The pandemic as premonition

The loss to the Indian economy due to the pandemic shutdown, and the loss of jobs, shows that the current model of growth is unsustainable, even loss-making, for India

The pandemic in India should have made us reassess whether we can sustain this mode of economic development [image by: Gwydion M. Williams]

Editor’s note: We are sorry for the delay in publication of this edition, as there was a death in the family.

No major economy suffered as badly as India during the pandemic. While part of this may be explained by government failure, what it also exposed is an economy that was deeply integrated with the world, but with few buffers or ways to deal with global shocks. The recent IPCC report - unanimously approved by all 195 UN member states - tells us that the incidence of such shocks is going up.

These shocks include an increased incidence of floods, droughts, extreme heatwaves, heightened incidences of cyclones at higher speeds. These have impacts on supply chains, price fluctuations, cost of infrastructure – and most importantly, health and lives.

A report by the Council on Energy, Environment and Water (CEEW) estimated India spent USD 91.8 bn on loss and damage in FY 2013-14 due to climate change induced disasters. These costs are projected to increase to USD 360 billion per financial year by 2030.

A 2018 report stated that coal plants accounted for 1.74 lakh crore in bad assets in Indian banks, the single biggest line item in our story of non-performing assets. Investigations by external agencies showed that many of these had been built with questionable economic logic behind them.

One issue with coal plants is that they need water to cool the plant as it runs. With the known variability of rainfall, any coal plant currently built is headed for days when the water availability may be limited, lowering the efficiency level it can operate at, and lowering its profits (or increasing its losses, whatever is the case). And yet we recently held auctions for coal mines. Even if they were not as profitable as anticipated, this is a long-term investment in risky, even loss-making, endeavours.

At the end of the day, the people who pay the steepest price are the poor. The accretion of taxes, through both direct and indirect means, which was supposed to help provide better infrastructure, more opportunities, and a potentially better future, is being sucked up by disaster upon disaster, as well as through bankruptcy proceedings where large public sector banks – run on taxes – have to swallow large losses.

How is the economy supposed to create a just transition if we keep investing in a creaky carbon-based model that leaves us far more vulnerable than before? Where is the money going to come from if the state is too busy mopping up losses?

Politicians, even deeply informed ones, will tell environmental journalists that they have to listen to their constituents, and their constituents are not in favour of environmental regulations that may lead to a loss of jobs. They will tell us that what progress has been made has been due to international commitments that the country has made, when it comes to dealing with things like air pollution.

This is partially true. In a country with hundreds of millions living below, or just above, the poverty line, a decent and steady job is one of the most important aspirations that many people have. In the interview featured below, we see how the fear of losing that steady employment has led to a lack of trust that imperils the reform of electricity distribution companies.

But here is the rub: jobs in a loss-making enterprise are neither very dignified, nor are they very stable. Furthermore, if the transition is made only from pressure from external actors, then the adoption of environmental measures will always be delayed. Lastly, it is worth asking if the politicians who say the environment is of secondary concern have paid attention to the numerous environmental impact assessment hearings in places like Himachal Pradesh, where the jobs go to people from other places, but the damage is visible there.

We can continue with business as usual, with the same jobs at the edge of disappearing, the same vulnerability of the economy, and every year, more shocks, less money, and far more misery. Instead, we have a chance of trying to focus on creating jobs in a green economy. This has the advantage of potentially more security over the long-term, but more than that, it has the possibility of driving change from below. If there is a substantial number of jobs in the environmental sector, or related to it, the demand for change will come from below, and not from outside, making it faster, more durable, and one that is applauded by the very constituents that politicians now give as their excuse for not doing anything.

The technology is now very much there, at least for part of the sector. What is needed, though, is to disentangle ourselves from the problems of the past, and on that note we transition to the interview, and the very relevant question of why are we still subsidising polluting technologies in India.

The Interview

Shruti Sharma is an associate and energy specialist based in India for the IISD’s Energy Program since 2013. Her work focuses on understanding household energy transitions with a focus on electricity, LPG and renewable energy. This work focuses on analysing fuel pricing policies, its reform and impact, with the aim of providing recommendations to national and state governments.

Balasubramanian Viswanathan is an Associate in IISD’s Energy program. He does data analysis, stakeholder consultations, policy review, project management and outreach, on issues related to a clean energy transition.

