Working Paper

Is There an Energy-Efficiency Gap? Experimental Evidence from Indian Manufacturing Plants


Climate policy pushes energy-efficiency investments as a means to reduce energy consumption, and thus greenhouse gas emissions, in developing countries. In this paper, the author reports the results of a large field experiment among energy-intensive Indian manufacturing plants that offered information and skilled labor to encourage energy-efficiency investments and practices. Treatment plants invest small amounts in recommended energy-efficiency measures; increase physical efficiency for some systems; increase capacity utilization across the board; hire more skilled labor; and invest more in other capital improvements. This suite of changes looks like modernization - a shift towards higher-skill, more capital-intensive plant production. The net effect of modernization on both energy consumption and productivity are roughly zero, within the precision of my estimates. Plants that become more efficient run more, which offsets any savings in energy. Similarly, treatment plants are estimated to increase sales by a large (though statistically insignifi cant) 12 percent, an amount offset by the higher cost of their new input mix. This research was funded under the Private Enterprise Development in Low Income Countries (PEDL) Programme