Analyzing energy efficiency decisions in India’s energy-intensive industries

This study aims to investigate the decision-making processes of energy-intensive and trade-exposed (EITE) firms concerning the adoption, financing, and investment in green technologies, and to assess how these choices influence their competitiveness under potential climate policy scenarios. This study examines the energy-saving investments and climate policy preparedness of 1,650 Indian manufacturing firms (2012–2021) using a multivariate probit (MVP) framework, analyzing how firms enhance competitiveness through interconnected decisions on capital investments, borrowing, fuel efficiency, and export intensity. Firm characteristics such as size, age, profitability, liquidity, and asset tangibility play a crucial role in energy efficiency. Smaller, younger, and less profitable firms tend to be less energy efficient, while exporting firms are more vulnerable to carbon taxes and rising energy costs due to lower fuel efficiency and higher capital intensity. EITE industries, like aluminum, rely more on borrowings for capital expansion, while steel firms, with greater international exposure, exhibit lower energy efficiency than their aluminum counterparts. In addition, non-EITE firms respond more effectively to capital intensity increases through improved fuel cost efficiency. Targeted policy measures to enhance their capital intensity could boost energy efficiency and enable their participation in carbon trading programs. To the best of the authors’ knowledge, no other study has examined firms’ strategies to enhance competitiveness under climate regulations by linking borrowings, capital intensity, fuel costs, and export orientations. Our study provides deeper insights into firms’ motives, as readiness for carbon taxes cannot be assessed through isolated decisions.