Academic journal article South Asian Journal of Management

Measuring Environmental Efficiency and Cost of Pollution Abatement: An Application of Directional Distance Function to Indian Cement Industry

Academic journal article South Asian Journal of Management

Measuring Environmental Efficiency and Cost of Pollution Abatement: An Application of Directional Distance Function to Indian Cement Industry

Article excerpt

Production of desirable output often generates undesirable by-product which has detrimental impact on the environment. This paper, considering carbon dioxide as an undesirable by product of cement, aims at measuring environmental efficiency of Indian cement industry within a joint production framework of both desirable and undesirable output. Environmental efficiency is defined as the ability of a producer to simultaneously increase the desirable output and reduce the undesirable one. We use 3 digit state level data from the Annual Survey of Industries for the years 2000-01 through 2004-05 and apply Directional Distance Function for the empirical analysis. The empirical results show that Indian cement industry, with environmental regulation, has the potential of expanding desirable output and contracting undesirable one from the given inputs. However, regulation has a cost in terms of lower feasible expansion of desirable output as compared to the unregulated scenario.

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Indian cement industry witnessed an unprecedented growth as a sequel to governments liberalization policy initiated in the form or partial decontrol policy adopted in 1982, culminated in total decontrol in 1989. India has progressed from being the world's eight largest cement producer in 1979-80 being the second largest at present However, this huge growth in cement production has been associated with a price to pay. Among the energy intensive industries in India, cement industry has the highest energy intensity with second highest share in fuel consumption (15.60%), after Iron and Steel (18.10%), mostly in the form of coal utilization. Its expansion could not have been achieved without a very large increase in energy input, especially in the form of coal combustion,

This has resulted in severe environmental problems in the coal mining regions and around the cement producing plants. In addition, India's annual emission of green house gases from the cement industry has been increased from 7.32 m in 1993 to 16.73 m in 2003 and its share in total carbon dioxide (CO2) emission by India has increased from 3.3% to 4.8% during this period (ICRA, 2006). This raises the question of how environmentally efficient Indian cement industry is with respect to CO2 emission.

Globally, cement industry contributes 5% of the total CO2 gas. Among all other green house gases, CO2 contributes the largest amount to the global warmingprocess. Anthropogenic activities, primarily the combustion of fossil fuels and the resultant carbon emission cause a significant warming of the global climate (IPCC1, 1995). If India wants to further develop this industry without creating much pressure on its scarce resource as well as on its environment, it is necessary to put substantial efforts on increasing energy use efficiency and thereby reducing CO2 emission.

In the Indian context, not much attention has been devoted to examine the issue of energy related CO2 emission in general and industrial emission analysis in particular. Paul and Bhattacharya (2004) used decomposition method to decompose the observed changes in the energy-related CO2 emissions into four factors: pollution coefficient, energy intensity, structural changes and economic activity. The results of their study show that economic growth has the largest positive effecr in CO2 emission changes in all the major economic sectors. Emissions of CO7 in industrial and transport sectors show a decreasing trend due to improved efficiency and fuel switching. The study of Nag and Parikh (2000) also tries to analyze the impact of different factors such as activity levels, structural changes, energy intensity and fuel mix and fuel quality on the changes in aggregate carbon intensity of the economy for the period 1970-1995. Srivastava (1997) presents some indicators of energy use in India including per capita energy consumption levels, the structure of energy consumption as well as efficiency of its utilization over the recent decades. …

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