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Common problems require common solutions, and the need for a dialogue. This is true in the case of India and China when it comes to their challenge of tackling air pollution and switching to clean energy

Air pollution in a city university in Henan province of China. (Photo by V.T. Polywoda)

Air pollution in a city university in Henan province of China. (Photo by V.T. Polywoda)

Poor air quality has become a major political concern in both countries. In the 1990s, India had some success in improving air quality in Delhi through higher emissions standards for vehicles. But in the 21st century, air quality in India nationwide has continued to deteriorate, and some reports now suggest that it is discernibly worse than in China. Independent estimates of the devastating health impacts of emissions from electricity plants, industry and transport cause non-stop public controversies in India.

In order to effectively tackle the pollution crises, technologies that support clean air, water and soil in both India and China, must gradually replace polluting alternatives. Implementation of this transition will largely depend on local factors. So what is the best approach for each government to take in promoting these technologies: the sticks or carrot? And which incentives, or disincentives, are the most effective?

Similar challenges

Both countries face similar challenges. Each has prioritised the installation of de-sulfurizing, de-nitrating and de-dusting equipment at existing coal-fired electricity plants in order to curb harmful emissions. Both India and China have applied emissions standards to their electricity, transport and industrial sectors. However, compliance with these standards remains a major challenge. Beijing, for instance, is still believed to be at least a decade away from blue skies, whereas India lags behind further still.

IISD Graph 1

To complement command-and-control regulations such as emission standards, “the stick”, China is also using a “carrot” by offering a premium sale price to coal-fired generators that have installed emissions abatement equipment. The value of this “carrot” was estimated at around US$14.5 billion per annum in 2014 and 2015.

Given its lower level of economic development and budgetary constraints, India cannot afford using such expensive “carrots” to encourage reduction of pollution from coal plants. India prioritises provision of affordable electricity to its population and improving energy access for the 20% of people that still do not have electricity in their homes. This is very different from China, a country with an electrification rate of 100% that is addressing a major challenge of over-capacity in coal-fired generation.

Carbon tax

Meanwhile, India uses the Cess charge (a form of carbon tax) on coal use that is partially allocated to support clean technologies. Charged at INR 400 (US$6) per tonne of coal, the Cess has seen an eightfold increase since 2014. Between 2011 and 2016 an estimated 13,616 crore (over USD 2 billion) from the coal Cess revenues was transferred to the National Clean Energy Fund.

Feed-in tariffs and other “carrots” for renewable energy have driven a rapid increase in installed renewable energy capacity in both India and China. However, this additional capacity will only enable a switch to cleaner energy if it is used, and in both India and China some of the new wind capacity has faced curtailment problems.

Toxic carrots

Among its causes are “toxic carrots” given by the governments. For example, in China, while some policies seek to curb coal capacity, others guarantee coal-fired power plants a certain number of hours of operation. In India, renewable energy developers enjoyed a generous accelerated depreciation allowance, but were not given a guarantee for generation or dispatch. However, India has capped this allowance at 40% and wind power is being developed through the reverse auction mechanism, whereby the seller quoting the lowest price wins the bid.

These few examples (for more see this related policy brief on energy subsidies in India and China) illustrate that there is a lot of money and regulations already on the table. What is missing is a system that traces the efficacy of both carrot and stick policies on energy waste and air quality in a way that is simple for governments and other stakeholders to use.

IISD Graph 2

Given increasing budgetary pressures, identifying, quantifying and evaluating policies that assist or interfere with clean energy transition could help India and China assess the best use of public resources.

One way of doing so would be a voluntary peer review with an expert organisation or another country – bilaterally or within such forums as G20. As a member of G20, India has committed “to phase out and rationalize over the medium term inefficient fossil fuel subsidies while providing targeted support for the poorest.” At their meeting in mid-March 2017, G20 Ministers of Finance and Central bank Governors encouraged “all G20 countries which have not yet done so, to initiate as soon as feasible a peer review of inefficient fossil fuel subsidies that encourage wasteful consumption”.

Voluntary review

For example, China completed its voluntary review of fossil fuel subsidies within G20 jointly with the US when it was hosting G20 summit in 2016. The purpose of this review was identifying “toxic carrots” – those measures of government support in the energy sector that result in wasteful consumption of energy. China’s review listed nine subsidies worth US$14.5 billion and included a timeline for their phase-out.

India will host the G20 summit in 2019 and as more G20 countries (Germany, Mexico and Indonesia at the time of writing) volunteer for peer review of fossil fuel subsidies, there are increasing expectations on India to do the same. India has successful experience of deregulating prices for gasoline (2012) and diesel (2014), which has already resulted in a significant decrease in India’s budget deficit, as well as in the share of diesel vehicles in India’s passenger car fleet. India also launched reforms of its LPG and kerosene subsidies, which would be equally interesting for other countries to learn from as part of the peer review process. At the same time, focusing the peer review on potential “toxic carrots” in the energy sector can help India to design their reform based on the best international experience, switching to more targeted and efficient ways to promote sustainable energy for all.

Read more on energy subsidy reforms in India and China here.

The authors work for the International Institute for Sustainable Development.

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