Abstract
The global emphasis on reduction in carbon footprint has brought the issue of clean energy back into focus. There are two most notable aspects of the debate. The first aspect concerns the tension it has generated globally between the green energy industry and the traditional energy industries while the second aspect of the debate concerns the developing countries, which lack the necessary infrastructure and technology to make the transition to clean energy. This transition amounts to a remarkable shift in the socio-economic paradigms of developing nations like India which have a largely carbon-based economy. In this article, we study the global transition to clean energy using the political economy framework, wherein we analyse the role played by international regimes, national governments and energy companies in facilitating or inhibiting this transition. We also try and ponder over the impact this transition has on emerging economies like India and how they seek to cope with this while resolving the tension between economic growth and sustainability.
Keywords
Introduction
A significant amount of politics behind the state government’s initiative to deploy renewable energies, replacing traditional forms of energy sources in the economy has gained prominence ever since the debate on climate change culminated with the Paris Accord in 2015. The global emphasis on reduction in carbon footprint has brought the issue of clean energy back into focus. There are two notable aspects of the debate. The first concerns the tension it has generated globally between the green energy industry and the traditional energy industries, with the former trying to gain a position of strength in the world economy, while the latter being unable to relinquish any significant amount of control. The second aspect of the debate concerns the developing and underdeveloped economies, which lack the necessary infrastructure and technology to make the transition to clean energy. This transition would amount to a remarkable shift in the socio-economic paradigms of these nations and hence poses a significant threat to their economic activities that are traditionally dependent on fossil fuels. In this article, we study the global transition to clean energy using the political economy framework, wherein we analyse the role played by international regimes, national governments and energy companies in facilitating or inhibiting this transition. We also try and ponder over the impact this transition has on emerging economies like India and how they seek to cope with this while resolving the tension between the economic growth and sustainability.
Energy Security and the Case for Renewable Energy
Energy issues have gained predominance in the political discourse like never before. The contemporary debate is however shaped by two important developments. The first one concerns the sharp uncertainties that mark the prices of fossil fuels like coal and oil in the international economy. With the growing scarcity of resources and increasing politicisation of supply, fossil fuels as conventional energy resources face growing challenges. The debate has also been brought to the forefront by the climate change issue that has been looming large for several years now. All this necessitates the need to relook at the energy politics in terms of its technological, economic and social implications. This idea is principled on the fact that renewable energy is inextricably linked to the concept of energy security.
The climate change deal agreed upon by all the countries that are members of the convention, also known as the ‘Paris Agreement’ in December 2015, recognised the need for lowering greenhouse gas (GHG) emissions in order to ‘hold the increase of global temperatures to well below 2 degree Celsius above pre-industrial levels’ so as to significantly reduce the risks and adverse impacts associated with climate change. In view of the nationally determined contributions agreed upon by the convention, a greater emphasis was laid on the individual countries’ adoption of clean energy, for which an aid of US$100 billion per year is to be voluntarily provided by the developed countries to developing and poor countries for transition to clean energy resources. The agreement also elaborates upon the mandatory submission of voluntarily declared carbon reduction targets and plans to the UN and their effective implementation. As a significant move towards fostering greater climate resilience, the Paris Agreement unequivocally laid emphasis upon the need for countries to make the transition to clean energy sources. This renewed emphasis on sustainable forms of energy production has strengthened the global case for renewable energy. However, there is an apparent political component to renewable energies in terms of the political process and economy of energy production as well as in the formulation and execution of policies relating to renewable energy. Keeping in mind the fact that energy supply lies at the core of world economic growth, what becomes of extreme importance is the relationship this commodity shares with the global political institutions (Moe & Midford, 2014). The global market for renewable energy is a mix of government policies and private firms, characterised by an uncertain market integration of the two. But, the growth in the sector is predominantly led by individual government policies that rest on market-based mechanisms and regulatory frameworks. The international energy market is dominated by ‘strong industrial giants that wield a great amount of political influence and are more often than not able to secure agreements and arrangements internationally that help further their monetary interests’ (Moe & Midford, 2014). Another important feature of the present energy market is its strong bias in favour of the more conventional energy resources such as the fossil fuels. However, the issue of ‘energy access’ in terms of ‘abundant access to inexpensive energy’ has strongly affected the energy markets.
