The late Atal Behari Vajpayee (Prime Minister of India in 1996 and 1998–2004) had a keen ear for technology. After listening patiently to complicated, technologically correct proposals, he could bring such high-level discussions down to earth by wondering how these “best in class” options could actually be implemented on the ground. Best in class options are rarely implementable if they have severe socio-political or economic outcomes, both negative and positive. Consider the case of privatization of State Owned Enterprises, where losers tend to work harder to scuttle the proposal than the winners.
Decarbonization—the driving global developmental trend—presently, is no exception. The losers from decarbonization are more easily identified than the winners. Large-scale “creative destruction” in the automobile sector and the side lining of the internal combustion engine by 2040 is likely to upend jobs. Within the same period, coal consumption is likely to peak with jobs in coal mining and coal-based power generation dwindling post 2060 as India approaches Net Zero. This will hit the Indian Railways hard. Half of its freight is coal, subject to high administered tariffs to cross-subsidise passenger traffic. Oil and gas will be similarly affected with electric mobility increasing to 100 percent by 2050 (except heavy vehicles which could use Fuel Cells) and the electrification of most urban kitchens by 2060.
These three sectors account for around 15 percent (author’s estimate) of the total formal sector employment of around 30 million (2017-18), which, in turn, constitutes less than 10 percent of total employment. Crucial for optimized and equitable decarbonization is hands-on decision-making, outsourced to an empowered, specialized public entity.
Two options to avoid electorally driven policy paralysis.
India is continuously in election mode. Thirty state governments—each with a five-year term—and the national elections every five years are not synchronized. Elections happen every year. The fear of losing drives governments into “reform anxiety.” For instance, Chandrababu Naidu, Chief Minister Andhra Pradesh, an early supporter of deep electricity reforms, faced an electoral reversal in 2004.
Two options to stem the consequential reforms paralysis are time tested. First, externalize inconvenient decisions away from government to the superior courts. Taming the industry-crippling power of trade unions was achieved during the second half the last century by the firm yet fair judicial law of the Supreme Court of India. Second, and the more recent one, is to outsource unpopular decisions to arms-length specialized regulators. We explore the second route for carbon.
Case study: Grafting a new regulator.
Pancaking a new regulator onto existing structures by splitting the functional mandate helps “work around” the political-economy problems in completely upturning the regulatory status quo. In 1998, the Union government legislated a new, autonomous regulator, the Central Electricity Regulatory Commission, by delegating to it some powers relating to tariff setting and grid regulation, previously with the government. The appointment regulations were amended to induct professionals from outside the government along with the adoption of transparent, quasi-judicial business processes to underline its professional functioning at arm’s length from the government. The experiment has worked well. The private sector now has a dominant share in electricity generation as commercially attractive bulk supply tariffs incentivize new capacity. A robust pan-Indian transmission grid with external links in South Asia facilitates seamless electricity flow and encourages a deepening of markets for electricity bulk supply.
The more difficult option would have been to enlarge the mandate and modernize the business processes of the Central Electricity Authority—a statutory, specialized entity existing since 1948, with five regional offices and a cadre of electrical engineers, mandated to establish standards for electricity supply and electricity installations, monitor sector development, and advise the government on electricity growth and development. Removing the entity from the Union government’s management control was felt to be cumbersome, time-consuming, and likely to provoke resentment against power reforms in general. Government employees tend to feel adrift in autonomous entities, partly staffed by lateral entrants on contract.
The spaghetti of decarbonization mandates
Building on this experience in institutional reform is critical for framing a comprehensive regulatory arrangement promoting equitable decarbonization. Presently, the mandate for dealing with carbonization is split across seven separate ministries and more than 30 state governments.
The Ministry of Environment, Forests, and Climate Change (MOEFCC) is the nodal ministry for dealing with climate change. It notified and has managed the National Clean Development Authority since 2004, which approves projects for reducing greenhouse gas (GHG) emissions under the Kyoto Protocol. The Paris Agreement of 2015 expanded the obligation to control GHG emissions to all countries, with the flexibility of Nationally Determined Commitments (NDCs).
