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ANALYSIS
 
Vol. VII Issue. 35
Responding to Change: Searching for a Path through the Climate Haze(part II)

Samir Saran
Observer Research Foundation
15 February 2011

India’s power dilemma

According to the Central Electricity Authority, India’s installed energy capacity for thermal power as of February 28, 2010 is 100,599MW. India’s total capacity is 157,229MW. Nuclear energy is at 4,340MW, hydro energy is at 36,863MW and according to the Ministry of New and Renewable Energy, green energy is at 15,427MW. Captive power-generating capacity connected to the grid is an additional 19,509MW.22 India’s per capita energy consumption is less than 500kgoe (kilogrammes of oil equivalent), compared to the global average of 1,800kgoe.23 According to India’s Integrated Energy Policy: 203224, the projected per capita energy consumption would be well below the 2003 levels in developed countries. Even to meet this modest energy supply, the required installed capacity that India would need for 2031-2 would be 760,000MW at 7% annual GDP growth and 960,000MW at 8% growth;25 between 4.5-6.0 times the current capacity. Since the power sector emissions contribute nearly half of the per capita emissions26 in India today, this sector alone would contribute an additional 3.5-4.0tCO2 per capita by 2032. This, in a sense, is the Indian dilemma and the global concern. A

Power sector investments have long lifecycles of 30-40 years, and therefore will shape India’s abilities to reduce emissions to 2tCO2 per capita by 2050. However, even if India was to opt for green alternatives for a fourth of the new generating capacity, an estimated additional annual expenditure of US$258 billion may be required.27 These funds are not forthcoming and the irony is that the Annex 1 countries, many of whom are facing severe economic meltdown, may not be able to meet their financial obligation towards the climate response.

India’s transport dilemma

India’s existing Achilles’ heel has been its transport sector. Significant investments are underway and the current five year Plan28 has estimated that the total investment in infrastructure during this period would be US$514.04 billion. Of this, roads and bridges are at US$78.54 billion, railways at US$65.45 billion, ports at US$22 billion and airports at US$7.74 billion. The positive aspect of this investment is the growing emphasis on moving traffic from road to rail and creating dedicated corridors for high density routes which can save up to 347-500MtCO2-eq in the next 20 years.29 Some of the projects in this period include the creation of dedicated rail freight corridors between Delhi-Mumbai and Ludhiana-Kolkata; modernisation of 4 metro and 35 non-metro airports; constructing 7 green-field airports; further developing the Golden Quadrilateral highway network (connecting Delhi, Mumbai, Kolkata and Chennai) and other national highways; as well as developing 1,000km of expressways and construction of 129,707km of rural roads in India.30 Each of these endeavours is carbon intensive (large quantities of steel, cement, fossil fuel and power are needed) and will test the ability of the country to improve its carbon intensity of GDP going forward. The climate nightmare is, however, the estimated increase in the car density. Currently, India has 8 cars/1,000 people; China 15/1,000; Brazil 165/1,000 and the USA 500/1,000. By 2050, India is likely to have 382 cars/1,000 people with Brazil having the highest number (645/1,000). The transport sector that currently contributes less than 10% of total Indian emissions is likely to double in the next 20-30 years. Transport policies and the introduction of mass rapid transport systems could significantly change the nature of the emissions profile in this sector, and as in the case of power, this would require investments from within and outside the country. Top

India’s agriculture dilemma

The least discussed sector globally is the agricultural sector. According to the International Food Policy Research Institute (IFPRI), it accounts for 20% of India’s total GHG emissions.31 While CO2 emissions in agriculture are barely 1% of the total, Indian agriculture accounts for 50% of India’s methane (CH4) emissions.

Nitrous oxide (N2O) emissions, at 0.31Mt, account for an even larger share. India’s livestock population is estimated to grow to 636 million by 2020. India’s paddy cultivation area of 432.3 million hectares is the largest in Asia, and accounts for the bulk of GHG emissions from agriculture. Though flood irrigation of rice is the second largest source of GHG emissions from agriculture, India’s per hectare emissions from rice cultivation are approximately 10% of the global average.32 Due to the highly sensitive and political nature of this sector, it is unlikely that any drastic policy changes could be expected. Perhaps, through the reorientation of consumption patterns and more directed subsidy schemes for the farmers, the emphasis on wheat and rice in agriculture could be reduced. Traditional grains may need to be reintroduced due to their drought-resistance and their suitability to the local agricultural conditions.

