Today's Editorial

Relevance: GS Paper III

Why in News?

The path to decarbonisation runs through the electricity sector. Today, this sector accounts for a third of India’s carbon dioxide emissions. Growth demands more electricity, and other parts of the economy are steadily switching from fossil fuels to electricity.

Current reliance on fossil fuels:

• The fossil-fuel energy industry and its users have trillions of rupees in assets and many millions of workers.
• All this capital and labour has normalised a way of life that induces climate change. Unimaginable sums of money and unimaginable inputs of energy are required to break away from these ways and build a new world.
• If viewed from the central planning lens, obtaining the required change appears simply impossible, and policymakers find it hard to imagine an India without coal, oil, and gas.
• However, it is feasible once we harness the energy of millions of firms and individuals and fix up their incentives.

Government goals for decarbonisation:

• The government has articulated or agreed upon various aspirations -
• We are to get to net zero in 2070.
• We are to reduce the emission intensity of gross domestic product by 45% from 2005 to 2030.
• Half the installed capacity in electricity is supposed to become non-fossil fuel.

Identifying the correct approach:

• A strategy is required to realise the aspirations or to move the net zero date to an earlier date.
• Avoiding central planning: Central planning to select technologies and design business models for energy production or consumption, for e.g., determining how solar panels, electric vehicles, or battery technology will be used, may not be suitable for decarbonisation for two reasons.
  • India is vast and complex, and to develop technologies and business models, millions of decentralised optimisations must be conducted at the level of one person or firm.
  • The threat of climate change triggered a vast scale of research worldwide, the benefits of which accrue to India for free. The flow of research is far from over. Nobody knows what the technologies and business models of the future will be.
    • For instance - Researchers worldwide have given us the bounty where solar panels are now cheaper than plastic ones.
• Focus on institutions and incentives: Strategic thinking lies in thinking about institutions and incentives through which the vast forces at play are channelled into sensible decentralised problem-solving by self-interested actors.
  • Three big challenges stand out -

Challenge 1 —

• The Union and the State: The electricity sector is a complex interlocking arrangement with prime responsibilities for states and a subsidiary but important role for the Union.
• The electricity sector imposes inefficiency upon the state economy with a combination of taxation (high prices for some) and subsidies (losses at state public-sector undertakings and on-budget transfers by state governments).
• In some states, the fiscal problems associated with electricity have become material for the medium-term fiscal strategy.
• While over a dozen distribution companies now feature private participation, the bulk of the distribution remains owned and operated by state governments.

Challenge 2 —

• India and the world: Climate change issues increasingly interact with international relations. India's success in financing its transition to net zero is essential in the global battle against climate change.

• People worldwide are excited and hawkish about stopping climate change, which is a problem for India as it has overtaken the European Union as the third-biggest emitter in the world.

Challenge 3 —

• The state and the market: At present, the bulk of the resource allocation decisions in the electricity sector are made by officials, who periodically award sterile contracts (e.g., long-term power-purchase agreements) to private persons to perform well-defined tasks.
• Such an approach does not harness the creativity, risk-taking, innovation, and energy of private individuals. The zone of private individuals imagining and taking risks is limited to short-term transactions, which comprise only 12% of the electricity market.

Way forward:

• Balancing Union and State Roles: Many states face difficulties with stolen, free and subsidised electricity and have often succumbed to overcharging commercial users.
• The central government should be more proactive in balancing the burden by reducing taxes, increasing subsidies, and making on-budget transfers to the state governments. The distribution process should also be streamlined.
• Global Leadership: India can achieve a leadership position by proposing concrete, implementable solutions in the field of climate financing, including by taking advantage of the frameworks available under the Paris Agreement and through bilateral arrangements.
• Collaboration of State and Market: The problem of climate change will not be solved by the state designing solutions and giving orders to the people. It will be solved by the people doing things on their own while the state addresses the core market failures of the field.
  • For example, there is a negative externality when emitting carbon dioxide.
  • The market failures of this field generate the rationale for the minimal use of the state's coercive power. And once this is done, there is the incentive compatibility of millions of self-interested people discovering what is best for them.

Conclusion:

Climate change is a critical issue that affects everyone across all fields of expertise. Therefore, it cannot be left solely to climate experts to address. It requires an inclusive process of debate, criticism, and innovation to develop a well-informed consensus on the three main challenges it presents. Each of these challenges requires a distinct set of skills and knowledge; therefore, interdisciplinary work is crucial to finding effective solutions.

Mains PYQ:

Q. 'Clean energy is the order of the day.' Describe briefly India's changing policy towards climate change in various international fora in the context of geopolitics. (UPSC 2022).