The impact of the Perform, Achieve, and Trade (PAT) scheme on energy intensity: Evidence from the pulp and paper industry

Abstract

Improving industrial energy efficiency is central to India’s decarbonization strategy, yet empirical evidence on the effectiveness of market-based regulation in traditional, energy-intensive sectors remains limited. This study evaluates the causal impact of the first cycle of the Perform, Achieve, and Trade (PAT) scheme on firm-level energy intensity in the pulp and paper industry–a sector characterized by high thermal and electrical energy dependence and early inclusion in the PAT scheme. Using an unbalanced panel of publicly listed firms from 2002 to 2019 and a Difference-in-Differences model with firm and year fixed effects, we estimate that PAT participation reduced energy intensity by 13.1% relative to non-regulated firms. The identification strategy is supported by parallel trends and validated through robustness checks, including a Heckman selection model and a Blundell–Bond dynamic specification. Heterogeneity analysis shows that energy intensity reductions are driven mainly by privately owned and large firms, consistent with scale advantages and financing capacity. Mechanism analysis indicates that investments in capital stock and improvements in labor utilization contributed to the observed efficiency gains. The findings demonstrate that carefully designed energy-efficiency obligations can lower energy intensity without adverse selection concerns. For policy, the results highlight the importance of fostering technology transfer, public–private partnerships, gradual adjustments to energy use, capital investments in energy-efficient technologies, capacity-building support for smaller firms, employment training programs, and continued use of market-based instruments in India’s industrial decarbonization portfolio. © 2025 Taylor & Francis Group, LLC.