By Hrishikesh Somani | September 23, 2015
The Prime Minister dedicating the Rourkela Steel Plant's Rs 12,000-crore expansion project (BCCL 2015)
As Narendra Modi finishes his first year in the office of Prime Minister of India, he is all geared up to fulfill his promise to make electricity available to all 1.2 billion people of India by 2019. To meet this demand, there has been a 38% jump in the coal held by power stations from just one year before PM Modi took office (Reuters).
India is home to the largest coal company in the world, Coal India Limited, which is ready to receive a total of USD 20 billion to increase its production to one billion tonnes over the next five years (The Economic Times). Being the fifth largest producer of coal in the world, India’s energy needs are soaring high, way over the domestic supply because of which, it is also the third largest importer of coal in the world (Financial Post). Currently, approximately 44% of the total energy consumption of India is powered by coal (US Energy Information Administration).
There has been increasing pressure from the international community concerned about India’s continually increasing carbon footprint, exponentially increasing climate change. While the Modi government’s swift dismissal of these remarks using the development argument is arguably justified, the negative impact this type of development is having on the climate can still not be unseen. India currently ranks third in the world’s highest carbon dioxide emitting countries (Statista, UCSD), which is a concerning fact today. With PM Modi’s plan to double India’s coal usage by 2020, the demand for policies that also aim at protecting the environment from destruction increases. There is a rising need to find policy solutions that can combat climate change while, at the same time, do not hinder the supply of an increasing energy demand in the country.
Keeping in mind the rising energy demands of a country that just saw an output growth of 7.5% last quarter (putting it ahead of China as the world’s fastest growing large economy), the following policy suggestions are striving to keep the growth rate unhampered, while finding effective ways to overcome gridlock and tackle climate change (The Wall Street Journal).
Policy Options
1. In the upcoming COP 21 negotiations, Indian delegates propose a draft that demands $10 billion every year till 2025 as funds for adaptation to newer, less polluting, sophisticated technology to meet the rising energy demands.
To meet the rising demand in energy and to maintain a relatively cleaner supply, the Indian delegation to the Paris negotiations at the end of this year should propose a draft which includes a demand of $10 billion per year starting 2016, terminating in 2025 until renewed. These funds will be directed to adaptation strategies that would employ the development of cleaner, more efficient sources of energy and a gradual shift of energy dependence from coal to nuclear or other cleaner sources of energy (renewables). The developed countries may make this fund transfer in the form of grants, technology transfers, and investments.
Investments will only be allowed to the privately owned energy companies, as the state owned companies do not allow any form of FDI whatsoever. The Ministry of Coal will provide its investors and shareholders an annual report of the developments it has made in downsizing the growth and expansion of its coal plants in the country and what measures have been taken to improve the efficiency of these plants. Increasing efficiency will reduce the emissions and reduce fresh water consumption by these coal plants. The Ministry of Power will provide its detailed reports of how and where the funds and/or technology was used and what outcomes were observed. It will also share the goals the ministry has set for the expansion of cleaner energy production.
The advantages of this policy are multifold; there will be cleaner energy production which will cut down emission rates in India, without slowing the growth of energy supply and keeping in mind the big target of year 2019. India will gain international recognition for its efforts in its efforts to combat climate change at the state level. Modi government will gain more credibility not just as a pro-development government, but also as an environmentally responsible and sustainable development regime.
A major disadvantage of this policy option is that the donors would expect India to allow regular inspections to check the growth, apart from providing annual reports to show the development. These inspections increase the bureaucratic tension between donors and receivers and will reduce the flexibility in funds’ direction of application. The program will be at a risk of foreign intrusion in its execution part which will, in high probability, not be acceptable to the Indian government.
2. India, US, and China form a special club for combating climate change by gradually shifting their energy supply away from coal to other, sustainable sources. The club sets hard targets decided unanimously for each country and each country allows for monitoring and evaluation of their projects by the other two members every two years.
As has been noticed in many rounds of negotiations (Kyoto being exhibit A), getting a large group of countries to cooperate together to form a hard law in an agreement is next to impossible. Even the countries that are willing to take some action do not tend to take any in a large group due to variegated interests of all interest groups. Getting a general agreement sweeping across a hundred or so countries has always been ineffective because either there was no consensus, or the agreement turned out to be a soft law with no teeth (Victor, 2015).
India, China, and the US are the world’s top three coal consumers. The three countries also have high environmental incentives to cut down their coal consumption per year and shift slowly to renewable sources of energy. This small club will impose mandatory laws on each country which will be unanimously decided by all three. These goals will make sure there is a sustainable supply of clean energy with the increasing demand. The three countries will allow annual inspections by a committee formed by members of all three countries in equal proportions. These inspections will be non-negotiable. The agreement will have a high degree of obligation, precision, and delegation. The committee, to which the responsibilities will be delegated, will also decide the penalties for each country in case of non-compliance. Penalties can be in the form of monetary payments, or other methods that are best suited in that particular case.