With the rapidly diminishing resources of fossil fuels, and a dramatically warming planet, the demand to gradually replace fossil fuels with clean energy sources is gaining ground. This combined with the fact that there has been an observable growth in the price competitiveness of the renewable over the years, a number of countries have started to provide for suitable regulatory and economic frameworks for the renewable energy industry.
There are however several impediments to a significant shift towards the renewable in the energy market. The most important obstacle is the amount of power and influence that ‘domestic institutional and industrial structures’ wield in the economy (Moe & Midford, 2014), which seek to preserve the status quo on energy production. In the given political economic system, an already established institution exercising major influence in a certain economic activity, given the large number of actors involved and their firmly rooted political links with the decision-makers tends to resist any kind of dramatic change that could potentially be detrimental to its own interests. A similar case unfolds in case of the ‘carbon based techno-institutional complex’ (Moe & Midford, 2014) that are quite powerful and thrive on an infrastructure that is firmly based on the use of fossil fuels and works on a very favourable regime based on subsidies and institutions provided by the government. Thus, replacing a strong Techno-Institutional Complex (TIC) with a new energy mechanism necessitates a very coherent political action and decision-making. This kind of a fundamental shift basically signals a complete overhaul of the existing energy market and a very decisive structural energy change. These structural changes can thus occur in events of major external or internal shocks that emanate from supply-side distortions such as those that occurred in the event of the oil shock in the 1970s or demand-side shortcomings such as those emanating from economic recessions.
Another major problem with the renewable energy is the fact that it is still very costly. Even though renewables thrive on government subsidies which include ‘feed-in-tariffs (FITs)’, the prevailing lower levels of output in terms of the negligible contribution offered by the renewables to the overall electricity production raises the input costs. Any further increase in production costs lead to a scaling back or retrenchment by the government that inevitably leads to market crashes. The economy of renewable energy often follows this cyclical trend. This kind of trend has to do with the major distortions that exist in the energy market today which include the very generous subsidies on fossil fuels (diesel subsidies in developing countries like India being a case in point), restricted trade in sustainable energy technologies (lack of international standards hampering the trade in biofuels) as well as environmental goods (Fischedick, Borbonus, & Scheck, 2011). According to the International Energy Agency’s (IEA) world economic outlook report, fossil fuels enjoyed annual subsidies of around US$550 billion globally which was the primary reason behind a deficient investment in renewable energy (World Economic Outlook, 2014). Thus, while wind solar and biofuels received only US$120 billion as incentives, oil, coal and gas received four times the amount. These subsidies not only hamper the market for renewable, they also contribute to the increase of global temperatures. Thus, cost disadvantage for the renewables is partly created by technological hindrances and partly by the ‘political influence exerted by the fossil fuel lobbies’ (Moe & Midford, 2014). The disadvantages are expected to be set off by the evolution of more mature technologies and by the rise in prices of rapidly diminishing fossil fuel resources. The evolving consensus on carbon tax through the recent climate change agreements has also put the focus back on the renewables.
