Assessing Energy Efficiency of Indian Chemical Industry: Examine the Role of Innovation and Regional Heterogeneity

This study aims to measure energy efficiency levels and the impact of technological innovation and regional heterogeneity on energy efficiency. Hence, we use Indian chemical industry data covering 85 firms from 2003–04 to 2018–19. First, we employ the stochastic frontier analysis (SFA) to measure total factor energy efficiency (TFEE). Second, we use truncated regression to assess the effect of innovation and other factors. Our time-varying TFEE has a mean level of 0.84. Most firms can improve their energy efficiency by 15 %. Hence, a substantial energy-saving opportunity exists in the case of the chemical industry in India. Our second-stage results suggest that firms' innovative capability accumulates over time, enabling them to achieve higher energy efficiency. Additionally, older firms perform better than younger ones in terms of TFEE. However, having facilities at different locations reduces energy efficiency, while the number of products produced does not significantly impact energy efficiency. Our study emphasises the need to consider regional heterogeneity and technological gaps when developing strategies to enhance energy efficiency at the firm level. The findings have significant implications for regulating the manufacturing sector, providing insights for policymakers and industry practitioners to design effective strategies to promote energy efficiency.