Based on the econometric analysis, this research suggests a green domestic policy mapped with FDI and trade to increase productivity and energy efficiency for the manufacturing sector in the country, an IIT Madras release on Friday said.

Other key findings include one-to-one correspondence and linkages between tax and energy intensity will promote renewable energy, firms that are improving energy efficiency can be either given tax credits or tax exemptions as rewards and there is an urgent need to replace vintage capital and adopt new technology.

The study also has important policy implications with regard to global climate change regulations as an increasing number of cap-and-trade emission trading systems are also being implemented around the globe (Ex: in California in the U.S. and China).

As pollution-intensive industries and firms are more likely to be attracted by lax environmental policy, ‘Performance, Achievement and Trade’ policies need to focus on these firms.