Renewable energy has recently seen the development of various national, regional and international regimes for its regulation and development. An important contribution to the creation of the global regime on sustainable energy came from the G-8 which adopted the ‘global energy security principles’ in 2006 (Fischedick et al., 2011). The principles underlined the increasing importance of clean energy and energy efficiency and marked a significant beginning for the issue area. However, it lacked specific target-oriented action plans and any benchmarks for evaluation. In 2009, another global regime on renewable energy was created at Abu Dhabi, efforts for which were led by Germany, Sweden and Denmark. An offshoot of the IEA, the International Renewable Energy Agency (IRENA) is now fundamentally the global regime on renewable energy. IRENA is an ‘intergovernmental organization that supports the countries in their transition to a sustainable energy future’ (IRENA, 2013a) which also serves as a platform for international cooperation and claims to provide countries with the technological and financial assistance on renewable energies. It boasts of 146 member nations, a number that is significantly higher than the IEA which comprises of only 29 members. This expansive membership helps IRENA tackle the issue of transition more effectively and take on the ‘root cause of several environmental challenges like climate change and air pollution directly’ (Van De Graaf, 2011). IRENA’s significance in the politico-economic terrain of renewable energy can be gauged by the fact that unlike the older regimes that dealt with energy related environmental activities, such as the Kyoto protocol, IRENA does in fact make a significant departure from the traditional energy path. In addition to the regimes on renewable energy, a remarkably important role in the issue area is also played by the World Trade Organization (WTO) and other international organisations on climate change. There is an apparent conflict of interest between the two bodies which has played itself out on several instances. It is understood that the shift to clean energy is expensive and requires advanced technologies. The lack of availability of such technologies in the developing countries potentially hampers the process of transition. To facilitate this, the governments in many developing countries try to incentivise production of renewable energy through a liberal subsidy regime. In order to increase the cost competitiveness of renewable energy, governments around the world have been providing the sector with certain support measures which include incentives in the form of subsidies and price support, mandatory quotas, tax incentives such as Production Tax Credits (PTCs) Renewable Portfolio Standards (RPS), and other forms of loans and grants. This however presents a major contradiction to the WTO which, given its archaic subsidy regime, gives little policy space to the governments. The WTO treaty does not include any special framework for renewable energy. The WTO Agreement on Subsidy and Countervailing Measures (SCM) and Trade Related Investment Measures (TRIMS Agreement) in particular contain measures that explicitly prohibit government intervention in the form of ‘financial contribution’, ‘income or price support’ and/or ‘specific subsidies’. Under the SCM, two kinds of subsidies are completely prohibited and these include the export subsidies and local content subsidies. There are also no exceptions made based on public policy objectives such as environment, health or labour. Thus, while some exceptions are made with respect to agricultural subsidies, no such exceptions are made for energy subsidies which are subject to the general rules of the SCM. A major point of contention also stems from the fact that until 2000, developed countries were allowed to provide subsidies for research and development (R&D) which were included under the ‘non-actionable subsidies’. This reflected a clear imbalance in the organisation’s subsidy regime that favoured the developed nations over the developing countries. The ‘production subsidies’ which were exploited by the industrialised countries in their respective development phase were subsequently banned and this put the emerging economies with nascent renewable energy programmes at a clear disadvantage.
This apparent incoherence between the twin demands of pushing for major emission cuts by restructuring their energy infrastructure while strictly adhering to the WTO norms on fair trade has negatively affected the process of energy transition in developing countries. In the case of India, negative WTO rulings in many cases has led to a scaling down of production and use of clean energy technologies which has in turn retarded the country’s efforts at the mitigation of GHG emissions.
Climate Change and Renewable Energy: Perspectives from India
The issue of climate change is deeply linked with economic growth and energy security. Economies around the world are carbon based, driven by the energy from the use of fossil fuels. Thus, a country’s per capita energy consumption is an important indicator of the levels of growth and development. While any successful steps to avert climate change would require drastic cuts in CO2 emissions, these cuts will come at the cost of an individual country’s economic growth. Growth cannot be substantially delinked from CO2 emissions and therefore climate and energy present the modern world with a complex set of challenges. In recent years, India has emerged as a highly relevant player in the climate change negotiations. Positioned at the top as the fastest growing major economy in the world, India has assumed the status of an emerging economic power. This has two major implications for the current climate change negotiations. First, given the fact that the country has only recently embarked upon an ambitious development agenda, it is posited to emerge as one of the leading emitters of GHGs. According to the data released by the World Resources Institute (WRI), India was the fourth largest emitter of GHGs in 2015, emitting 6.96 per cent of the total GHG emissions. Its emissions increased by 65 per cent between 1990 and 2005 and are projected to grow another 70 per cent by 2020 (IEA, 2008). However, on a per capita basis, India’s emissions are 70 per cent below the world average and 93 per cent less than that of the United States. Its emissions intensity (GHGs emitted per unit of GDP) has also declined, such that currently its ‘GHG intensity is 20% lower than the world average, 15% lower than the US and 40% lower than China’ (TERI, 2008).
