India’s Manufacturing Energy Intensity Rises Despite Renewable Energy Push: Analysis
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Study highlights the impact of energy price volatility, sectoral shifts and fuel substitution on manufacturing energy use despite progress in renewable energy adoption.
The recent US-Iran conflict has triggered a global energy shock, leading to higher fuel prices for import-dependent countries such as India. According to the analysis, this has affected transportation costs, inflation, supply chains and household disposable income while reinforcing the importance of accelerating India's transition to renewable energy.
India committed at the COP26 Summit in Glasgow to expand renewable energy capacity to 500 GW by 2030, meet 50 per cent of its energy requirements from renewable sources by 2030, reduce carbon emissions by one billion tonnes by 2030, lower the carbon intensity of the economy by 45 per cent from 2005 levels by 2030, and achieve net zero by 2071.
The analysis notes that while India has expanded renewable power generation and improved energy efficiency, manufacturing energy intensity has not followed the same downward trend in recent years.
Manufacturing Remains the Largest Energy Consumer
Based on KLEMS data provided by the Reserve Bank of India, energy intensity—measured as energy consumed per unit of output—declined during the first half of the 2000s, remained relatively stable until the first half of the 2010s, and increased thereafter.
Among all sectors, manufacturing continues to be the largest consumer of energy, accounting for slightly more than half of total energy consumption after excluding household energy use.
Within manufacturing, relatively high energy intensity is observed in sectors including:
- Other non-metallic mineral products (including cement)
- Basic metals and fabricated metal products
- Pulp, paper and printing
- Chemical and chemical products
- Textiles, textile products, leather and footwear
The data also indicate that energy intensity increased in sectors such as manufacturing and recycling, transport equipment, coke and refined petroleum products, and nuclear fuel during FY00-FY04 and FY20-FY23.
Three Factors Behind the Trend
The analysis identifies three primary reasons for the rise in manufacturing energy intensity.
1. Energy Price Movements
KLEMS data indicate that energy prices influence manufacturing energy consumption. While manufacturing energy input prices declined by 3.3 per cent during FY13-FY18, the implicit price deflator for manufacturing output increased by 4.7 per cent during the same period.
Global crude oil prices also remained relatively low after 2014, before rising again following February 2022. According to the analysis, lower real energy prices may have encouraged higher energy consumption in manufacturing.
2. Slower Output Growth
The analysis suggests that manufacturing output growth did not consistently outpace energy consumption during FY16-FY19 to FY20-FY22. As a result, energy intensity did not decline proportionately.
3. Fuel Substitution
Another contributing factor is the substitution of coal and electricity with petroleum coke in manufacturing due to comparatively lower prices. The analysis notes that a significant share of petroleum coke consumption occurred in cement manufacturing, followed by aluminium production.
Need for Continued Policy Focus
The analysis concludes that fluctuating energy prices, slower industrial growth and shifts in fuel usage continue to influence India's manufacturing energy intensity.
It notes that alongside expanding renewable energy capacity, continued emphasis on energy efficiency, cleaner industrial practices and improved resource utilisation will remain important to support sustainable and energy-secure economic growth.
The analysis is authored by Sunil Kumar Sinha, Professor of Economics at the Institute of Development and Communications, Chandigarh. Views expressed are personal.