In compliance, the MOEFCC, in May 2022, notified the National Designated Authority for implementation of the Paris Agreement (NDAIPA) with cross-ministerial representation (level undefined) and the Secretary, MOEFCC as Chair. This entity approves projects proposing; voluntary, international trading of carbon credits under Article 6 of the Protocol; and monitors the progress and inventories of approved projects. In August 2022, it formed an Apex Committee for Implementation of the Paris Agreement (ACIPA) with cross-ministerial representation at the Joint Secretary level under the Secretary MOEFCC as chair.
Till then the Prime Minister’s Council on Climate Change (PMCCC), created in 2008, with membership of key ministers and non-government sector experts, was the apex body for evolving an all-of -government response to climate change. It seems to have fallen into disuse post-August 2015, when it last met.
ACIPA: Underpowered for its mandate
The ACIPA has 16 functions, which include high-level ones like defining climate-related responsibilities of ministries, developing government policy and programs, functioning as a National Authority regulating carbon markets in India, issuing guidelines on carbon pricing and related market mechanisms, commissioning and recommending independent research and analytical studies, and finally seeking guidance from and providing inputs to the PMCCC. The defined level of representation does not reflect the plenary powers of the kind necessary for implementing the “creative destruction” implicit in any strategy for mitigating climate change.
This is not to say that the existing cross-ministerial arrangement is dysfunctional; it is far from it. Consider that on 15th December 2022, the Ministry of Power issued a press brief that “Carbon credit will on priority be used within the country to meet our NDCs. In specific cases, where carbon credits are created by high technology expensive assets, these may be permitted to be externally marketed by the National Designated Authority.” This distinction across technologies incentivizes new investment in high-end, capital-intensive technologies, presently not in use in India.
A few months later, on 17th February 2023, the NDAIPA aligned with this strategy and notified the 13 categories eligible for international trading in carbon credits on a case-by-case basis—storage in renewable energy (RE) systems, solar thermal power, off-shore wind power, green hydrogen, compressed biogas, fuel cells, sustainable aviation fuel, mitigation in “hard-to-abate” industries, ocean energy, HVDC transmission of RE, green ammonia, and carbon capture and storage.
On 26 December 2022, the Energy Conservation Amendment Act 2022 was approved providing the legal basis for the trading of carbon credits, hitherto lacking, though a lively market for a carbon proxy—trade in renewable energy purchase obligations imposed on electricity distribution companies —has been functional for over a decade. This regulatory structure works despite the odds. But scarce resources and split mandates constrain higher efficiency.
Simplifying regulatory arrangements
Presently, plenary mandates—the power to enact and enforce rules and regulations—are widely scattered across more than seven ministries in the Union government and the 30 state governments. The problem of externalities (costs not born by polluters) urges the need for centralized albeit consensual, decision-making power for mitigating carbon. Deeper professionalization of the decision-making apparatus, with assured continuity of leadership, at the top, for a decade would help. We will struggle with climate change over the next four decades. But the quality of the foundational work during the initial decade matters the most, to avoid continued investment in stranded technologies. Two suggestions are offered.
First, energize and retrofit the PMCCC into a high-powered, attached, stand-alone, secretariat for carbon mitigation with formal, bilateral, direct links with state governments, hard-to-abate industry, and civil society. The collaborative NITI Aayog model and the innovative GST council model present templates for cooperative federalism.
Second, broadband key supply-side, carbon mitigation-related Union government ministries—conventional electricity (except Atomic Power), non-conventional and renewable energy, coal mining, petroleum and natural gas—under a single, mega-ministry of energy.
The share of electricity in total final energy use is set to increase from around one-fifth today to over two-thirds by 2060. Shepherding the associated deep industrial restructuring requires taking business along, whilst minimizing the negative outcomes of job losses and optimizing the creation of productive new jobs. A just, orderly, and efficient transition to a low-carbon economy, whilst preserving growth, is possible. But only with sustained care at the highest levels of leadership.
This opinion piece first appeared in http://www.orfonline.org on May 4 2023.