However, given the size of its population living below poverty line and high dependency on agriculture (accounting for 17 per cent of GDP and employing about 49 per cent of the population in 2014), India is also one of those many countries which are most vulnerable to climate change. Thus, it finds itself in the peculiar position of a country with strong polluter and victim interests. India’s historic position on climate change negotiations is pivoted around the principal of ‘common but differentiated responsibilities’ (CBDR). It has time and again called for a differentiation between the ‘luxury emissions’ of the north and the ‘survival emissions’ in the south. Along with this, there has been an emphasis on accounting for emissions on a per capita basis and historical responsibility. Historically, India has assumed the role of a strong negotiator which could rally support from a wider bloc of developing countries. During the years leading up to the Kyoto Protocol, for instance, India in the COP-1 held in Berlin, argued for a ‘20% emission reduction by the industrialized countries by the year 2000 compared to the 1990 levels’ (Michaelowa, Katharina, & Michaelowa, Axel, 2011). This was essentially the stance of the Alliance of Small Island States (AOSIS) which was supported by India. During the same time, it was also able to regroup over a 100 countries under the banner of ‘green group’ and could secure the Berlin mandate. Again in 2002, India hosted the COP-8 in Delhi and demonstrated a genuine commitment towards the international negotiations, but was firmly against the call for emission commitments from the group of developing countries. After COP-8, however, India fully embraced the clean development mechanisms (CDM) that was initially put forth during the COP-3 in Kyoto. With the release of the National Action Plan on Climate Change (NAPCC) in 2008, India signalled a genuine effort towards the global mitigation of GHGs but it was based on the premise that this effort had to be self-determined and should not hamper the economic growth (Jha, 2009). It was however in the years leading up to the COP-21 in Paris, that India played the balancing act, such that in the final agreement, it managed to secure for itself more carbon space for economic development and at the same time committed to ensure reductions in the GHG emission levels. With the inclusion of the CBDR clause in the final agreement and the building of a consensus over countries announcing voluntary pledges for emission cuts, the Paris Agreement managed to successfully break away from the deadlock surrounding the negotiations for the last two decades. The signing of the agreement, however, has major implications for India. Premised on a shift towards cleaner forms of energy, the agreement warrants a need for a change in energy use patterns. This is important for India which still depends heavily on the use of fossil fuels for its energy needs. With dependence on imported oil already touching the levels of 75 per cent, it is predicted that the levels could go up to 90 per cent by 2030–2031 (Khilnani et al, 2013). Similarly, it is slated that around 66 per cent to 75 per cent of coal in 2030–2031 could be imported. Energy mix in India has undergone significant transformations since the economic reforms were ushered in the country in 1991. The most remarkable of these was the countrywide shift from the use of biomass as a primary energy resource to the use of coal. Since 1991, while the share of biomass has declined from 42 per cent in 1990 to 23 per cent in 2013, that of coal has increased from 33 per cent in 1990 to around 44 per cent in 2014 (IEA, 2011). This change can be attributed to the growing urbanisation, reduction in poverty levels and rapid industrialisation. As per the report published by the World Energy Outlook in 2011, energy demand in India has grown from ‘319 million tons of oil equivalent (Mtoe) in 1990 to a staggering 669 Mtoe in 2009’ (IEA, 2011), responsible for an increase of 10 per cent in the global energy demand. Projections by the New Policies Scenario, the central scenario of World Economic Outlook (2011) predict a rise in India’s energy demand to 1464 Mtoe by 2035, with a compound annual growth rate (CAGR) of 3.1 per cent, significantly higher than the world CAGR of 1.3 per cent for the same period. Besides coal, the share of oil and gas in the energy mix stood at 23 per cent and 6 per cent. respectively. In 2014 alone, oil consumption in India stood at ‘0.54 million tons per day’, and around 40 per cent of this consumption demand emanated from the transportation sector. Nuclear Energy constitutes about ‘3.5% of the total power generation, producing about 37835 MUs of power in the year 2014–2015 and a total nuclear power plant capacity of 5780 MWe’ (NPCIL, 2015). The share of renewable energy hovers around 2–3 per cent of the total amount, a major portion of which is contributed by hydropower. Thus, India’s energy structure is largely carbon based and therefore, in view of the current climate change negotiations, India needs to radically revise its energy mix so as to meet its intended carbon cuts targets.
