Estimating Carbon Emission Intensity of Energy Intensive Firms: A Firm-Level Analyses

The quality of corporate governance is broadly a function of the domestic legislative architecture; in the present world with GVCs linkages, it is also the function of the international legislative regime. In other words, it is a function of the dominant market with the growing demand. There has been a delta calling for a radical shift from efficiency and competitiveness to effectiveness in production. All future projects in countries exporting to the EU market would be governed by the CBAM directives (regulations). The quality of governance during the liberalization period in India (1991–2019) and later is primarily linked to the SDGs and the related nationally determined commitments (NDCs) and secondly to the COVID-19 pandemic. The CBAM regulation would require importers of certain energy-intensive goods to pay a levy for their imports corresponding to the emissions allowances price under the EU-Emissions Trading System (“EU-ETS”). Thus, the EU’s NDCs are forced upon its trading partners who would want to be the exporters; therefore, it introduces a green production process like that adopted in the EU—as part of its NDCs for meeting the SDGs of net zero carbon target by 2050. The Indian firms operating in sectors like iron, steel, and aluminium would need to adopt such legislative-driven changes in the production process of their exports to the EU. The European Union (EU) has notified the World Trade Organisation (WTO) about its national measure, which is also a strategic intention to institute a comprehensive “Carbon Border Adjustment Mechanism” to address the “green-house-gasses” (GHGs) emission and the related “climate-change” challenges. The mechanism is so designed to address the challenges posed by carbon emissions. Therefore, it can potentially target the energy-intensive sectors at the primary and secondary levels. The EU regulation known as CBAM has the potential for heralding a pivotal moment in international trade regulation. The EU’s proposed framework targets eight industries with substantial energy demands, including iron and steel, aluminium, cement, electricity, fertilizer, and hydrogen. Notably, the potential implications of carbon taxation resonate distinctly within the Indian economic landscape, with specific sectors like iron, steel, and aluminium standing out due to their pronounced export orientation. This paper aims to compute carbon emission intensity across firms belonging to two sectors, namely iron, steel, and aluminium, for the period 2000–2022 and understand its relationship with investment in plant and machinery for these sectors. The preliminary finding suggests a decline in firms’ average carbon emission intensity across both industries, as they declined during the study period. A negative and significant relationship exists between investment in plant and machinery and carbon emission intensity in these sectors.