India’s peaking year dilemma

The other important determinant of India’s emissions profile would be the timeline for ’peaking’ its emissions. There already is intense international pressure on most emerging economies on this, and once an international agreement is signed in the coming years, there will be limited time available. However, success in achieving the goals of poverty reduction, infrastructure and social development must clearly inform the peaking year and must continue to remain non-negotiable for India when committing to any global timeline. The rate and pace of success in domestic action on these aspects will clearly involve strong central political leadership, and more importantly, a universal political buy-in from the 28 Provincial Governments is necessary to drive transformation at the grassroots if such change is to be effected. Success will clearly depend on the governance and institutional capacity (finance, know-how, skills) to mitigate existing deficiencies and steer their constituents towards a sustainable economy.

There are two nuances of the pace of change that must be briefly discussed. The first is how soon can the old economy relinquish its old models and opt for the new; and if the old economy is unwilling, then how soon can the green companies muster sufficient political capital to influence policies and governments? There is an underlying face-off between these two business models and the outcome will certainly influence the pace of transformation. This is further complicated by the fact that the old businesses (oil and gas, aviation, power companies, et al) are, in addition, IPR owners of the new green technologies.33 This adds an additional economic dimension on how soon the new technologies can replace the fossil-fuel-based economy. It is the oil and gas companies who may actually decide the price point and the time for the commercial applications of existing green alternatives such as solar, wind and CCS (carbon capture and storage). If mass deployment of these technologies has to be achieved in bottom-of- the-pyramid economies like India and China, some innovative pricing mechanisms may need to be devised to make them attractive and affordable.



The second nuance is perhaps equally compelling. As per a study by Edmonds et al,36 there is an economic and moral argument for emerging economies like India to delay the peaking of emissions. In the table on the previous page, if the emerging economies were to introduce a carbon tax (i.e. a price for carbon) in a phased

manner as per the 2050 set 3 scenario, their burden towards bearing the cost of mitigation would be 28% of the global effort. In comparison, if the emerging economies were to act now (2012), their burden of mitigation would be as high as 72% of the global effort. Clearly, there is a moral argument for the Annex 1 countries to bear a larger share of mitigation costs under 2050 set 3.

However, if the Annex 1 countries, under any global agreement, were to compensate unconditionally the cost of transition for the emerging economies early transition could be achieved and global economic costs would be minimised. The deliberations at Copenhagen suggest otherwise. The commitment of funds to the global cause is ’back-loaded’, with larger contributions only flowing from the Annex 1 countries at the end of the decade and beyond (projection). Early peaking of emissions will require front-loading of fund flows by Annex 1 countries. Top

Consumption dilemma

A day after the conclusion of the Copenhagen Summit, two narratives appeared in newspapers. The first described the role (negative) of India and China at Copenhagen which led to a watered-down agreement in the form of an ’Intent of Parties’. The second media report highlighted how China, India and the Philippines are leading the global economic recovery by the virtue of their consumption market.37 This, in essence, is the climate paradox. China and India are expected to consume and help the global economic community and are also expected to reduce emissions to protect the climate. If in 2050 China and India account for 50% of the incremental emissions,38 in the same year, household consumption and transport will contribute over 60% to global emissions.39 As per a report by the US Department of Energy, only 25% of the emissions in the USA are from the industrial sector, while transportation and commercial sectors contributed more than 50%. Furthermore, 15% of the CO2 emissions come from the residential sector, which indicates that more than 60% of US emissions are directly linked to the consumption patterns of individuals and households in the USA, which are shaped by their lifestyles and behaviour.40

Today, India’s affluence is not significant enough to impact its emission profile, but by 2050, personal consumption, personal transport and leisure and travel have the potential to be the most significant source of CO2 emissions. Even as India grapples with placing sustainability at the heart of its infrastructure and energy investments, consumption emissions still evade attention. This is the direct product of the lack of a similar debate in the Annex 1 countries. As per the IEA (International Energy Agency), despite an improvement of over 25% in energy intensity of GDP in both Europe and the USA, total emissions have only fallen by 1.5% in Europe, while in the USA they actually increased by 16.3%, due to a higher growth rate fuelled by increasing consumer demand. Furthermore, the use of electricity by appliances such as refrigerators and computers has increased by 48%, service sector electricity consumption increased by 50% and in households it increased by 35%.41 Even in the UK, over 50% of emissions are based on lifestyle. And if a reduction in emissions of 80% by 2050 is to be achieved, nearly half of the reduction would have to flow from the lifestyle carbon account. Can the global community achieve this? In the USA alone, over US$1 trillion are spent annually on advertising and marketing. If marketing were a vertical industry, it would represent close to 9% of the GDP of the USA, and it would rank as the fifth largest industry, behind manufacturing, government, real estate and professional services.



