India’s improvements in energy efficiency are not receiving due recognition, as the climate change agenda remains focused on Renewable Energy & technology
As India industrialises more, spatial movements of manufacturing activity may compromise energy efficiency. (Representative image)
By Ejaz Ghani India is the fourth-largest energy consumer in the world. Its energy use is expected to more than double by 2040, adding the equivalent of half the United States’ current energy use. India is also amongst the top four carbon emitters—China (26.8%), the US (13.1%), the European Union (9%) and India (7%). Has India made progress towards achieving the Paris Climate Agreement that will prevent our planet from man-made disasters?
The popular perception is that India, and other fast-growing economies like China, have failed to achieve the goal towards achieving the Paris Climate Agreement. The concern is that fast-growing economies, like China and India, will continue to experience increased carbon emissions, due to the fast pace of economic growth in the coming decade. A potential solution being considered is that more climate-conscious advanced countries impose import tariffs on the fast-growing economies like China and India.
The perception that high economic growth is associated with increased emission is misplaced if economic growth is accompanied with improved energy efficiency that lowers the amount of energy needed to produce an output. It is estimated that nearly 70% of the global carbon emissions could be reduced by increasing energy efficiency.
Has India improved energy efficiency? India’s energy efficiency—electricity consumption per unit of output—has improved. This improvement in energy efficiency for developing countries like India, where electricity consumption per capita is very low at 500 KWh compared to the world average of nearly 3,000 KWh per capita, is commendable. India’s energy intensity of GDP has halved from 1.09 kilogram unit of oil equivalent (koe) in 1980 to less than 0.5 in 2020 (see Ghani et al, Spatial dynamics of electricity usage in India, World Bank Policy Research Working Paper No 7055).
India’s more energy-intensive industries (eg, iron and steel, fertiliser, petroleum refining, cement, aluminium, and pulp and paper), which account for the bulk of the energy consumed, have experienced greater improvements in energy efficiency compared to the less energy-intensive sectors (eg, office, accounting and computing machinery). This improvement in energy efficiency in more energy-intensive sectors implies reduced emissions and pollution outcomes. However, more needs to be done to improve energy efficiency in more energy-intensive industries.
India’s improvement in energy efficiency is much more pronounced in urban areas compared to rural areas. This is due to the split nature of industrialisation, with large manufacturing conglomerates moving out of big cities into rural areas to remain cost-competitive, and investing in self-generation power plants to meet their energy needs. Their average electricity consumption is much higher, and this has reduced improvements in energy efficiency. The unorganised sector is moving from rural to urban areas in search of better infrastructure, and they have experienced improved energy efficiency. As India industrialises more, spatial movements of manufacturing activity may compromise energy efficiency.
There is also a great deal of heterogeneity in energy efficiency trends across states and districts within India. Energy efficiency is much lower in the lagging states compared to the more developed states. The regional differences are also reflected at the district level. Although there is some convergence in energy efficiency across states and districts, the pace of convergence has been slow.
What should India do? India has made significant progress towards achieving the Paris Climate Agreement through improvements in energy efficiency. But this is not being recognised, as the global climate change agenda remains focused much more on renewable energy and technological advancements, and less on improving energy efficiency.
India’s electricity demand will triple, with a fast pace of economic growth, the rise of the middle class, and increased appliance ownership and cooling needs. Without significant improvements in energy efficiency, India will need to add huge amounts of power generation capacity to meet the demand from the 1 billion air-conditioning units the country is expected to have by 2050. By improving energy efficiency ambition, India could save nearly $200 billion per year in energy imports by 2040, and avoid electricity generation of 875 terawatt hours per year, equivalent to almost half of India’s current annual power generation.
The International Energy Association has well recognised the importance of increasing energy efficiency, but its significance also needs to be scaled up in global forums and multilateral institutions, like International Monetary Fund, World Bank, and Asian Development Bank. Up to half of the global annual emissions could be reduced through improved energy efficiency in kitchens, residential buildings and transport.
Energy-efficiency planning exists in most countries, but the quality of targets and specifications could be improved. There is a big market potential for scaling up energy efficiency through a green mortgage, green bonds, tax incentives, credit lines with banks for energy efficiency activities, and public-private partnerships in energy sector investments.
A package of additional interventions is also needed to internalise energy externalities that are much more significant in developing countries compared to advanced countries and play an import role in increasing energy efficiency. Increasing energy efficiency is a prerequisite to prepare developing countries towards a more expensive energy system that are needed to deal with carbon capture and storage and other technology solutions. There is a global concern that fast-growing economies, like China and India, have failed to achieve the goals towards Paris Club Agreement, and efforts will need to be doubled and tripled in the future. This may include more climate conscious advanced countries import tariffs on fast-growing economies. A trade war to achieve the Paris Climate Agreement is not a win-win solution, as is improving energy efficiency with economic growth.
The global problem of reducing carbon emission cannot be solved without the active participation of both India and the US that have huge coal reserves. The US-India climate and clean energy relationship are critical to achieving that aim. The Biden Plan—to tackle climate emergency and advance a clean energy future—has the potential to shift the obsession from using global trade systems to achieve Paris Agreement, and towards improving energy efficiency to save the planet from manmade disasters. This vision could have a significant impact for developing nations like India, and will be a win-win for everybody.
Former lead economist at the World Bank, and lecturer in Economics at the Oxford University Views are personal