[Economic Survey Ch12] Sustainable Development, Climate Change (Part 3 of 3): PAT, RPO, REC, Cap-n-trade

[Economic Survey Ch12] Sustainable Development, Climate Change (Part 3 of 3): PAT, RPO, REC, Cap-n-trade

  1. Climate financing
    1. Taxation
    2. Subsidies
    3. Funds and Technology Transfers
      1. International Funds
      2. Desi Funds
    4. Market Based
      1. PAT
      2. RPO
      3. REC
    5. Cap n Trade vs Carbon Tax
  2. Green National Accounts
  3. Clean Energy challanges
    1. Nuclear
    2. Wind Power
    3. Solar Power
  4. Mock Questions

Climate financing

In all convention/conferences/protocols related to environment, climate change, wildlife protection and biodiversity: there are three gangs with three motives.

Gang What do they want?
  1. LDC/vulnerable countries
We are victims= Give us CA$H.
  1. India, China and Developing countries
US,EU should pay them CA$H.
  1. US, EU and Developed countries.
Why should we pay all CA$H? China and India should also do something!

So, What is the Common Factor here? CA$H.
Whether you want to promote sustainable development, or you want to reduce green house gases (GHG) emission or you protect biodiversity or you want to win election you need truckload of CA$H.
We can classify the cash streams based on who is the prominent player

Government Market
  • Taxation
  • Subsidies
  • Funds
  • CDM under Kyoto protocol
  • PAT and ESCert
  • REC and RPO

Taxation

An ‘environment’ or ‘green’ tax is imposed on a product that damages the environment, to reduce its production or consumption. This is in line with the ‘polluter pays principle’.

Benefits of Environment taxes

  1. They internalize environmental costs into prices. Thus, they help signal the structural economic changes needed to move to a more sustainable economy
  2. deters actions that lead to environmental damage
  3. encourages innovation and development of new technology
  4. Government can use the revenue raised by environmental taxes for Development activities and thus reduce the level of other taxes (e.g. income tax or excise duty on medicines.)

Let’s take look at government’s initiatives in this regard.

Coal Cess

  • Budget 2010: Government introduced clean energy cess on coal Rs.50 per ton. (applicable to both domestic and imported coal.)
  • The money thus collected is sent to National Clean Energy Fund.

Higher excise duty on SUVs

  • SUVs= sport utility vehicles. Mostly run on subsidized diesel, which is originally meant for farmers.
  • Budget 2012: customs duty on imported SUV increased to 100% (means more film stars will try to evade it!)
  • excise duty on SUVs increased to 30%

Subsidies

Destructive to environment

When Government provides subsidies on diesel, kerosene, fertilizers: often they pose a threat to the environment. for example

  1. Cheap diesel
    1. Menace of SUVs= air pollution.
    2. Excessive use of diesel pump sets = groundwater depletion.
    3. Use of tractor as a transport vehicle.
  2. Cheap fertilizer = excessive use= soil degradation.
  3. Cheap kerosene = mixed with petrol = air pollution.

Hence there is need to rationalize subsidies to make sure they don’t create havoc on environment.

Funds and Technology Transfers

  • To reduce GHG emission, we’ve to replace the obsolete and inefficient systems with more energy-efficient and clean technologies.
  • But the Micro, Small and Medium Enterprises (MSMEs) don’t make huge profits so they tend to employ cheap and inefficient technologies= more pollution.
  • Therefore, Government needs to setup separate funds to assist these MSME industries to upgrade to clean technologies + to encourage more R&D in clean energy.

Funds

Only listing the prominent ones

International Funds

UN-REDD Program

  • Provides funding to reducing global emissions from deforestation and forest degradation in developing countries.
  • REDD= Reduce Emissions from Deforestation and Forest Degradation

Green Climate Fund

  • Under UNFCCC.
  • to transfer money from the developed to the developing world, so they can combat climate change.

Least Developed Countries Fund

  • provides funding to LDCs preparation and implementation of national adaptation programmes of action (NAPAs).
  • Under UNFCC, administered by Global Environment Facility (GEF).

Climate Investment Funds (CIF)

  • financing channeled through the Multilateral Development Banks (MDBs) like ADB, African Development Bank etc.
  • World bank act as trustee

Desi Funds

National clean energy fund (NCEF)

  • Money collected by imposing Cess on coal.
  • Government expects to collect 10,000 crores under this fund by 2015.
  • NCEF will support projects, programmes and policies that promote clean energy technologies.

Compensatory Afforestation Fund

  • When forest land diverted for non-forestry purposes, the user agencies have to pay money into Compensatory Afforestation Fund.
  • This money is used for ‘Green India’ Programme  (to increase forest cover) + also for wildlife protection.

National Gene Fund

  • for in situ conservation of genetic diversity of indigenous crop varieties, at Panchayat level.