The total marketing costs are estimated in the vicinity of anywhere up to US$5 trillion globally. Some of the most popular advertising choices are the cartoon channels which are the most profitable of all media properties.43 What does this imply? Much of the US marketing spend in the US is targeted at children below 10 years of age: teaching them the virtues of motor cars, electronics, houses and holidays.

At a young age, a powerful marketing force inculcates the fine art of carbon emissions into the very being of every child. And what is the global response? The mightiest nations get together at Copenhagen and very proudly announce an increasing commitment of up to US$100 billion a year to curtail emissions. It is an unequal battle. Even from these committed funds it is unlikely even a dollar would be spent on behaviour change and curtailing lifestyle emissions. The global discourse continues to largely ignore this most important half of the equation; you and I as consumers. India and any emerging economy can do very little to manage this end of the equation. They are susceptible to international marketing forces, the unfolding globalisation and the growing aspirations of their own populations. In the period that they were discarded as the ’third world’, each one aspired to the American dream. Now the question is, can the planet sustain an additional 2 billion Indian and Chinese living this dream?

If the global community is committed to capping our emissions at 450ppm by 2050, significant global efforts and policies would need to be designed to reverse this ’consumption pollution’. Should policies be based on curtailing advertisements on children’s television channels, or should there be greater censorship on the products advertised? Should the media be reigned in? Or should the last mile to the consumer be controlled? These are all questions that societies, national governments and the international community will need to respond to.

Conclusions

The Indian response to climate change will clearly be conditioned by global negotiations, domestic compulsions and the aspirations of its people. While most economists believe that pricing carbon or offering incentives to green alternatives for development are the most efficient tools of policy, it is also apparent that harsh decisions and ’command and control’ alternatives may also be appropriate if emissions are to be curtailed. The striking similarity between the Bruntland Report44 and the Stern Review is that both criticise the existing liberal market framework as being the cause of unsustainability and in their conclusion, both reassert the primacy of the market in seeking a solution. Top

Governance cannot be ceded to markets and policy must be the purview of the polity. Tough decisions are also in store with respect to deployment and dispersion of green technologies. Should intellectual property rights (IPR) be subject to ’must provide’ regulations and compulsory licensing, or should new ways of protecting IPR be developed while encouraging their wider dispersion?

The distorted markets that we see across the globe are unable to disseminate technology at appropriate prices. If climate cannot be discounted, why should it be the basis for profiteering? A middle, effective path needs to be discovered.

Carbon markets and carbon trade are another area of keen interest which some see as resolving the redistributive and equity debate; but this needs to be deconstructed to examine their true effectiveness. As per a World Bank report,45 CERs (certified emissions reductions) are ineffective in controlling emissions. Since 2008, while there has been a transfer of US$7 billion to the emerging economies under the emission trading scheme,46 critics argue the transactions are at the entity level and between elites in the west and in the east. Moreover, the allowances that were traded were generously awarded and the real impact within the EU is marginal due to this distortion.

The jury is still out on the effectiveness of the EU-ETS and similar schemes that may emerge. In the case of India, perhaps the most effective financial mechanism would be based on the market opportunities and the improved business environment going forward.

The country would need to remove licensing and policy bottlenecks and fast-track investment in sustainable businesses.

India will need to attract greater domestic private- sector and international investments in the key sectors of power and infrastructure, and compete in this process with other countries that offer similar opportunities.

India has already introduced feed-in tariffs and other regulatory incentives47 to support the development and deployment of renewable energy, in order to ensure a significant component of future growth is sustainable.

However, if innovation and intellectual property will be the key resources that will fuel the new economy, then India must invest in its human resources and research and development (R&D). Its current level of less than 1% for R&D is unacceptable and it must at the earliest opportunity strive for the OECD level of 2.25%.48 School education and quality university education, along with a culture of innovation, can ensure that India uses its over 1 billion population gainfully in a new world energised by intellect and fuelled by technology.

