India’s promising green growth

By Ejaz Ghani

Our climate challenge is largely an energy challenge. This has raised concerns that the Paris climate agreement’s target for limiting global warming can be achieved only by stopping economic expansion. But why condemn billions of people to live in poverty, when there is ample room to promote green growth.

On a per capita basis, measured as carbon emissions per person, India’s emissions are very low and ranked 140th in the world, compared to the US which is ranked 14th. However, this will change in the next two decades, as India becomes the most populous country by 2027; and the largest energy consumer in the world by 2050. Will India’s future economic growth be associated with increased growth in carbon dioxide emissions? Not necessarily, if green growth can be increased.

Our understanding of how best to promote green growth agenda in India is still evolving. Scientists and engineers favour a quick and rapid transition to new and clean energy from fossil fuels. Unfortunately, India does not have the financial resources to switch from old to new technology, and meet the energy needs of a billion people. Just producing more wind and solar green electricity will not achieve net-zero carbon dioxide emissions by mid-century.

Carbon emissions will need to be reduced with improvements in energy efficiency in a wide range of sectors—transport, manufacturing, steel, chemicals, cement, shipping, aviation, food packing waste management—where emissions are the hardest to reduce, and technological solutions are lagging. A global carbon tax is also not a just solution, as this may stifle the basic needs of the people in developing countries, and huge externalities are associated with the climate change agenda, which will be challenging to meet without the full cooperation of developing countries. Improving the efficiency with which we use energy to produce output and create jobs will play the biggest role in reducing carbon emissions. It is estimated that 70% of the climate change agenda can be achieved by simply improving energy efficiency. Improved energy efficiency is a prerequisite for preparing countries to move towards more expensive energy system needed to deal with carbon capture and storage, and other technology solutions.

Has India increased green growth?

India has increased green growth. Energy efficiency has improved in the fast growing sectors. Most energy-intensive industries (such as iron and steel, fertiliser, petroleum refining, cement, and pulp and paper), which account for the bulk of the energy, have recorded greater energy efficiency improvement since the late 1980s. Nonetheless, many industries remain inefficient by both national and international standards. There is substantial potential for energy savings in many industries—it is 46-88% in textiles, 43-94% in pulp and paper, and 51-92% in iron and steel industry (see Ejaz Ghani, AG Grover and WR Kerr, ‘Spatial Dynamics of Electricity Usage in India’, World Bank Policy Research Working Paper No. 7055; https://bit.ly/3cUWofC).

India has experienced increased spatial disparities in green growth within the country. Energy efficiency has improved in cities, but worsened in rural areas. Spatial disparities in energy efficiency also remain high between the leading and the lagging states. Electricity usage per unit of output is twice the level in the lagging states compared to the leading states. Industrial enterprises are now moving away from cities, and opening plants in rural areas, where energy infrastructure remains weak. Small enterprises have the most difficult time, as their modest plant scale does not justify extensive investments in self-provision power generation capacity, and their higher levels of operation makes them more vulnerable to uncertainty than larger enterprises.

How efficient are India’s energy markets compared to other factor markets like land, labour and capital? Our examination of millions of enterprises has shown that energy markets are a lot less distorted compared to capital, land and labour markets. Land and building costs per unit of output are rising for all sectors of Indian manufacturing. This trend is in sharp contrast to the broad-based declines in energy usage per unit of output. Land and building usage per output unit for the organised sector is 2-3 times larger than electricity usage per output level, and for the informal sector, land and building usage tends to be 5-10 times larger than electricity usage.

Policy agenda

Green growth is a win-win for everybody. India will need to improve energy efficiency and energy intensity per unit of GDP by almost 60% by 2050, a rate of improvement nearly twice by historical levels. It will need to focus much more on the lagging and rural regions that are the future drivers of green growth. Energy efficiency agenda will also need to go beyond industries and enter our kitchen, buildings, sanitation, communication and transport.

A net-zero goal for India will be far more challenging to achieve, as compared to the developed countries, given India’s huge infrastructure investment needs to achieve green growth and net-zero carbon emissions. A Green Bretton Woods platform could be established for developing countries to negotiate new rules for sustainable infrastructure finance and longer time horizons for investments. There are many instruments available to promote green growth—green mortgage, green bonds, green tax incentives, green credit lines with banks, green public private partnerships. As energy inefficiency and pollution are a result of a multitude of global and local interacting activities and emission sources—commercial, industry, transport, communication, sanitation, agriculture—we will need to scale up monitoring the sources of energy inefficiency and pollution.

India has a bigger potential for green growth compared to China and the US, given its young demographics, and the aspirations of the youth. Increased access to financial and technological resources to meet its sustainable infrastructure needs will go a long way to towards meeting aspirations for green growth.

The author is senior fellow, Pune International Centre, has worked for the World Bank, and taught economics at Delhi University and Oxford University