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Using markets to decarbonise India

Recently, at the United Nations Framework Convention on Climate Change (UNFCCC) Conference of Parties (CoP-26) in Glasgow in November 2021, several partner countries were seen as committed to concrete action plans to keep global warming below 1.5 degrees Celsius.

Structural reforms for decarbonising IndiaNeed for India to decarbonise

  • India, which emits 2.44 billion tonnes of carbon dioxide per year, is the third-largest emitter of this greenhouse gas after China and the United States, making it a crucial participant in emissions reduction.

  • India will account for approximately one-fourth of global energy demand by 2040, according to the International Energy Agency''s (IEA) World Energy Outlook 2017 Report.

  • India''s energy system is primarily dependent on fossil fuels — coal, oil, and bioenergy — which supply about 90% of the country''s demand, according to the IEA''s India Energy Outlook 2021 Report.

  • Power generation consumes about 38% of primary energy, indicating that the country''s electrification level is still low.

  • Power generation is heavily reliant on coal (approximately 78%), while transportation is almost totally reliant on oil. As a result, India''s energy ecosystem is carbon-intensive.

Reasons for high Green House Gas (GHG) emissions

  • It''s a characteristic of market failure. Consumer economic activity like driving or air conditioning, as well as producer economic activities like electricity generation and manufacturing, are inherently inefficient.

  • They create pollution and global warming by emitting gases. The costs of production and consumption do not reflect these negative externalities. This results in an uncontrollable increase in emissions, as well as apathy toward mitigation attempts.

Solutions to decarbonise the environment

  • Intervention by the government: Achieving sustainable economic growth necessitates a policy that aggressively reduces carbon emissions while also focusing on efficiency, equity, fairness, and behavioural issues. Government action is required to solve the problem of market failure.

  • Emissions limits: The most logical way for the government to intervene to reduce emissions is to set emission limits through legislation, taking into account the country''s Nationally Determined Contribution commitments under the Paris Agreement.

  • Experts have demonstrated that incorrectly set emission levels can result in inefficient effects.

  • It is difficult for the regulator to gather information about each firm''s abatement-cost and damage-cost schedules ahead of time.

  • Setting emission objectives and managing emissions through command and control may therefore be beneficial only in the early stages of a mitigation approach.

Carbon tax a better decarbonisation method

  • A carbon tax is a better alternative than limiting emissions at pre-determined levels.

  • As enterprises continue to reduce emissions, the marginal cost of abatement increases and the firm will cease cutting emissions and prefer to pay tax when the cost of abatement exceeds the rate of tax.

  • This choice will produce results that are close to being efficient.

  • Because the price of certificates will be established by letting enterprises with low and high abatement costs to compete in the open market according to their own abatement and damage cost schedules, the trading scheme will increase efficiency.

  • The emissions trading scheme will find the most cost-effective and optimal levels of emissions reduction by giving businesses the option to either mitigate or trade emissions, with the net result being a reduction in emissions.

  • Low-cost abatement firms will continue to reduce emissions since they will earn from trading the certificates.

  • Equity in energy access: The issue of equity in energy access must be addressed by channelling profits from carbon pricing to families and businesses affected by carbon trading and carbon tax — this might be done through incentives or lump-sum transfers.







POSTED ON 27-04-2022 BY ADMIN
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