Reducing the energy consumption of Indian iron and steel industry through enhancing energy efficiency: Role of regional coordination

• Published date: 01 August 2020
• DOI: http://doi.org/10.1002/pa.2105
• Date: 01 August 2020

ACADEMIC PAPER

Reducing the energy consumption of Indian iron

and steel industry through enhancing energy efficiency:

Role of regional coordination

Salman Haider | Prajna Paramita Mishra

School of Economics, University of Hyderabad,

Hyderabad, India

Correspondence

Salman Haider, School of Economics,

University of Hyderabad, Hyderabad 500046,

India.

Email: s.haider@uohyd.ac.in

This article aims at estimating the energy efficiency of the iron and steel industry in

production theoretic approach. Taking a regional perspective, we have done a meta-

frontier analysis combined with the slack-based measure of data envelopment analy-

sis (DEA). The results depict huge energy efficiency gap exists across four regions.

The northern region is the best performer under group frontier than meta-frontier

DEA. South and west regions are relatively well-performed under meta-frontier than

group frontier while the eastern region performs moderately well under both fron-

tiers. The results show the significant energy efficiency improvement opportunities

available across regions can be realised through technological advancement and

energy management.

1|INTRODUCTION

Improvement in energy efficiency become inevitable to combat the

issues of climate change, carbon dioxide (CO

2

) emission reduction and

energy security. Energy efficiency becomes one of the critical factors

in enhancing firm performance and environmental sustainability.

Higher energy-efficient firms have low-cost production and provide a

competitive advantage over inefficient energy firms (Prasad & Mishra,

2017). Energy efficiency provides one of the best solutions for reduc-

ing pollution from energy-intensive firms. Notwithstanding wide-

ranging environmental regulations, lack of effective enforcement has

demanded a market-based mechanism for cost-effective industrial

pollution reduction (Kumar & Shetty, 2018). Therefore, the govern-

ment has shifted the policy from command and control regulations to

market-based policy in order to enhance energy efficiency and other

environmental performance. The market-based mechanism is simple,

effective and easy to compliance and leads to efficiency gain in man-

agement (Kumar & Shetty, 2018). Investment in energy-efficient tech-

nology (EET) outweighs the cost of investment hence financially

profitable investment. However, the presence of economic and

organisational barriers result in “energy efficiency gap”(Hochman &

Timilsina, 2017). Therefore, an economic analysis of energy use effi-

ciency can provide insight to the energy efficiency gap. Developing

countries like India lacks behind developed countries in terms of

energy-efficient production (Gielen & Taylor, 2009). Hence, there is a

dire need to increase the participation of firms in the energy efficiency

programme. Industrialised countries are leading in energy efficiency

programme to enhance the energy efficiency, like the Energy Star sys-

tem, ISO 50001 and Environmental management programme. These

programmes are generally adopted in developed countries and unpop-

ular in developing countries (Moon & Min, 2017).

Production of crude steel has been continued to increase in India,

and become the third largest producer in the world in 2015 following

the United States and China World Steel Association (2015) (WSA, n.

d.). The speciality of Indian iron and steel industry lies in the hosting

world largest production of coal-based sponge iron also known as

direct reduced iron (DRI). Coal (cooking and non-cooking) is widely

used in the production which accounts for around 90% of total

sponge iron in the country (Reddy & Ray, 2011). Average energy cost

of iron and steel production varies between 20 and 40% of total

manufacturing cost hence it is one of the most energy-intensive sec-

tors in the Indian economy. Most of the Indian iron and steel industry

requires 6.9 Gcal/t against the world average of 4.5 Gcal/t (TERI,

2013). Hence, there is a need for comprehensive analysis of the

energy-saving potential of the iron and steel industry. Different

energy use reduction policy was enacted over time but does not

account for the considerable regional heterogeneity which needs to

be reduced to conserve energy requirement in the long-run. Since

Received: 5 September 2019 Revised: 29 October 2019 Accepted: 26 February 2020

DOI: 10.1002/pa.2105

J Public Affairs. 2020;20:e2105. wileyonlinelibrary.com/journal/pa © 2020 John Wiley & Sons, Ltd 1of9

https://doi.org/10.1002/pa.2105