For a predominantly clean system, India must move forward incrementally and make natural gas the “next stop” in its energy journey

By: |
May 03, 2021 5:30 AM

Message in the book is that rather than focus only on the endgame of decarbonisation, India must first “green” its fossil-fuel energy basket. This can be done by increasing the share of natural gas.

Every participant will come to CoP26 later this year with hard evidence to back their longer term commitments. This will be reassuring. (Representative image)

In the midst of arguably the most monumental crisis facing India since Independence, I hesitated to write this month’s article. It did not feel right—in fact, it seemed inconsequential—to write on a subject other than this human tragedy. I decided in the end to meet my commitment by writing about the other subject which, if not today but in years to come, may well be comparably consequential. Climate change. The peg on which I hang this article is a fundamental learning from the pandemic. Broad brush assurances and claims are no substitute for a carefully structured road map.

Policy wonks, climate negotiators, academicians, corporates and NGOs are currently fixated on the concept of “net zero carbon emissions” and the appropriate target year for achieving it. Supported by economic analysis and moral logic, and drawing on the concept of “common but differentiated responsibility”, their arguments swirl around its meaning and whether the date should be 2050, 2060, sooner, or not at all. I am personally supportive of the nature and direction of this debate. The world does need a well-defined, time-bound objective. “Net Zero” offers everyone a tangible metric against which to measure progress. My concern is that in the effort to secure a global consensus around this target, the discussants are loosing sight of the immediate. They are not spending enough time and effort to lay out the stepping stones. They are forgetting the advice given by parents to children impatient to make the Great Leap Forward. One step at a time, but best take a short first step in the right direction than strive for a longer but unsteady stride.

It is against this backdrop that I want to introduce a book that has just hit the bookstores: The Next Stop: Natural Gas, India’s Journey Towards a Clean Energy Future. I was initially hesitant to introduce this book to the readers because I am the editor. But I decided to do so because it is not “my” book. It is that of 25 authors who have each contributed a chapter. Their message is that rather than focus only on the endgame of decarbonisation, India must first “green” its fossil-fuel energy basket. This can be done by increasing the share of natural gas.

This is a feasible prospect because this increase will not generate the headwinds that the alternative of shutting down coal mines might; it will not require industries to invest heavily in retrofitting their systems; and it will allow the government to meet its objective of providing secure and affordable energy to everyone without degrading the environment. Furthermore, it can be achieved through executive ordinance and without the need for legislative approval. Implicit in their message is India stands a better chance of reaching the destination of a predominantly clean system if it moves forward incrementally. That is, if it makes natural gas the “next stop” in its energy journey.

The broad thrust of this message is fleshed out through specific policy suggestions cutting across all segments of the natural gas value chain, from production (domestic and international) to transportation (pipeline and LNG) to markets (current and emergent) to commercial (pricing, taxation) and regulatory issues. These suggestions are distilled from the answers provided by the authors to the question. What must be done to increase the share of natural gas?

To illustrate the granularity of the responses, here are four key policy suggestions. First, the authorities must prioritise natural gas. They must recognise its versatility. It is a competitive fuel; it is abundantly available in and within the Asian/ME subcontinent; it has multiple uses and it is the “greenest” of all fossil fuels.

Second, the authorities must correct the current disincentivising policy distortions. The pricing of natural gas is, for instance, a potpourri of complexity. There are multiple price formulae. One for gas produced from domestic fields by the public sector companies; one for gas produced by private companies; one for production from deep waters offshore under high temperature, etc. The taxation system is also comparably regressive. It is a cascading structure so that the tax rates increase as the gas flows from one zone to another. This means that customers located at a distance from the source of gas pay a higher price than those closer to the source. The result is the dampening of demand. Also, gas is not under GST.

Third, the authorities should revamp the structure of the industry. Gas Authority of India Ltd (GAIL) is currently engaged in production, transportation and marketing of gas. This allows it to leverage its ownership of the bulk of the gas pipelines to deny its competitors access to the market. The policy calls for assured and common access to all marketers, but GAIL can bend the policy to its advantage without breaching it. Most countries have tackled this conflict of interest situation by separating the upstream (production/import) and downstream (marketing) interests from transportation. GAIL should also be so “unbundled”. Its business activities should be limited to pipeline construction and transportation.

Finally, (and this is one suggestion that falls outside the remit of the executive branch) the institutional mechanism should be created to enable better coordination between the Centre and the state governments. One reason why India has not yet constructed a national pipeline grid is because the Centre and states have clashed over issues like land acquisition, pipeline routing; and royalty payments. Centre-state differences have also delayed the construction of import facilities and the creation of gas markets. A way has to be found to take these issues off the political table and brought within the frame of an integrated decision making process.

Every participant will come to CoP26 later this year with hard evidence to back their longer term commitments. This will be reassuring. But the tyre will hit the road only when, rather than just looking across the river at the opposite bank, the participants lower their heads and focus on the stepping stones.

(Writer is Chairman, Centre for Social and Economic Progress (CSEP))

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