The report on low carbon strategies for inclusive growth shows there is no free lunch for India, according to an economics professor and IPCC author. The report, which is well over three years late, is a good first step, but there is a need to go beyond its simplistic analysis
In January 2010 India’s Planning Commission constituted a 26-person expert group headed by Kirit Parikh to prepare a report on low carbon strategies for inclusive growth.
The group’s task was to review existing studies on ‘low carbon growth’ (the meaning of which was never made clear) for India, compute costs and benefits of alternative ‘low carbon’ options for the Indian economy and to prepare a roadmap for ‘low carbon’ growth. The ‘experts’ were also asked to come up with an action plan for various sectors of the economy (power, transport, industry, buildings and such) with “timeline and targets starting 2011” that could inform the 12th Five Year Plan of 2012-17. Finally, they were also asked to suggest laws and policies to operationalise their recommendations.
The interim report was to be completed by April 2010 and the final report by September 2010, that is, within four and nine months, respectively.
As it turned out the interim report appeared in May 2011 and the final report was published three years later on May 20, 2014 on the Planning Commission website.
Even by Indian standards the report was long in the making. During the nearly four years delay much changed in India’s economy, polity and indeed in the composition of the group itself. Of the original 26 ‘experts’ only 15 were left at the end – some resigned, one became a minister in a state, one died. Five new ‘experts’ were inducted to make a full score of 20.
More significantly, six days after the report was published the Deputy Chairman and Members of the Planning Commission resigned since a new government was sworn in. Now the very institution that commissioned these experts is undergoing an existential crisis. The new government has so far not even reconstituted the Planning Commission nor appointed a new head (Deputy Chairman) and rumours abound on its impending demise, at least as we know it now.
Also, the 12th Five Year Plan the report was supposed to ‘inform’, has by now completed three of its five years and is limping to a sad dénouement, its ambitious targets fallen by the wayside like most Indian five year plans. The macroeconomic scenario too is now very different. The days of 8-9% growth rates of circa 2010-11 are gone as the economy crawls along at half that figure, closer to the ‘Hindu rate of growth’. This is of particular interest since the interim version of this report released in May 2011 was peppered with references to “eight percent growth” scenarios.
Despite all this, it would be a mistake to dismiss the report as a relic of the past government and of an organisation that has fallen from grace. In fact, the most useful and interesting part of the report is a macro model of the Indian economy (Chapter 2) that attempts to quantify what ‘low carbon’ really means and what it would cost the Indian economy. This chapter was not in the interim report which was mainly a laundry list by sector, of carbon dioxide mitigation measures (what jargon-ridden experts would call a “bottom-up” approach).
It would also hearten Kirit Parikh and his colleagues that rather than condemn the report to the dustbin as a product that appeared after its ‘sell by’ date, the new government’s Economic Survey 2014 cites it approvingly, especially the modelling results, even if in a somewhat inconsequential chapter at the end titled “Sustainable Development and Climate Change”.
What the model does is to highlight the difference between what one would call ‘business-as-usual’ scenario and one that strives for ‘low carbon’ growth. The ‘experts’ call the former BIG or “baseline inclusive growth” and the latter LCIG or “low carbon inclusive growth”.
The time horizon for both scenarios is roughly 25 years, from about 2007 to 2030. In the baseline scenario it is assumed GDP grows by seven percent annually and rural poor decline to less than 10% of rural population while urban poverty is completely eliminated. Carbon dioxide emissions are assumed to increase over this period by slightly less than four times, from about 1,430 million metric tonnes to about 5,270 million metric tonnes. In per capita terms this translates to an increase from 1.3 tonnes per year to 3.6 tonnes per year for each Indian alive in 2030.
Of course, India’s population also increases during this period, from 1.1 billion in 2007 to a likely figure of approximately 1.5 billion in 2030. So some would argue the per capita figure is a fudge. But even if one were to freeze the population at 1.1 billion Indians as in 2007, per capita emissions in 2030 would still be around 4.8 tonnes per Indian, about half that of an European and a fourth of someone in the US.
Now what the low carbon (LCIG) scenario does is it tacks on a bunch of climate friendly assumptions to the baseline (BIG) scenario. To give some examples, it is assumed energy efficiency improves three times as fast (1.5% per year compared to 0.5% per year in the baseline scenario), there is massive increase in non-fossil fuel energy such as solar, wind, biomass, hydro and nuclear and new coal based plants are much cleaner using super critical technology.
There are similar heroic assumptions about greater use of rail as compared to road for moving freight, greater use of public and non-motorised transport in cities, an increase in forest cover by five million hectares and improvement in the quality of existing forests by the same amount. The list goes on.
Far-fetched as these assumptions may sound, the useful part of the report is the quantification of climate outcomes consequent to them and even more important, the price tag these assumptions carry. Thus, if India were to do all that the low carbon scenario entails, carbon dioxide emissions in 2030 would be only 3,830 million tonnes compared to 5,270 million tonnes under the business as usual (BIG) scenario. In per capita terms this would mean 2.6 tonnes of carbon dioxide per year for each Indian alive in 2030 compared to 3.6 tonnes per year under business as usual.
Again, even if we were to freeze our population at 1.1 billion as it was in 2007, the per capita figure in 2030 is still an impressive 3.5 tonnes per capita. No wonder then the Economic Survey of 2014 rightly points out “India like many developing nations has not even utilized its fair share of earth’s carbon space” (p. 216).
The problem is there is no free lunch – this reduction in the trajectory of carbon dioxide emissions comes with a hefty price tag. This may not be readily apparent since under the BIG scenario GDP grows at 7.03% compound annual growth rate (CAGR) for the period 2007 to 2030, whereas under LCIG the corresponding figure is only a shade lower at 6.87%. But the additional investment required for low carbon strategies is $834 billion at 2011 prices. For example, the more expensive renewable energy does not come for free; neither does the cleaner super critical coal burning technology – and these investments also lower private consumption marginally.
All of this translates into a cumulative loss in GDP of $1.34 trillion at 2011 prices.
This is an eye opener since it begs the question – where will the money come from? From a professional macroeconomic modelling standpoint the exercise in the report is rudimentary – its assumptions are ad hoc, the model is based on an old input output table and the results presented are sketchy. It should also be noted the figures for cumulative investment ($834 billion) and cumulative GDP loss ($1.34 trillion) are for 2011-2030 but do not seem to be discounted. Doing so would certainly reduce these numbers.
These quibbles aside, the report still has value since it is a first cut at quantifying the price tag on ‘low carbon growth’, that delightfully vague phrase.
The rest of the report comprises sector specific chapters on the carbon dioxide mitigation potential of various technologies/measures in buildings, industry, transport and power, of greater use of energy efficient appliances and carbon sequestration through afforestation. These chapters contain a lot of detailed and useful information but are disjoint from the ‘top down’ macro model in Chapter 2.
In sum, the main contribution of the much delayed and long awaited report on low carbon growth is not in its sectoral detail on carbon dioxide mitigation potential and policies but in drawing our attention to the fact there is no free lunch and to how much the lunch might cost.
In this, it is a useful first step and needs to be followed by more detailed exercises that better integrate top down and bottom up approaches.
The author is on the faculty of the Delhi School of Economics, University of Delhi and was one of the coordinating lead authors of the recent Working Group III report of the Intergovernmental Panel on Climate Change. He can be contacted at email@example.com