Q. Why are we still subsidising the fossil fuel industry, given that it is supposed to be so profitable?

A. Historically, any sector that is infrastructure heavy, receives tax breaks to help it grow initially. If this is continued, it would make it heavily profitable. Moreover, in the case of the coal plants and gas plants, what is subsidised is consumption – through the distribution and consumption of electricity – so there are subsidies at both ends. Some of this is dependent on where renewable energy (RE) is at; if it can act as a replacement. There are questions such as whether RE stable enough? Can we make a just transition, so those employed in the fossil fuel industry have alternative means of livelihood? What will we be doing with the coal and gas plants?

Subsidies increased for RE during Financial Year 2014-20 overall, although they dropped in FY17, and fell further in FY20. We could see the trend reverse, reorienting the support from installed capacity to storage of energy.

But there is a big question, which is our large and continued investment in natural gas. This includes whole pipelines, a push for cities to go for gas-based cooking.

While we can understand the need for this in the fertiliser industry since there isn’t a reliable replacement yet, creating parallel capacity in gas for electric cooking or for electric vehicles with CNG based transport makes limited sense if we are trying to bring down emissions.

The adoption of gas in the US lowered the rise of emissions, but – critically – did not bring overall emissions down. Investments in gas are also not compliant with the Paris goals.

Q. One of the issues identified is the insolvency of distribution companies (DISCOMs), why is this such a big bottleneck?

A. The government has to step in every 5-8 years to write off the debt of DISCOMs, which is not a good use of tax payer money. If distribution companies are non-viable they can’t make infrastructure investments or improve reliability. Loss making enterprises are not attractive for private sectors either.

There is a challenge with privatisation with a lack of trust about the government’s claims on just transition. In the 1980s many large companies or mills were shuttered, people lost jobs with mechanisation, so the new waves of privatisation are seen with suspicion. When the privatisation of distribution companies in UP was discussed, there was a huge pushback.

Another problem with privatisation is that tariffs aren’t really deregulated. This creates lots of problems for the political economy because distribution companies cannot charge cost reflective tariffs. If companies invest, they have to charge amounts to recoup that investment, but if tariffs are bound within a range because of fear of pushback, then there is little incentive to invest.

Lastly there are massive overdue payments to power generators. This really hurts RE sector, and their financial backers, because while these overdue payments are there, how can the distribution companies pay? And if they cannot pay, the new entrants in RE are at a disadvantage because they are seen as unprofitable and risky ventures.

Q. Do we have any idea of 'hidden subsidies' - the costs to the state through health and social expenses? Why is it so hard to implement air pollution standards?

A. Basically, hidden subsidies are understood as things not under the normal subsidy such as the weakening of regulations. A company profits from regulations which gets delayed to rolled back, helping them lower their price, getting them an advantage. We could calculate the potential cost of compliance as an expense and this would be the value of the hidden subsidy.

For example, coal washing regulations have not been properly complied, with companies getting light fines at most. In November 2020. The entirety of the regulation was scrapped. Now it is impossible to get a number to compare.

There are also lots of cost to air pollution. Air pollution standards also get pushed back and back, which is in effect a support for the coal industry. Very hard to capture. In practice this cost is pushed back onto society and manifests as higher mortality, and morbidity. How do you calculate the value of a life, if people are dying of pollution? This report has a dedicated chapter on social costs of coal in comparison with subsidies and tax revenues.

We have some data. For example, there is major non-compliance by Delhi-NCR coal plants. It would cost about 9,816 crores to put in the technology for air pollution control (across India, this is within the range of 70-80,000 crores). The non-compliance is a hidden subsidy of that amount. But it is a one-time cost, and applicable for 15-20 years – the lifetime of the technology and plant.

The technology is there, China has done it, and the regulatory constraints are not too hard. But the problem is that many coal plants were not financially viable, and making them add costs will force them further into non-viability. According to government orders the distribution companies would have to pay, but they are also financially unviable. This then becomes locked into a legal battle that drags on, delaying compliance.

Q. You mention South Africa as an example of successful grid transformation, what are the key takeaways for India?

A. ESKOM, their PSU, is vertically integrated, it is in everything from production to distribution, and had financial issues for a while. South Africa created a council for a just transition, looking at what would happen with coal plants that were entering the end of the life cycle. In South Africa these plants are concentrated in a smaller region, with the jobs located in that area. The council looked at what could happen, the socio-economic aspects of closing these plants.

