Grand bargain for sustainable growth

Capturing opportunities in resource efficiency requires a rethink about industries of the future, says the author

India has historically tried to balance growth with equity. As parties prepare for the forthcoming general elections, here is a revised question for our prospective representatives: Can we increase growth, create jobs, expand opportunities, but also make it socially, economically and environmentally sustainable and equitable for the present and for future generations? 

The question lies at the heart of our contradictions. The world’s fastest-growing major economy is also the fourth-largest emitter of greenhouse gases; the fastest rates of urbanisation are coupled with the worst air quality and growing water stress; aspirations for manufacturing in India are frustrated because we lag behind many technological frontiers; and vast investment opportunities in clean energy are met with persistent perceptions of risk. 

Sustainability does not feature consistently in our political agenda, policy processes, industrial actions, consumer preferences, or citizens’ demands. A renewed grand bargain is necessary: Bet on sustainability as the new driver of growth and, in return, ensure equity in how resources and externalities are priced and subsidised.

Capturing opportunities in resource efficiency requires a rethink about industries of the future, raising ambition and cultivating tolerance for failure. India has been ambitious about energy access and clean energy. Renewable electricity capacity stands at more than 72,000 megawatts (MW); solar, alone, has crossed 24,000 MW (against less than 20 MW in 2010). According to the Council on Energy, Environment and Water or CEEW’s flagship survey on energy access, 118 million people moved out of absolute electricity poverty and more than 160 million gained access to clean cooking energy since 2015. 

Yet, such ambition remains restricted in scope. If India added another $2.5-2.8 trillion to its economy over the next decade, could, say, a third or even 40 per cent of this additional growth rely on substantially lower carbon and more resource efficient growth pathways?

CEEW’s research finds that electricity and industry will dominate India’s CO2 emissions with shares of 40 per cent and 32 per cent, respectively, in 2050. With renewables rising in electricity, industrial emissions will remain critical. One route (compatible with limiting temperature rise to 2oC) would be to increase electricity’s share in industrial fuel mix to 55 per cent (currently it is less than 20 per cent). 

But how do we get high-intensity heat for energy-intensive manufacturing? CEEW and the International Energy Agency have been examining whether hydrogen derived from renewable energy (the electrolysis process to split water is very energy-intensive) could be a substitute for manufacturing steel. Preliminary analysis indicates that whereas operating expenses are similar to existing technologies, capital expenses are three times higher per tonne of steel, compared to the traditional manufacturing process. 

Pursuing industrial development with reduced resource use would be central to finding new ways to add value and create new markets. We need to place big bets on technologies, institutions and people. Given limited resources (public or private), it is understandable why there might be inherent conservatism in pursuing advanced but untested technologies. For instance, switching to “green hydrogen” (for steel, methanol, or ammonia) would need clear policy guidance from the government. But we also have to find innovative ways of blending public money (to provide viability gap funding) in order to crowd in private investment.

The second part of the grand bargain would tax externalities but defer to equity considerations. Whether environmental degradation, public health impacts, or damage to infrastructure from extreme events, economic activities impose wider social costs. Polluters must pay, and consumers must pay more, for products and services with smaller environmental footprints. 

Until 2017, the Clean Environment Cess of Rs 400 per tonne of coal contributed to the National Clean Energy and Environment Fund. After the goods and services tax was introduced, it was replaced by a GST Compensation Cess to compensate states for lost tax revenues. Will these resources be misallocated or will they support sustainable and equitable growth? 

Latest research from the CEEW and the International Institute for Sustainable Development finds that, even as subsidies for clean energy in India have increased six-fold since 2014 (Rs 150.40 billion, or $2.2 billion of government support in FY2017), subsidies to oil, gas and coal (Rs 529.83 billion, or $7.9 billion) were more than thrice that to renewables and electric vehicles in FY2017.

Equity considerations could help to better target taxes and subsidies. The Give It Up campaign nudged 10 million households to voluntarily give up subsidy for liquified petroleum gas (LPG), but they amounted to less than 5 per cent of active LPG connections. Those mandatorily excluded from LPG subsidy (incomes more than Rs1 million per annum) amount to just 1 per cent of active connections. Similarly, rich households continue to benefit from vast subsidies for electricity.

Kerosene subsidy reforms show how equity and clean energy access serve complementary objectives. The push for energy access has reduced kerosene under-recoveries by 75 per cent since FY2014. Yet, kerosene remains a primary source of lighting for 20 per cent of rural households. During the Council’s survey,, 84 per cent of households reported that they would support subsidy for solar lanterns in lieu of lower kerosene subsidies, indicating their willingness to swap subsidies for better targeting and cleaner energy sources.

The recent tragic riots in France over a fuel tax underscore that the energy and economic transition cannot impose greater burden on those disadvantaged with few alternatives. Citizens need to understand what carbon taxes or fuel cesses would be used for and recognise what benefits to expect. Equity needs to be embedded in sustainability policies. Will our politics strike this grand bargain? 

The writer is CEO, Council on Energy, Environment and Water (https://bsmedia.business-standard.comceew.in)

Twitter: @GhoshArunabha; @CEEWIndia