Environmental efficiency of the Indian cement industry: An interstate analysis

Coal combustion, for the production of cement, generates considerable amount of environmentally detrimental carbon dioxide as an undesirable by-product. Thus, this paper aims at measuring environmental efficiency within a joint production framework of both desirable and undesirable output using Data Envelopment Analysis. Carbon dioxide is considered as an input in one context and as an undesirable output in the other with the environmental efficiency being defined accordingly. Using 3 digit sate level data from the Annual Survey of Industries for the years 2000-01 through 2004-05, the proposed models are applied to estimate environmental efficiency of Indian cement industry. Empirical results show that Indian cement industry, if faced with environmental regulation, has the potential to expand desirable output and contract undesirable output with the given inputs. However, regulation has a potential cost in terms of lower feasible expansion of desirable output as compared to unregulated scenario.