Mutual policing will provide each country with higher incentives to keep up their end of the deal. It creates a competitive market, one of the most efficient ways to achieve a set target. Competition causes increased efficiency. The monitoring can be expected to be highly efficient too, owing it to the competitive market situations created. Other advantages include lowered dependence on ‘dirty’ sources of energy like coal and a shift to cleaner technology; and a move towards a more sustainable future with higher environmental standards. Cooperation is also easy because of a small group size, a classic Olsonian solution to the large group gridlock problem.
A major disadvantage possible is the failure of this market situation assumed to have been created. In the case of a failure, all three countries could collude and their incentives to not follow the agreement might reduce simultaneously, in which case we will reach the same situation as we are in now, except now there might be a mutual support between the three countries in higher coal consumption behavior.
3. Allow for an emission trading scheme exclusive to just this trio of countries (i.e. India, US, and China). The emission trading scheme will allow for exclusive trade of emission credits between these three countries.
An emissions trading scheme will allow for a ‘cap and trade’ method among members of the club. Under the scheme, there will be a cap decided for the overall group first, a cap which will restrict the total greenhouse gas emissions under that certain value for the club. After that, each member country will receive its individual cap of emissions which, if exceeded, will make the country prone to heavy penalties in the club. The penalties, caps, emission trading, and real time emission values will all be recorded and maintained by the committee formed with representatives of all three countries. The said committee will have the power to conduct annual inspections in all the member nations, create a constitution for the club which will be legally binding in the International Court of Justice for all members.
Since they are three of the largest polluters in the world, the cap should be set in such a way that it restricts the pollution growth trajectory to a smaller slope, and should be revised every 5 years.
It is advantageous to have this cap and trade system in place in a small group of high emission countries because they treat these emission credits as a valuable, limited resource. All countries have high incentives to keep higher numbers of these emission credits and none of them wants to give it up, unless offered really strong incentives. This will gradually force the emission levels down to bring the price of these credits down, at which point, there will be a revision in the cap and a smaller cap will be introduced, making the price of these credits to shoot up again and the value of these credits to rise significantly for each member. Simultaneously, we see the market taking over and the emission levels going down from the previously projected levels.
If the countries were to form a way to fabricate the prices of carbon credits to the committee as very high even if were not so, it could possibly make the emissions trading model worthless and the club will be back to its high emission levels very easily. Hence, very close monitoring and evaluation is required very frequently and a lot of resources need to be spent on the said committee.
Since the committee is also funded by club member states and there is no outside party playing a neutral role, a capture of this regulatory body will be very convenient, if all members decided to collude. This capture would again lead to the ineffectiveness of the club and the emissions trade system will be rendered useless.
Recommendation
Formation of a smaller club with an objective to expand membership later on seems like a sustainable idea to aim for in the upcoming COP21 negotiations in Paris. A smaller club drastically reduces the classic Olsonian problem of collective action and is a solution for what is called a Gridlock. The small club should comprise of at least one member with high incentives to cooperate and other with relatively lower incentives. What would be ideal is the creation of many such clubs and then gradually, as they get stabilized and the trajectory being satisfactory, we could possibly see a merging or clubs and expansion in membership leading to relatively more stable, large groups.
Hrishikesh Somani is a second-year MIA student in GPS. He is dual-tracking in international politics and management, with a regional focus on Southeast Asia. He spent the summer of 2015 interning in public affairs and advocacy group in New Delhi.
Works Cited
The Economic Times: ‘Coal India Limited to invest $20 billion in five years’. May 15, 2015 http://articles.economictimes.indiatimes.com/2015-05-15/news/62192168_1_coal-minister-piyush-goyal-coal-production-coal-imports
Financial Post: ‘Narendra Modi’s muscular free market’. Apr 16, 2015 http://business.financialpost.com/fp-comment/lawrence-solomon-narendra-modis-muscular-free-market
Reuters: ‘Modi's coal turnaround to ease India's chronic power cuts’. Apr 15, 2015 http://www.reuters.com/article/2015/04/15/us-india-coal-idUSKBN0N62KJ20150415
Statista UCSD: http://www.statista.com/statistics/271748/the-largest-emitters-of-co2-in-the-world/
US Energy Information Administration: ‘Today in Energy’ http://www.eia.gov/todayinenergy/detail.cfm?id=17551
The Wall Street Journal: ‘India’s Economic Growth Hits Four-Year High’. May 29, 2015 http://www.wsj.com/articles/indias-economic-growth-hits-four-year-high-1432902911
Victor, David. “Strengthening the Global Trade System – A Case for Climate Clubs” 2015.