Powering households and industrial growth: Emerging insights from evolving evidence

This is the second blog in our series on energy access. Read the first blog post on how electricity billing systems may impact energy access, and the third blog post on using evidence to address energy poverty in Europe.

Industrial growth is key to economic development and poverty alleviation in low- and middle-income countries. However, industrial growth can lead to increased greenhouse gas emissions (GHG) as well as severe local pollution. The industrial sector alone is responsible for more than one-third of global energy consumption and energy-related CO2 emissions. Industrial energy use is also primarily sourced from unsustainable sources, further exacerbating emissions.

As a result of such GHG emissions, climate impacts, like droughts, floods, and heatwaves, are becoming more intense and severe—and are now guaranteed to increase over the next thirty years. In response to this, households require reliable and efficient energy access to be able to adapt to the effects of the climate crisis.

Emerging evidence from randomized impact evaluations may provide insight to decision-makers on balancing this tension between industrial growth, energy use, and climate change mitigation—as well as increased connectivity and access for low- and middle-income communities. Given the evolving nature of the evidence in this space, there are also opportunities for additional, policy-relevant research.

Improving industrial energy use and efficiency

A number of existing studies present lessons for decision-makers on how to improve industrial energy use and efficiency. Several more are currently underway and promise to generate novel evidence on urgent and important questions.

Providing energy consulting through auditing

Advising firms on effective ways to increase energy efficiency and reduce overall energy use may help to overcome technical and information barriers to more cost-effective energy use. A randomized evaluation by J-PAL affiliated professor Nick Ryan studied the impact of energy-intensive manufacturing plants in India receiving consulting, through an existing energy auditing system, on energy productivity. However, the study found that while firms became more efficient by increasing their output per unit of energy used, they also increased their overall electricity consumption. These counterintuitive findings underscore the importance of testing energy use reduction policies before scaling them up.

Adopting energy-efficient technologies

J-PAL affiliated professor Eric Verhoogen, along with coauthors Ritam Chaurey, Yunfan Gu, Gaurav Nayyar, and Siddharth Sharma, is working with small and medium enterprises in the leather goods and footwear manufacturing sector in Bangladesh to understand the role of information in the adoption of an energy-efficient motor for stitching machines. This ongoing randomized evaluation, funded by J-PAL’s King Climate Action Initiative (K-CAI), is assessing whether providing information about new technologies may impact managers’ support for implementing these technologies and whether greater adoption decreases energy use and emissions. 

Increasing industrial regulatory effectiveness

Beyond identifying what may be effective for improving industrial energy use, industrial pollution regulations can play an important role in mitigating emissions. To this end, regular pollution monitoring and auditing may play an important part in increasing the effectiveness of existing environmental regulations. To address this, several evaluations have assessed ways to improve the reliability and capacity of auditors, as well as other factors that may impact the implementation of environmental industrial policies.

For example, in Gujarat, the existing pollution audit system was found to create incentives for false reporting. In partnership with the Gujarat Pollution Control Board, J-PAL affiliates Esther Duflo, Michael Greenstone, Rohini Pande, and Nick Ryan, evaluated the impact of changing the structure of the audit market by randomly assigning auditors to manufacturing plants, paying them from a central pool, and backchecking their work and conditioning their pay on the accuracy of their reports. They found that this led to both more truthful reporting by auditors and a reduction in emissions among the highest polluting firms. Following these findings, the Gujarat Pollution Control Board adopted the random assignment of auditors.

Building on this evidence and lessons for policymakers, a subsequent study in Gujarat provided additional resources to auditing agencies so that plants were inspected at twice the rate. The evaluation found that increasing the auditing frequency did not have an impact on pollution emissions, while increasing the regulatory discretion of auditors may help to target firms with the highest pollution levels. Similarly, a quasi-experimental study in China found that when conglomerates were faced with energy use regulations, the businesses shifted production to unregulated firms within their production network to evade the regulations, rather than investing in improving their energy efficiency. 

Powering households through climate change

As climate impacts continue to worsen as a result of GHG emissions, efficient and reliable energy access is an important component of empowering low- and middle-income households to adapt. 

Increasing connectivity

An important step in increasing access to reliable and affordable energy for households may be to increase connectivity to the electricity grid, as well as people’s energy efficiency to avoid defaults on electricity bills and possible loss of connection. 

In Cape Town, researchers studied the effect of households’ prepaying for electricity use on their energy consumption and welfare. They found that prepaid electricity led households to reduce consumption and, at the same time, helped the utility company recover more of its costs. These findings suggest that prepaid meters may help maintain the financial viability of utility companies, while simultaneously expanding energy access for the low- and middle-income households by reducing the possibility of being disconnected because of missed payments. As part of a follow-up study, funded by K-CAI, researchers are working with the City of Cape Town to understand how to best scale-up the targeting of electricity subsidies for low-income households to further increase electricity access across the city.

Encouraging energy conservation

There is also room for improvement in encouraging energy efficiency within households through conservation. Researchers are beginning to address this challenge. For example, an ongoing project in Vietnam is evaluating the impact of energy efficiency contests amongst households on the utility's ability to achieve larger aggregate energy conservation. 

What’s next?

While existing studies provide valuable preliminary insights, more rigorous evidence is needed. Supporting randomized evaluations in the climate and firms space is a critical first step to answering pressing questions about how to balance the tensions between industrial economic growth, energy use, and climate adaptation, such as:

• How can we effectively regulate energy use and increase energy access, and how does this vary by firm size, industry, and context? 

• Can we simultaneously promote growth and reduce energy consumption, or is there an inherent trade-off?

• What economic incentives and obstacles do utilities face, and how can we catalyze electricity grid expansion? 

• How can we increase energy access and affordability for households most (cost-)effectively to facilitate climate change adaptation and improve living conditions? 

To help address this need, J-PAL’s King Climate Action Initiative is dedicated to catalyzing the generation of evidence on equitable climate action, including on reliable and affordable energy access, and scaling high-impact solutions.  

Finally, researchers and decision-makers should collaborate in evaluating promising interventions in this space to ensure that the evidence generation process is informed by evolving policy needs and challenges.