Assessment of profitability and efficiency of regulatory acts on energy-intensive industries: a panel data methodology and case study in India

Abstract

Energy sources are of paramount significance in the contemporary landscape, categorically classified into two main types: (i) primary sources, encompassing a wide spectrum ranging from nuclear energy to fossil fuels like natural gas and oil; and (ii) renewable sources, including geothermal, hydropower, solar, and wind energies. Governments have taken proactive measures since 2010, culminating in the establishment of the Bureau of Energy Efficiency under the Energy Conservation Act, aimed at curtailing energy consumption across diverse economic sectors. The interconnectedness of energy consumption, environmental ramifications, and economic progress is undeniable. A noteworthy project originating in 2010 is rooted in the pioneering market-based mechanism known as the perform, achieve, and trade (PAT) framework, which predominantly targets industrial energy utilization. Given the substantial role of energy costs within the broader spectrum of total production expenses, it becomes imperative to gauge the profit margin intensity (PMI) within energy-intensive sectors and industries encompassed by the PAT initiative. This entails an exploration of the influence exerted by these sectors on PMI. Consequently, the identification of variables influencing industrial profitability with respect to energy employment becomes pivotal. This article introduces a methodology grounded in panel data analysis, applied to a specific case study involving Indian energy-intensive corporations. The investigation takes into account the impact of both the Energy Conservation Act (ECA) and PAT as dichotomous covariates. Notably, the ambit of PAT encompasses the eight most energy-intensive industries in India, spanning the years 2012 to 2015. India stands among the world’s foremost energy consumers, with its industrial sector notably emerging as the largest energy consumer in 2015. Evidently, energy serves as a driving force behind the country’s manufacturing costs. The findings of this study underscore a negative correlation between energy costs and profitability. While the overall impact of PAT on industry performance appears limited, the ECA emerges as a potent factor significantly affecting earnings. Moreover, a compelling indirect relationship between energy costs and profitability is discerned, wherein rising revenues correspondingly lead to amplified energy costs. Consequently, the implications drawn from our study are intricately linked to the efficacy of energy utilization regulations within energy-intensive industrial contexts. The statistical analyses integral to this study were diligently carried out using the R software.