In principle this is great, something we could learn from. The Ambanis, Adanis, and Tatas are getting into the RE sector, which means there is a business case for energy transition. Nonetheless even if, overall, the energy sector may be profitable there are still going to be losers which often the vulnerable communities. We have things like the District Mineral Foundation, which is supposed to be collecting coal taxes to deal with such issues, and this type of thinking is what is needed to make a just transition work naturally.

Q. What is the big issue in fossil fuel subsidies that does not get the attention it is due (data transparency, maybe?) and that we should all be talking about more?

A. The need for transparency. There is a lack of good reporting of these issues by government and PSUs.

The sheer resources required to get the data is difficult. These include inter-ministerial communication, department of economic affairs, ministry of coal, ministry of power, ministry of oil and gas, among others. There is no clear reporting format that allows a comprehensive report.

At the other end we need to know who is receiving the subsidies that the state gives. We did some detailed studies looking at Jharkhand. Because of self-assessments of poverty status of households, in some cases LPG subsidies end up with richer households. The poorest 40% households receive less than 30% of LPG subsidies. When it comes to electricity if a household consumes up to 800 units electricity, they can still receive subsidies in Jharkhand. A household consuming over 800 units per month is not a poor household. Approximately 60% of electricity subsidies go to 40% of the richest households.

Critical reading

  1. Clearance For A Jammu Dam Reveals How Fake Govt Claims Deprive India's Tribals Of Legal Rights: Two years after the abrogation of Article 370 in Jammu & Kashmir, forest rights under Indian law are denied to its tribal communities. The initial clearance to drown forests for a prestigious Rs 9,167-crore dam (the Ujh multipurpose project) in Jammu, for example, is a web of false official claims, ignoring the legal rights of pastoral communities whose homes and livelihoods the dam will destroy. 

  2. How Limestone Mining Has Pitted Gujarat's Farmers Against Govt: Limestone extraction in fertile agricultural lands in south Gujarat continues despite threats to the environment and livelihoods, farmers allege. Investigations show that limestone mining by UltraTech Cement, an Aditya Birla Group company, is slowly eating into private agricultural lands in Bhavnagar district in south Gujarat. Over the years, companies including UltraTech have benefited from a change in mining regulations, loopholes in the environmental appraisal process and lack of effective state action against pollution violations. Meanwhile work on a state-sanctioned check dam which would benefit the 30,000-strong agrarian community in 10 villages in the region has stalled. Locals believe this is because construction of the dam will lead to the area becoming a wetland, which could hinder environmental clearance for more mining projects. 

  3. Vedanta-Owned Company Evaded Thousands of Crores of Mining Royalties Owed to Rajasthan Govt: An investigation of Hindustan Zinc Limited, India’s largest zinc mining corporation, revealed massive irregularities in the quantum of silver and lead-zinc it declared to the Rajasthan government - a number significantly lower than what it declared to the Indian Bureau of Mines. The overall evaded royalties were worth Rs. 1,113 crores. A previous investigation had uncovered collusion between IAS officers and HZL officials that allowed the company to walk away with 3.87 million tonnes of rock phosphate ore, leading to a loss of over Rs 600 crore to the state exchequer. Vedanta’s operations in Rajasthan and elsewhere are reflective of how transnational capitalists embed processes of extractivism.

  4. What the Ramagundam Verdict Portends for Environmental Protection in India: In a verdict that will have a bearing on all future thermal power projects, and other big projects in general, the Supreme Court of India upheld the National Green Tribunal’s ruling requiring detailed studies of the environmental impacts of power projects. The most important takeaway from the ruling is that the cumulative impact – i.e. the combined impact of all activities in a given region, including past, present and prospective ones – have to be assessed before a new project is approved or during its construction – and not once it has been built. The decision offers the country welcome respite from the prevailing, and now ritualised, nature of such exercises. It has been increasingly common for project proponents to finish building out a project, and sometimes even operate for several years, even as cumulative impact assessment studies are still underway. As a result, these studies are rendered moot.

