Economics of Energy Conservation in Developing Countries and Analysis of Investment Incentives

This paper analyzes the economics of energy conservation in developing countries, compares the cost of energy conservation with the cost of enhancing domestic energy supply, and examines the effect of government investment incentive policies on the financial feasibility of energy conservation projects. A representative sample of 21 projects from six Indian industries shows that investing in energy conservation is more economical to a country than investing in domestic energy supply. Moreover, the nature of the conservation effort, i.e. housekeeping improvements, waste heat recovery or process change, is more important in determining the economics of energy conservation than is the type of industry. Analysis of government investment incentives shows that most of them are effective in making uneconomical energy conservation projects financially feasible and that the most effective incentive for the private investor to invest in energy conservation is the removal of fuel subsidies.