Energy Flows through Production and Consumption Structure of India’s Economy

Abstract:

In this technical note, the India Input-Output Table 2015–16 is used to compute the direct and indirect uses of energy sources required by the production sectors of the economy through the construction of an Energy Input-Output Table. The analysis shows the energy intensities of each of these sectors. This enables the computation of energy savings due to increased energy efficiencies, across sectors and at an economy-wide level. The implications of climate change policies may be analysed through a General Equilibrium model that considers the backward and forward linkages of one sector with all other sectors of the economy.

Executive Summary:

India’s food and energy needs are going to expand in future. Climate change has links with both. India announced its National Action Plan on Climate Change (NAPCC) in June 2008, followed by submission of the Intended Nationally Determined Commitments (INDC) to the UN Convention on Climate Change (UNFCCC) in October 2015. With its objective of reducing energy intensity, India shall face constraints on the use of fossil fuels for energy generation. Increased greenhouse gas (GHG) emissions will adversely impact air quality and hence human health. Climate change will lead to adverse weather conditions in different parts of the country and affect agricultural production. Volatile monsoons and melting glaciers will impact water flows across the perennial rivers and lead to rising seawater levels, affecting water and soil. Lifestyles will change in tandem, as will consumption baskets (though differentially across agroclimatic zones and states). Therefore, there is an urgent need for research on the consequential impact of climate change on the economy and society.

Different sectors, both energy and non-energy, are affected through their inter-sectoral economic linkages. Economic impacts can be measured at the sectoral or the overall economy level using general equilibrium (GE) models. The GE models address the effects of a change in one sector on all sectors through sectoral linkages. Analytical studies can also be done at the single-sector level. Examples of such studies include emissions from, say, power generation or steel manufacturing. However, such studies limit the understanding of inter-sectoral linkages. Hence, it is pertinent to use a GE accounting framework based on the input-output structure that considers the backward and forward linkages of one sector—say production of petroleum products—with all other sectors of the economy. Other examples include understanding the impact of sectoral output changes, capital formation, employment, trade, income levels, and changing consumption baskets. While the data are available to conduct such studies at the national level, these can also be done for the sub-national or the agroclimatic zones, subject to data availability.

An economy’s input-output transactions tables provide the necessary information on sectoral production, intermediate and final consumption, taxation, and income levels. The tables provide the accounting framework of the cost structure of intermediate sectoral production and the estimates of final consumption, capital formation and trade. These tables help compute income and employment multipliers at the sector level and the inter-sectoral forward and backward linkages measures. The input output information can be extended to account for the full circular flow of money and activities—across the household, corporate, and government—to a Social Accounting Matrix (SAM). Climate change issues can be incorporated in the input-output tables and SAM to provide detailed environmental indicators. The extended tools are referred to as the energy input-output (EIO) table, environmentally extended input-output (EEIO) table, and environmentally extended SAM (EESAM). While the EIO accounts for the energy flows across sectors of an economy, the EEIO extends this further with data on GHG emissions and water consumption. The EEIO measures the emissions and primary natural resources embodied within the goods and services of an economy (Institute for Prospective Technological Studies, 2011).

Some of the extant literature addresses the issues of energy and emissions within an input-output and SAM framework. Miller and Blair (2009) provide detailed chapters on these issues. Hikita et al. (2007) extended India’s input-output table for 1993–94 and 1998–99 for environmental analysis to estimate CO₂ emissions. Goldar et al. (2011) discuss the prioritisation of India’s green export portfolio using the environmental input-output approach. Pohit and Pal (2014) worked on an environmentally-extended SAM (or EESAM) for India’s climate change policy.

The EEIO tables and EESAM are amenable to computable general equilibrium (CGE) models for addressing and answering some critical policy questions. These include the impact of changing consumption baskets, energy requirements and cropping patterns on climate change. The models can also analyse the climate change implications of energy efficiency, renewable energy, environmental tax reform and carbon leakage, and border carbon adjustment in a multi-country framework.