Notes:

22 Facts and figures on installed energy capacity, as stated by Central Electricity Authority of India; http://www.cea.nic.in/

23 Ministry of Environment and Forests and Ministry of Power, Bureau of Energy Efficiency, Government of India, ’India: Addressing Energy Security and Climate Change’, October 2007; http://envfor.nic.in/divisions/ccd/Addressing_CC_09-10-07.pdf

24 Planning Commission, Government of India, New Delhi, ’Integrated Energy Policy: Report of the Expert Committee’, August 2006

25 Central Electricity Authority and Confederation of Indian Industries, ’White Paper on Strategy for 11th Plan’, August 2007 August 2006

26 Indian Network for Climate Change Assessment, Ministry of Environment and Forests, Government of India, ’India: Greenhouse Gas Emissions 2007’, May 2010

27 Figure calculated using the estimate of 3,880 billion kWh given by the Integrated Energy Policy Report (IEPR) of total energy requirement in 2031-32 at 8% GDP growth. 25% of this figure was multiplied by ` 12 which is the average price for a basket of renewable energy sources such as solar, wind and biomass. The final figure was converted into US$ using an average exchange rate of ` 45 to the US$.

28 The Secretariat for the Committee on Infrastructure, Planning Commission, Government of India, ’Projections of Infrastructure during the Eleventh Plan’, August 2008

29 ’Goyal, A., ’Carbon Mitigation Strategies in Transport Sector - Complex issues Involved in Designing India’s Ultra Low Carbon Mega Rail Projects’, presentation given at Observer Research Foundation, New Delhi, November 19, 2009

30 The Secretariat for the Committee on Infrastructure, Planning Commission, Government of India, ’Projections of Infrastructure during the Eleventh Plan’, August 2008

31 Nelson, G.C. et.al, ’Greenhouse Gas Mitigation: Issues for Indian Agriculture’, International Food Policy Research Institute discussion paper, September 2009; http://www.ifpri.org/sites/default/files/publications/ifpridp00900.pdf

32 Climate Challenge India, ’India: Strategies for Low Carbon Growth’; www.climatechallengeindia.org/.../158-India- strategies-for-low-carbon-growth

33 Tannock, Q., ’The Economics of Climate Change: Taking the Lead, IP Ownership’ Presentation at Chevening Fellows Lecture, Wolfson College, Cambridge, January 28, 2010

34 ’Base case’ = universal harmonised carbon tax sufficient to meet the stabilisation target implemented without delay Lecture, Wolfson College, Cambridge, January 28, 2010

35 Edmonds, J., Clarke, L., Lurz, J. and Wise, M., ’Stabilizing CO2 Concentrations with Incomplete International Cooperation’, Climate Policy 8(4):355-376, 2008 Lecture, Wolfson College, Cambridge, January 28, 2010

36 ibid

37 ’India & China Leading World Recovery The Economic Times, November 15, 2009

38 Shalizi, Z., ’Energy and Emissions: Local and Global Effects of the Rise of India and China’ in Winters, A.L. and Yusuf, S., Dancing with Giants: China, India and the Global Economy, World Bank Publications, 2007

39 Sanwal, M., ’Climate Change and Global Sustainability: Need for a New Paradigm for International Cooperation’ paper presented at the Global Summit on Sustainable Development and Climate Change, New Delhi, India; organised by Observer Research Foundation, India and Rosa Luxemburg Foundation, Germany, September 24, 2009

40 US Department of Energy, Energy Efficiency & Renewable Energy, 2005 Buildings Energy Data Book, August 2005

41 International Energy Agency (IEA), Energy in the New Millennium; Trends in IEA Countries, 2007

42 BlackFriars Communication, Inc., 2005; http://blackfriarsinc.com/sizing-release.html

43 See, for example, Johannes, A., ’Chevy Forms Multi-Million Dollar Deal with Nickelodeon’, May 26, 2005; http://promomagazine.com/news/chevynick/

44 ’Report of the World Commission on Environment and Development: Our Common Future’, UN Documents, 1987; http://www.un-documents.net/wced-ocf.htm

45 The World Bank Institute, Washington DC, ’State and Trends of the Carbon Market 2009’, May 2009; http://siteresources.worldbank.org/EXTCARBONFINANCE/Resources/State_and_Trends_of_the_Carbon_Market_2009-FINALb.pdf

46 ibid

47 Tyagi, A., ’Renewable Energy Holds Promising Future in India" April 18, 2008; http://www.renewableenergyworld.com/rea/news/article/2008/04/renewable-energy-holds-promising-future-in-india-52214

48 OECD, OECD Science, Technology and Industry Scoreboard 2007: Innovation and Performance in the Global Economy, OECD Publishing, 2008

Concluded

Views are those of the author

Courtesy: University of Cambridge Programme for Sustainability Leadership

      
 
 
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