Input factor reliability may substantially limit a firm’s ability to produce in a least-cost manner. These productivity losses may manifest as a change in a firm’s decision of what to produce in-house (versus purchase from firms with more reliable inputs), or the level of technical efficiency a firm adopts.  We examine these issues by looking at electricity blackouts which affect a firm’s production capabilities, especially in developing countries. In particular, this paper examines electricity reliability in China during a period of severe shortages. Starting in 2002, the fast-growing Chinese demand for power, coupled with regulated prices, led to blackouts that varied in degree over space and time. By prioritizing residential and commercial use, regulatory agencies arranged for rolling blackouts of industrial enterprises. We examine how these shortages affected industrial productivity and what the implications were for the environment. Incorporating a measure of electricity reliability into a cost function, we measure the factor-neutral and factor-biased effects of scarcity on productivity. Our data consist of 1340 Chinese energy-consuming industrial enterprises in eleven sectors from 1999-2004. Our results suggest that enterprises re-optimized among the factors in response to electricity scarcity by shifting from energy (both electric and non-electric sources) into materials—a shift from “make” to “buy.” We do not find evidence of an increase in self generation as a result of scarcity. The results are robust for alternative scarcity measures and alternative specifications.