Over the Barrel: Year 2 must be greener

The government’s policy pronouncements over the past year have thrown into sharp relief the conflict between its energy policy and its green agenda. It should endeavour to settle this conflict over the coming year. The purpose of this article is to recommend the steps it should take to do so.

The government has announced that it will treble coal production from the current 500 million tonnes per annum to 1.5 billion tonnes by 2022. Coal is the dirtiest fuel in the energy basket. Separately, it has committed to increasing solar energy capacity from the current 2.5 gigawatt (GW) to 100 GW, and wind energy from 25 GW to 50GW (approximately), also by 2022. This is in line with the prime minister’s commitment to push economic development on to a low-carbon growth path, and his call for a saffron (solar) revolution. The chief economic advisor has, in an article in this paper (‘Green road to Paris’, IE, May 13), reinforced this “green” message by arguing that India has moved from a regime of “carbon subsidisation” to “carbon taxation”. He has based his argument on the fact that the benefit of low oil prices has not been fully passed on to the consumer. His logic could be challenged, but it is important to note the use of the term “carbon taxation” by a government official.

Read separately, each of these pronouncements is defensible. India sits on the fifth largest reserves of coal in the world and the goal to provide secure, reliable and affordable energy to the public on a 24/7 basis cannot be achieved unless these indigenous deposits are harnessed. But India is also highly vulnerable to global warming. One hundred and fifty million people live along its 7,500 km coastline. Their livelihoods would be severely impacted if sea levels rose. Further, there are millions of farmers in north India who are dependent on the waters from the 10,000-plus glaciers that mark the Himalayas. Were these glaciers to recede, the impact on agricultural output could be severe.

The point is that coal offers the least-cost option for energy security, and cannot but be encouraged. Equally, the green agenda has to be accorded high priority. We can no longer afford the option of developing first and cleaning up later.

Read together, however, these statements are in conflict. The commitment to push the dirtiest fuel in the energy basket does not sit comfortably with the commitment to move the economy on to a low carbon, clean energy and environmentally responsible growth path. The target to fast-track solar and wind energy loses its clean energy sheen when, in parallel, a target is set to burn more coal than perhaps any other country in the world (more so than even China ). The claim of “carbon taxation” gets knocked on the head by a distortionary pricing mechanism that discourages investment in the exploration and production of the environmentally more benign natural gas.

So how does one square this circle? What must the government do to reconcile these understandable but conflictual objectives? I would suggest the following steps for consideration in the coming year.

One, the price of natural gas should be aligned to trade parity levels. The current price has been administratively set at below market levels. This has discouraged the flow of risk capital into exploration and choked the development of discovered reserves. Natural gas is a relatively clean fossil fuel and pending the shift to renewables, it should
be seen as the transitional bulwark of our fossil fuel-based energy system.

Two, carbon taxes should be explicitly acknowledged and integrated into our pricing mechanism. The final price of products should reflect the external costs on society of carbon emissions. It should not be, as is suggested by the CEA, an implicit claim on the peg of a revenue-generating exercise. No one likes taxes and few governments have bitten this particular bullet. But now that the notion of such a tax has been publicly aired, it might make sense to derive the tax by direct reference to levels of emissions.

Three, the measurement of carbon emissions by different industries and economic segments must be sophisticated, and the data held in a centralised bank. Lack of accurate and reliable data is an impediment to effectively tackling environmental pollution.

Four, old power plants running on subcritical and inefficient turbines rank amongst the heaviest emitters of greenhouse gases. State governments should be persuaded to either upgrade or close down these plants.

Five, the present grid infrastructure is not strong enough to absorb a massive influx of variable and intermittent renewable energy. The requisite “smart” capacity cannot be built quickly. The focus next year should be on decentralised power and, in particular, small-scale solar.

Six, urban air pollution has now reached deathly proportions. Thirteen of our cities rank amongst the most polluted in the world. One reason is the exponential increase of vehicular traffic. There are a number of excellent studies that have suggested a number of non-exclusive actions to reverse this trend. These range from strengthening public transport to discouraging city driving to influencing behavioural change towards matters like car-sharing. The governmentshould dust off these reports and look at implementing these recommendations.

Seven, demand-side management is a powerful instrument to tackle the problem of energy deficit and energy sustainability. So far, it has not been effectively deployed because of pricing distortions and subsidies. Kerosene, LPG, power, water and urea are still heavily subsidised. These distortions will have to be corrected to effectuate this instrument.

Eight, emissions norms, building standards and efficiency standards have not been comprehensively implemented because of weak and ill-defined regulatory structures. These structures must be strengthened.

Nine, the clean energy fund is flush with cash, but its management is opaque. This should be corrected and the money effectively and transparently deployed to leapfrog old technologies.

Finally, it must be recognised that energy policy and the green agenda are two sides of the same coin. They have to be tackled conjointly. The institutions of governance must be redesigned to reflect this fundamental reality.

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