Developmental Benefitsfrom a Low-Carbon Pathway

The Interim Report of the Expert Group on Low Carbon Strategies for Inclusive Growth neither prioritises inclusivity nor offers concrete solutions to adopt a lowcarbon pathway. Such a growth path can produce co-benefits and savings while moving millions out of poverty in India. It is socially, financially and politically the right way forward, but it needs to be articulated in much more explicit terms than what is currently proposed by the government.

Sudhir Chella Rajan (scrajan@gmail.com) is with the Department of Humanities and Social Sciences, IIT Madras, and Sujatha Byravan (sbyravan@yahoo.com) is with the Centre for Development Finance, IFMR, Chennai.

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Changing Positions

It is nevertheless worth placing the Report in the broader context of climate change

centigrade guardrail”. Beyond this point, highly non-linear changes in the earth’s systems may occur and jeopardise the livelihoods of billions. According to the analysis by the German Advisory Council on Global Change, global fossil-based emissions of carbon dioxide (CO2) must not exceed 750 gigatonnes (Gt) over the next four decades, if the world is to have a 67% chance of keeping the temperature rise below two degrees (WBGU 2009).

Ever since negotiations began, India’s key defence against taking any action on climate change was based on the argument that its low per capita emissions, combined with millions of its citizens still living in poverty, required an ethically determined allocation scheme. Consequently, wealthier nations responsible for the bulk of the added CO2 concentrations in the atmosphere since the industrial revolution ought to take aggressive steps to mitigate climate change first. Nevertheless, in recent months, realpolitik seems to have prevailed and India has evidently dropped any demand for an equitable allocation of responsibility for reducing global emissions, instead signing on to a lessspecific, target-free notion of “equitable access to sustainable development”. The implications are that developed countries will not be held to account for their historical contributions to the climate crisis or for inaction in the future.

All may not yet be lost, however. Article

3.1 of the Framework Convention on Climate Change affirms that “the Parties should protect the climate system for the benefit of present and future generations of humankind, on the basis of equity and

COMMENTARY

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August 20, 2011 vol xlvI no 34

COMMENTARY

growth in emissions of around 2.5% during the next four decades, which seems plausible if we imagine slow decarbonisation as a result of technological change and structural shifts in the economy, but no new policies.3

In the course of identifying low carbon development pathways for the country as a whole, it makes sense to formulate a vision that focuses primarily on the development needs of 30% of the population living in poverty. We argue that this approach will avoid the problem of “hiding behind the poor” and will in fact put India on a sustainable development trajectory.

Consider a scenario where the government decides to reduce emissions to 20% below what they would otherwise be in 2030 using domestic monitoring and evaluation mechanisms to track progress. The target may be achieved with no reference to poverty alleviation and by adopting technology options such as energy efficient motors and lighting systems, fuel economy standards, more efficient power plants, a higher mix of renewable energy sources, and lower transmission and distribution losses. Alternatively, the government could impose the same overall emissions cap and apply the same technologies, but include a specific focus on providing energy services to the bottom 50 million or so households by providing liquefied petroleum gas (LPG) or advanced electric cook stoves where feasible, access to electricity for lighting, water, sanitation services, improved access to services in urban areas (involving changes in landuse and transport), improved agricultural services, and so on.4 The increase in emissions associated with poverty reduction activities will need to be offset by reductions at the top end of the income scale, say, for the 95th percentile. Here, one could conceive of progressive taxes on luxury emissions generated by aircraft and personal automobiles or even personal carbon taxes on the wealthy (Fawcett and Parag 2010).

Choice of Low-Carbon Pathway

There are four economic reasons to adopt the second type of low-carbon inclusive growth pathway, which we characterise as “gathering money on the ground”,

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August 20, 2011

“picking low hanging fruit for co-benefits”, “unleashing untapped labour”, and “collecting on our carbon debt”.