  5. Subsidies for India's renewable sector are falling, needs renewed support, says study: A July 2021 study by the International Institute for Sustainable Development (IISD) and Council on Energy, Environment and Water (CEEW), finds that government subsidies to the renewable sector have fallen by nearly 45 per cent since 2017. Meanwhile, support for fossil fuels has increased, hitting Rs. 70,578 crores in FY 2020 – which is over seven times the sum of subsidies to clean energy. Highlighting support for coal through concessional tax benefits and several non-subsidy measures, the study states that “while coal makes significant contributions to government revenue and rail cross-subsidies, its full social cost is much higher than its net contributions.” 

  6. India's transition to renewable energy may affect more than 2 crore jobs, finds a study: Coal mining, power and road transport are the three key sectors that will need planning for a just transition in the next 10 years. As India makes a shift to renewable energy sources over the next couple of decades, at least 2.15 crore people currently employed – formally and otherwise – in its fossil fuel and allied sectors will need to be provided decent employment to prevent social and economic distress, states a recent report by the International Forum for Environment, Sustainability and Technology, a Delhi-based environmental think-tank.

  7. Environment ministry quashes limits for discharge of antibiotic residue in water bodies: In its latest set of rules notified by the Union Ministry of Environment, Forest and Climate Change on August 6, the limits specifying the discharge of antibiotic effluents and residue have been removed. In its draft notification of the environment policy released on January 23, 2021, the ministry had invited citizen comments. As per this draft, if the levels of as many as 121 antibiotics in the effluents were found above the permissible limits, legal action was to be taken against the defaulting pharma unit. However, the latest rules released in an official gazette on August 6 do not even mention the presence of antibiotics in the effluents released by pharmaceutical plants. The decision to drop the limits was made even as the menace of antimicrobial resistance is being widely highlighted by experts in India.

  8. Proposed amendments to Coal Bearing Areas Act will change land acquisition for mining: Experts: Even as countries are striving to reduce carbon emissions to move towards more environment-friendly fuels, the Indian government is planning to propose a new amendment bill this monsoon session to make coal production easier. The proposed bill seeks to amend the existing Coal Bearing Areas (Acquisition and Development) [CBA] Act, 1957. The draft of the proposed amendment bill has neither been made public, neither has the Union government sought any public opinion on it. The core and sole purpose of this law is land acquisition to facilitate access to coal reserves for Coal India Limited; environment and public interest were never a part of it, according to experts. 

  9. By Dismissing Petition on Chamoli Floods, Uttarakhand HC Ignored Environmental Concerns: The Uttarakhand high court has imposed a fine of Rs 50,000 on five petitioners who were seeking cancellation of two hydropower projects, which were sites of death and disaster during the Chamoli flood in February. At least 204 people had died in the flood, and two hydropower projects – 13.2 MW Rishiganga and 520 MW Tapovan Vishnugad – were completely damaged. Six months after the flood, five local social activists filed a public interest litigation (PIL) seeking rehabilitation of affected villagers and the fixing of accountability of the hydropower companies for “criminal negligence”, since, of the 204 deaths, 192 happened at the hydropower sites. However, on the very first day of the hearing, the court gave its judgment, calling the petition “highly motivated”, and the five petitioners “puppets at the hand of an unknown puppeteer”.

  10. Drought scare looms large over a fifth of India: Over a fifth of India’s land area (21.06 per cent) is facing drought-like conditions, according to recent data released by Drought Early Warning System (DEWS), a real-time drought-monitoring platform. This is 62 per cent more than the area under drought during the same period last year, and the projected degrees of drought range from abnormally dry to exceptionally dry.

  11. The sum of all of India’s net zero fears: Adding decarbonisation to the to-do list of a country already battling high emission levels, modest mitigation options, rising inequality and a slowing economy, is easier said than done – but necessary. In August 2020, India’s Union minister for coal, tweeted “CIL is poised to become a “Net Zero Energy Maharatna PSU”. Coal India would produce 3,000 MW of solar power by 2023-24, it said, enough to cover all of its energy needs. It would no longer need polluting thermal power for its operations. But the state-owned miner is the world’s largest producer of coal and has a mandate to grow even bigger and produce no less than 1 billion tonnes of coal by 2024. Can such a firm switch to clean energy for its operations and claim Net Zero status? Who is responsible for emissions from all the coal it has unearthed? At the same time, is it realistic to expect Coal India to sequester all those emissions?