‘Energy leapfrogging’, a term introduced by J. Goldemberg in 1998, defines the strategy which facilitates the transition of developing countries from the traditional energy dependency on fossil fuels to an alternative energy development path that adopts modern clean technologies developed by industrialised countries. Leapfrogging refers to the situation where developing countries jump over dirty technologies of the past to adopt and use alternative forms of energy technologies (Goldemberg, 1998). While under the Paris Agreement, the developed countries will supposedly provide the developing countries with funding of US$100 billion an year up until 2025 in order to finance their transition to cleaner forms of energy, a closer look at the situation however reveals major hurdles to the process.
Solar Power
Of all the renewable natural resources, solar energy is the most abundantly available. According to an IEA estimate, the use of solar energy can help cut emissions of some of the most detrimental GHGs that account for around 41 per cent of the total global emissions (IEA, 2008). Solar energy is harnessed using two technologies. One is the solar photovoltaic (PV) that converts solar energy into electrical energy while the other kind of technology is the solar thermal collectors which capture solar radiation and convert it into heat energy. Both the technologies use silicon-based and thin film semiconductors that currently dominate the global market. The solar energy sector is estimated to grow into one with a ‘significant economic growth and employment potential’. The sector is liberalised and has very low tariffs (around 8 per cent for developing countries and negligible or no tariffs for industrialised/developed countries) and is thus becoming increasingly trade intensive (Algieri, Aquino, & Succurro, 2011). The last decade, since 2001, saw a steady growth in the expansion of the sector that went from ‘38% in 2006 compared to 2005 and then to 89% in 2008 compared to 2007’. In terms of estimates for the future, the World Energy Outlook of the IEA predicted a 2–3.3 per cent share of solar energy to the total electricity production by 2020 (IEA, 2012). Conditions that favour growth in the solar energy sector include a combination of some very favourable energy policies that stem from the global concerns over climate change, public support programmes, and other incentives such as cheap loans and interest subsidies in the form of FITs provided by the governments. Traditional manufacturers of solar PVs include countries like United States, Germany and Japan. But these have now been overtaken by China where at present the ‘total production value for manufacturing side of the sector exceeds US$31.5 billion’ (Renewableenergy.com). The international economy of the solar sector if shifted out of the developed countries offers significant opportunities for the developing states. The availability of cheap designs and growing price competitiveness of the technology has allowed the developing nations a foot in the door in terms of both, a reduction in carbon emissions and a decline in dependency on conventional and expensive energy resources. The geographical location of most developing countries in terms of proximity to the equator and abundance of sunshine allows for successful harnessing of solar energy. A competitive market scenario emerges when one looks beyond the industrialised countries. A cost estimation of the technology reveals that solar electric prices for grid connected solar markets today hover around US$0.72 per watt or around 30 cents per kWh which is around 2 to 5 times the average residential electricity tariffs. However, for the remote habitational solar markets, the prices are only 0.2 to 0.8 times the residential electricity tariff, which, given the urban rural demography of majority of the developing nations potentially works to their benefit (Foroudastan & Dees, 2006).
