Energy: Charting a sustainable path | Photo Credit: William_Potter

The US-Iran conflict has triggered a major global energy shock. As a result, a country like India, which relies heavily on imports to meet its crude oil demand, is facing a fuel price shock. This has had severe macroeconomic and social consequences such as spike in transportation/supply-chain costs, fuelling inflation, weakening currency, and shrinking household disposable income.

Energy shock in the past and even now is a grim reminder for the country to accelerate movement towards renewable energy to secure long-term energy independence.

India in the COP26 Summit at Glasgow had spelled out its commitment to energy transition based on five declarations — (i) a renewable energy capacity of 500GW by 2030, (ii) meeting 50 per cent of its energy requirements from renewable energy by 2030, (iii) a reduction of carbon emissions by one billion tonnes till 2030, (iv) a reduction of carbon intensity by 45 per cent from 2005 levels by 2030, and (v) become a net zero economy by 2071.

Since moving away from fossil fuel to renewable energy will be a long-drawn process, one of the critical components of achieving India’s declaration at COP26 Summit has been the reduction of energy intensity — that is, energy used per unit of output/value addition in the production process.

The progress of energy transition critically hinges on the extent to which a robust and enabling environment backed by a policy framework for energy efficiency, energy access and renewable energy can be created. India, to a large extent, has been able to do it. Thus, the pace of thermal power plant expansion has slowed and expansion of renewable power has increased considerably. Beyond supply, the focus is also on improving energy efficiency/energy conservation and decarbonisation of key demand sectors.

While energy conservation in India began in the 1970s (triggered by the global oil crisis of 1973), it expanded in subsequent years to include other sources of energy. It culminated in the Energy Conservation Act (EC Act) of 2001 with the aim to reduce energy intensity of the Indian economy. The EC Act was amended in 2022 to include renewable energy mandates for large energy-intensive consumers and it proposed a carbon credits trading scheme.

A glance at KLEMS data provided by the Reserve Bank of India shows that the energy intensity measured as the value of energy consumed per unit of value of output (both in real terms) after peaking in the first half of 2000, declined till the second half of 2000, remained flat till the second half of 2010 and increased thereafter.

Sectoral pattern

Sectoral picture is, however, somewhat different. While the energy intensity of services almost mirrors the economy-wide trend, industry/manufacturing shows a sustained increase in energy intensity since early 1980 till the first half of 2000, and it remained nearly flat throughout 2010 and increased thereafter. The energy intensity of agriculture, though much lower, also showed a rising trend during the first half of 2010 and has remained flat thereafter.

Among the various sectors of the Indian economy, manufacturing is the biggest user of energy. It consumes a little more than half of the energy consumption after excluding the energy use by households. The data show energy intensity is relatively high in manufacturing sectors such as ‘other non-metallic mineral products’ (this includes cement), ‘basic metals and fabricated metal products’ (this includes basic iron and steel and aluminium), ‘pulp, paper, paper products, printing and publishing’, ‘chemical and chemical products’, and ‘textiles, textile products, leather and footwear’.

In fact, except the latter two industries there has been a rise in the level of energy intensity over the years. Some of the other manufacturing sectors where the energy intensity went up during FY00-FY04 and FY20-FY22 are ‘manufacturing nec, recycling’ (28.7 per cent), ‘transport equipment’ (28.1 per cent), and ‘coke, refined petroleum products and nuclear fuel’ (18.2 per cent).

No doubt, the rise/stagnation in the energy intensity of the Indian economy in general and its different sectors in particular lately are a cause of worry but then how can it be reconciled with the other fact that the country not only achieved but surpassed some of the key COP26 commitments such as having non-fossil installed capacity at 50 per cent and reducing its GDP emissions intensity by around 36 per cent from 2005 levels by 2030. This seemingly contradictory outcomes need to be put in perspective lest we arrive at the wrong conclusion.

Price impact

Since KLEMS data on energy consumed is in value terms, relative movement of energy prices to output prices can have a bearing on energy intensity. While the implicit price deflator of energy input in manufacturing declined by 3.3 per cent during FY13-FY18, the implicit price deflator of manufacturing output increased by 4.7 per cent.

It may be worthwhile to mention that global crude oil prices had crashed towards end-2014 and remained soft/moderate with intermittent and short-lived uptick till the Russia-Ukraine conflict erupted in February 2022. The lowering of the real price of energy in manufacturing (energy price divided by output price) appears to be the reason for rise/stagnation in the energy intensity of manufacturing from the second-half of 2010 onwards. In other words, it appears that energy prices had a significant impact on the energy consumption and in turn energy intensity.

The second probable explanation could be the absence of one-to-one correspondence between output produced and energy consumption. It appears that in the period of growth in manufacturing sector output, there is downward pressure on energy intensity as output growth is higher than energy input growth. But it does not hold vice versa. Therefore, as the output growth in manufacturing slowed down during FY16-FY19 to FY20-FY22, the energy intensity did not decline commensurately.

The third probable explanation could be the substitution of coal/electricity in manufacturing by petroleum coke due to its soft/moderate prices. Bulk of the petroleum coke consumption in India took place in cement manufacturing followed by aluminium.

The aforesaid three probable reasons, highlight the ongoing structural and economic challenges. Fluctuating energy prices, slower industrial growth, and shifts in fuel usage have influenced energy intensity patterns.

Therefore, alongside expanding production of renewable energy, strengthening energy efficiency measures and promoting cleaner industrial practices will have to remain a policy priority to ensure India’s sustainable and energy-secure economic growth.

The writer is Professor of Economics at Institute of Development and Communications (IDC), Chandigarh. Views are personal

Published on June 25, 2026