Market Based

PAT

  • PAT = Perform Achieve and Trade
  • PAT comes under the National Mission for Enhanced Energy Efficiency (and that mission comes under National Action Plan On Climate Change).
  • PAT is a scheme for trading energy-efficiency certificates (ESCerts) in large energy-intensive industries.
  • Basics explained in the article on 11th Chapter click me
  • In the Twelfth Five Year Plan, the PAT scheme is likely to achieve about 15 million tonnes oil equivalent of annual savings in coal, oil, gas, and electricity.
  • Some experts argue that PAT is not very effective because it is one type of “cap-n-trade” scheme. Instead of that, we just should just put some type of carbon tax on the polluters.

Cap n Trade vs Carbon Tax

let’s compare their pros and cons.

Cap-and-Trade Carbon tax
Here Government allows industries emit xyz tonnes of CO2. But if you emit less than that amount, you get certificate and you can sell it to another company that has overshoot its emission quota/cap/limit. You’ve to pay tax directly proportional to your  CO2 emission.
It uses free market to reduce emission. It uses taxation to reduce emission.
  • It does not provide cost certainty (to the company or to the government) because price of those permits/ certificates fluctuate in open market based on many external factors.
  • For example, if company “A”, has got foreign order to manufacture 1000 cars, it might buy those emission certificates even at a higher price from company B (because company “A” is desperate to do addition production and emission for supplying the cars.)
Certainty to both company and government. (because for “X” tonnes of CO2 emission, company will have to pay “Y” rupees as carbon tax.)
  • Long-term signals from cap-and-trade are less powerful because of above cost-uncertainty.
  • for example, Entrepreneur’s choice of the type of power plant (sub-critical or supercritical).
Taxation sends clear signals and impetus for behavioral changes.
Need to create a market monitoring agency to supervise the trade of those permits/certificates. Can be collected by existing Tax authorities.
This leaves out many small, medium or unregistered organizations (who together may release significant portion of the emissions). Carbon tax covers the entire economy, including households and other units impossible to reach in a cap-and-trade mechanism. Because increase in tax affect the price of product, consumer behavior and many units indirectly associated with the sector. (e.g. car mechanic, numberplate painter.)
Can be more easily manipulated to allow additional emissions. For example, if permits become too pricey, then government might have to sell  or distribute more permits to keep the price ‘reasonable’. Less chances of manipulation. Because government will need parliament’s approval to change taxes.
Political pressures and lobbying could lead to different allocations of allowances. For example if Automobile companies give more “election donation” to ruling party then government will increase their “Quota/cap/limit” for CO2 emission. Political pressures and lobbying could lead to exemptions of sectors and firms. Example again if Automobile companies give more “election donation” to ruling party then government might exempt the whole automobile sector from carbon tax.

RPO

RPO target define how much electricity in the country is estimated to be produced from renewable energy sources (=green electricity)

Year %Green electricity (in total electricity production)
2009 5
2012 7
2020 15
  • Under RPO mechanism, the DISCOMs, Captive Power Plants, and Open Access Consumers have to purchase certain the minimum level of renewable energy (out of total consumption).
  • State Electricity Regulatory Commission (SERC) look after this matter.

Renewable Energy Certificates (RECs)

  • They are provided under the RPO mechanism
  • They enable the obligated entities (DISCOMs, Captive Power Plants, and Open Access Consumers) to meet their Renewable Purchase Obligation (RPO).
  • Those obliged entitles can trade surplus or deficit RECs among themselves and the owner of the REC certificate can claim that he has purchased renewable energy.

Green National Accounts

  • 2011: Govt. setup an expert group under Prof. Sir Partha Dasgupta (of Cambridge univ.) to develop framework for Green National Accounts for India
  • We need green national accounts because the contemporary national accounts are unsatisfactory basis for economic evaluation. Because they don’t consider the full environmental consequences of economic Development.
  • system of green national accounting would
    • take into account the environmental costs of development
    • reflect the use of precious depletable natural resources in the process of generating national income.

Clean Energies

Nuclear

  • Nuclear power is considered an important source for low carbon power generation.
  • India has ambitious plans in nuclear power through a combination of
    • Light Water Reactors,
    • Heavy Water Reactors
    • Fast Breeder Reactors.
  • However, global concerns regarding safety of nuclear power following the Fukushima nuclear accident in 2011 have slowed down nuclear power capacity addition: both in India and abroad.
  • Need to address public concerns about safety of nuclear power and expedite the projects.

Wind Power

  • Electricity generated by a wind turbine is highly sensitive to wind speeds.
  • Therefore global practice is now to build towers in the range of 80–120 m, it significantly increases the power generation potential.
  • Size of wind turbines has increased. Earlier turbines were typically less than 1 MW, the recent designs go up to over 5 MW
  • Taking these into consideration, the wind potential in India is now estimated at about 103000 MW for 80 m hub height.
  • India also has considerable off-shore wind potential, particularly in Tamil Nadu and Andhra Pradesh-which is yet to be exploited.
  • We could safely target a wind capacity addition of 30000 MW by 2020.