The first reason is simply the wellknown fact that energy efficiency will result in savings simply by reducing demand for energy and fossil fuel imports. Sathaye and Gupta (2010) have recently estimated these benefits for the power sector alone to be in the order of about $600 billion over about a decade through 2020. It is quite conceivable that the savings could be extended through 2050 and that there are similarly many negative cost efficiency options in the petroleum sector as well. It will not therefore be a stretch to assume benefits of 2% of annual GDP from savings through efficiency improvements alone for the next four decades.5

The second motive, picking low hanging fruit for co-benefits, is that investing in low-cost renewable energy options, such as wind, biomass, and mini-hydro, and making efforts to disseminate small-scale decentralised solar photovoltaic systems, particularly to areas remote from grid access, will provide tremendous environmental and social co-benefits. These include reduced pollution and associated health impacts, improved livelihoods from small-scale manufacturing and services associated with renewable energy industries, and reductions in import of fossil fuels. The full extent of the scope and scale of non-GHG external costs of energy services from fossil fuels has not been analysed for India, but it may be safe to assume, based on studies carried out elsewhere, that these would amount to close to the private costs especially for coalbased power and petroleum-powered transport.6 Investments to replace conventional options with the most appropriate, easy-to-implement renewable energy

Survey of Experimental Economics

Over the past few decades, experimental methods have given economists access to new sources of data and enlarged the set of economic propositions that can be validated. This field has grown exponentially but is still relatively new to the Indian academics.

EPW will publish in the issue of 27 August a 40-page survey on experimental economics that will introduce the field to the teacher and the student. The survey, prepared under the University Grants Commission-funded project to promote the social sciences in India, will provide a flavour of the state of knowledge in this field.

vol xlvI no 34

options will at worst cause no net reduction in national income but may generate additional savings, especially if the health benefits are significant.

The third benefit is the improvement in income opportunities associated with the provision of energy services for the poor. The availability of modern energy services is a necessary, though not sufficient, condition for improving living standards, education attainment, food security and livelihoods. The improvement in capabilities brought about by these changes will more than likely help add around 100 million people into the labour market over the next decade or so, and assuming that other macroeconomic conditions prevail to absorb them, one could expect the infusion of at least $200 billion to the GDP by 2025, adding another

3%-5% on average to the GDP.

An increase in “survival” emissions for the basic needs of the poor will have to be matched by a reduction in “luxury” emissions from the wealthy.8 There are tremendous opportunities for India to reduce emissions from the lifestyles of the middle and the rich classes. Addressing this issue is critical not only because it will reduce emissions, but also because lifestyles build aspirations for the poor. It is important that India gets on a low-carbon inclusive growth pathway sooner rather than later, since the institutions (policies, procedures and rules for engagement), technology, and infrastructure investments commit us to adopting specific development paths, which will be difficult to modify if we were to wait till people move out of poverty or till rich countries reduce their emissions. The process of change will come under enormous pressure from all quarters (people, companies, inter national organisations, etc) and would require large and sustained doses of political will.

Fourth, even if India’s internal cap were only modest, amounting to an average 1.5% annual growth in carbon emissions over the next four decades, as opposed to 2.5% under BAU conditions, India would have savings of about 25 Gt of CO2. India could, moreover, press for recognition of the carbon debt under one of the more familiar equity schemes, e g, historical responsibility and ability to pay, which are together close to the formulation of Greenhouse Development Rights (Baer et al 2007). India could then rightfully occupy the moral high ground in the international community by arguing that it is meeting its development objectives and playing a key role (over and above its responsibility) in reducing the risk of global climate change, while claiming up to about 207 Gt of surplus emissions that could be sold on the international carbon market for a present value remuneration exceeding $3 trillion (at $50 per tonne of CO2 and 8% discount rate). Assuming the payment is carried out over the next 40 years, a benefit equivalent to about 0.75% of annual GDP on average may be expected.

All the above imply an addition of around 6%-8% to India’s average annual GDP over the next 40 years. Thus, a low carbon strategy that places poverty first instead of growth yields manifold benefits, including growth itself. Reddy (1991) expressed this as an energy policy that is DEFENDUS (development focused, end-use oriented, service directed) rather than GROSSCON (growth-oriented, supply- sided, consumption directed), “Look after the people, and energy will look after itself!” (ibid). The shift in focus changes the solutions, and that changes everything.

1 Climate Analysis Indicators Tool, see cait.wri.org.

2 Annual average per capita GDP growth through 2050 in the BAU scenario is assumed to be 5.2% by Mattoo and Subramanian (2010). Average annual GDP growth is assumed to be around 7%.Throughout this paper we have deliberately used back-of-the-envelope calculations to show broad patterns and to keep the argument simple.

3 This average annual growth rate over 40 years will triple current energy-related emissions by 2050, which is within the range of other BAU scenarios constructed for India (MoEF 2009).

4 For example, profound changes have been brought about in China that have transformed the country in a few decades to near complete electrification between 1980 and 2000, China increased its electricity production by 822 terawatt-hours (TWh) and provided access to electricity for about 700 million people. During the same period, India added about 279 TWh but increased access to electricity to far few numbers (IEA 2007).