m m

Et = Eit = eit . it . Pt
i=1 i=1

where Et = total energy consumption or carbon emission


Eit=energy consumption or carbon emission by ith industry
Pt= Production output in time t
= share of value of output
e = energy intensity or carbon intensity term

Thus total energy consumption obtained like this will be further decomposed into
consumption due to output, due to structural factors and intensity considerations.
So equation for this turns out to be:

Change in total energy consumption = change in consumption (emission) due to


output effect+ due to structural effect + due to change in energy intensity effect.

Thus these three terms on the RHS of the equation gives three instruments how to
control consumption and following emission levels.
source : http://energy.gov/eere/analysis/energy-intensity-indicators-industrial-source-energy-
consumption

For choice of adapting energy efficient technology we need to keep in following


points:
Efficient technology will be costly but benefits of energy saving will be
observed in future.
Present technology is cheaper but over the life of production it will incur more
cost.
So the decision to replace an inefficient technology with the efficient one
depends on present value calculations of all the costs and benefits.
We use Annualized Life Cycle Cost = (Capital recovery factor*capital cost) +
annual maintenance cost as our decision criteria, where a lesser annualized
cost means economically attractive option. Here Capital recovery factor is a
function of discount rate and time span considered.

DISCUSSIONS

Hence we conclude from our study that energy consumption can be controlled using
its 3 components in following ways:
1. Change in consumption due to output: implementing and promoting Recycle,
Reuse and Reduce or similar programs.
2. Energy intensity factor can be controlled by implementing more and more
economically attractive and energy efficient options chosen by Annualized life
cycle cost criteria.
These steps are important because as we have seen in our literature ours is an
economy based on fossil fuels, which cannot last forever also adding to climate
issues worldwide. Hence this step towards study of energy intensity indicators
for industrial sector is one of the effective steps towards tacking such issues.

REFERENCES
1. https://www.hks.harvard.edu/sustsci/ists/docs/whatisSD_env_kates_0504.pdf
2. https://www.eia.gov/outlooks/ieo/industrial.cfm
3. http://energy.gov/eere/analysis/energy-intensity-indicators-industrial-source-
energy-consumption
4. Pokharel, 2006, http://www.overseas- campus. info/ seminar _ program /2006
_ Asian_ Alumni_ Workshop/Asian_Alumni_Workshop_2006_Bali-Indonesia.pdf
5. SantoshSahu,2008,https://mpra.ub.unimuenchen.de/16774/1/Trends_and_Patt
erns_of_Energy_Consumption_in_India.pdf
6. http://energy.gov/eere/analysis/energy-intensity-indicators-industrial-source-
energy-consumption
7. Ray and Reddy (2008), IGIDR June 2008 working article.