Wind power: Challenges

Not uniformly distributed

  • wind potential is unevenly distributed across the country; only Karnataka, Tamil Nadu, Andhra Pradesh, Maharashtra and Gujarat have significant potential.
  • Therefore, if we want to utilize wind potential, we need careful regional level planning and coordination.
  • Hence We need to set up a National Wind Energy Mission, similar to the National Solar Mission for effective formulation and implementation of policies both at the National and State levels

Variation

  • Wind power has significant seasonal and even intra-day variations. It may lead to a situation, where
    • either the wind generation cannot be utilized,
    • or when the wind suddenly dies down,
  • Thus the loss of electricity generation will impact grid stability and operation.
  • So we need to complete the Wind capacity addition by other energy sources, which have a quick ramp-up time. For example pumped storage hydro, open-cycle gas turbines, compressed air and high power density batteries.

Solar Power

So far not been effective in augmenting rural power generation, because

Lack of huge profit

  • developers have found it difficult to get reasonable returns on their investments in solar power projects.
  • They are unable to collect adequate revenues to cover operating expenses (despite the initial capital subsidy given by Government.)

Banks not giving loans

  • Problem: Local banks are reluctant to provide financing for solar projects. because they fear company will default on the loans.
  • Solution: The government should immediately classify solar power projects as ‘priority lending’ so that banks start giving it due importance.

Technology

At present there are two main technologies for solar cells

crystalline silicon Expensive but dominates the global market
thin-film systems If more R&D is done, this can become way efficient than crystalline silicon.
  • Rapidly growing telecom sector provides an excellent synergy for augmenting solar power in rural areas.
  • At present there are close to 0.2 million telecom towers and about 40 per cent of these are in the rural areas. Solar power should be used to run them.

Mock Questions

  1. “Sustainable Development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” This definition was given by
    1. UNFCC
    2. UNESCO
    3. Brundtland Commission
    4. None of above
  2. What is the theme of 12th FYP?
    1. Faster, More resilient and inclusive Growth
    2. Rapid, More sustainable and resilient Growth
    3. Faster, More Inclusive and Sustainable Growth
    4. None of above
  3. Which of the following is not a direct mission under NAPCC?
    1. National mission on Sustainable Habitat
    2. National mission on Strategic Knowledge for Climate Change
    3. National mission on reduction of Green house gas emission
    4. National mission for sustaining the Himalayan Eco System
  4. What is the purpose of National mission for Green India?
    1. Incorporate green technologies in Industries.
    2. Incorporate green technologies in residential and commercial buidlings
    3. Increase R&D spending for eco-friendly and energy efficient vehicles and electricity appliances.
    4. None of above.
  5. What is India’s voluntery committment for climate change?
    1. by 2015 India will reduce the GHG emission emission by 20-25% of 1990 level
    2. by 2020 India will reduce the GHG emission by 20-25% of 2005 level
    3. by 2020 India will reduce the GHG emission intensity of its GDP by 20-25% of 2005 level
    4. None of Above
  6. which of the falling subject is not part of the State list?
    1. Fisheries
    2. Prevention of Animal diseases
    3. protection of wild animals and birds.
    4. Taxes on animals and boats
  7. Correct Statements
    1. The Biological Diversity Act was enacted under the National Action Plan on Climate Change (NAPCC).
    2. National Action Plan on Climate Change (NAPCC) contains National mission on Coastal protection, as one of its 8 mission.
    3. Both
    4. None
  8. Correct Statements
    1. The prime source of money for Compensatory Afforestation Fund is  cess on petrol and diesel.
    2. National Gene Fund is meant for ex-situ conservation of medicinal plants in botanical gardens.
    3. both
    4. none
  9. Correct Statement about PAT (perform, Achieve and Trade) scheme
    1. It provides subsidy to MSME sector for increasing export.
    2. Is administred by DG export under Commerce Ministry.
    3. both
    4. none
  10. Partha Dasgupta Committee is associated with
    1. Western Ghats
    2. Himalayan Ghats
    3. Green National Accounts
    4. None of above
  11. Correct Statements
    1. Blended cement more emissions-intensive than ordinary Portland cement.
    2. Majority of the coal based power plants in India are based on Ultra super critical technology.
    3. Both
    4. None
  12. Energy Conservation Building Code
    1. is designed by Ministry of New and renewable Energy
    2. is meant for only residential buildings in India
    3. both A and B
    4. Neither A or B
  13. GRIHA stands for
    1. Green Rating by Indian housing association
    2. Green Rating for Integrated Housing Accreditation
    3. Green Rating for Integrated Habitat Assessment
    4. None of above
  14. SVA-GRIHA rating system is
    1. designed by CSIR
    2. for big industrial establishments in SEZ areas.
    3. Both
    4. None
  15. Bachat Lamp Yojana
    1. is a scheme developed by Ministry of New and Renewable energy
    2. Provides subsidy for buying solar based LED lamps.
    3. Both A and B
    4. Neither A or B
  16. Electro-luminescence is responsible for producing light in
    1. CFL bulbs
    2. Halogen lamps
    3. LED lights
    4. None of above

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