The solar PV technology however requires higher initial input costs which majorly include the cost for installation of a PV system. Therefore, the primary focus shifts to microfinancing of such systems that can facilitate its affordability. On similar lines, with an aim to generate 175 GW of renewable energy by 2022, India, in 2012, launched the Jawaharlal Nehru National Solar Mission (JNNSM) as a major initiative that sought to achieve the twin goals of promoting ecologically sustainable growth as well as achieving energy security. Endowed with abundant solar energy in the form of not less than 300 solar days per year and an average solar insolation of 4–7 kWh per sq. m. per day, the JNNSM launched under the purview of the NAPCC aims to harness this solar energy potential and create policy conditions which could facilitate its extensive use across the country. Executed in three phases, spanning up to 10 years (2012–2022), JNNSM under the brand name ‘Solar India’ plans to add 20 GW of grid connected and 2 GW of off-grid capacity by 2022. In phase-I (2012–2013), with the objective of achieving 500 MW of PV and solar thermal power each, the Government of India (GoI) conducted reverse auctions which offered FIDs and long-term power purchase agreements (PPAs) to the low-cost developers (JNNSM, 2012). In the phase-II of the project (2012–2017), the central government plans to add 10 GW of solar capacity by 2017 for which its primary focus is upon the implementation of a multiple schemes such as generation-based incentives (GBIs), Viability gap funding (VGF) and bundling schemes in order to facilitate and promote the participation of least cost developers in the project. Under phase-II the JNNSM project seeks to encourage local manufacturers and support focused R&D initiatives through its mandatory domestic content requirement (DCR) clause. The DCR clause makes it mandatory for all investors to use solar modules that are produced locally as well as, source 30 per cent of their input from the local manufacturers. The clause was introduced to encourage local participation from domestic industries and provide incentives to the private players to set up plants and invest in technology and R&D, with the sole aim of producing solar electricity at affordable rates.
A case in point has to be made here regarding the dispute which is now increasingly straining trading relations between developed and developing nations in this area. The dispute concerns the provision of subsidies to renewable energy developers by governments in the developing countries, which according to the developed nations violates the WTO’s rules on national treatment, both under the organisation’s General Agreement on Tariffs and Trade, and under the Agreement on TRIMS. This conflict was evident in the case of India wherein, only recently, the DCR clause under India’s national solar mission was challenged by the United States in the WTO on the grounds that the clause was inconsistent with ‘article III of the GATT 1994, article 2.1 of the TRIMs agreement and Articles 3.1(b), 3.2, 5(c), 6.3(a) and (c), and 25 of the SCM Agreement’. The United States claimed that India’s DCR clause was protectionist in nature and discriminated against imports. The WTO panel subsequently ruled against the DCR clause claiming that India’s arguments which justified the DCR measures under the general exception in Article XX of GATT 1994, on the grounds of ‘lack of domestic manufacturing capacity in solar cells and modules making these products in general or local short supply’, did not hold. Its claims on exceptions from Article III of GATT 1994 on the grounds of government procurement clause were also rejected by the (Dispute Settlement Body) WTO DSB, which held that the product discriminated against (solar panels) were not in a competitive relationship with the product that was procured by the government (electricity). This dealt a huge blow to India’s ambitious target of making a swift transition to cleaner forms of energy by 2022. In another related incident, the disruptive bidding games by industrialised countries came to light. According to reports, in November 2015, a US-based solar developer SunEdison quoted a record low-generation tariff to bag the global bid for solar PV technology-based power project in Andhra Pradesh. The company however teetered on the brink of bankruptcy within four months. This brought to surface the ploy which intended to defer Indian firms from obtaining bidding licenses. It also came as a big setback to the Indian solar sector that was aiming to inch closer to grid parity (Indian Express, 2016).
Wind Power
Of all the renewable technologies available, utility-scale wind turbines are the closest to achieving cost parity. The development of wind power technologies are pivoted around local manufacturing in developing countries which face substantial entry-level barriers from companies that have been into the business of manufacturing wind turbines for the past 20 years or so. In addition to this are the problems of limited technology transfers by the leading global industries to regions that are likely to emerge as potential competitors. Creation of similar yet lesser expensive technologies in the developing world is also seen as a threat to the hegemony of the existing companies. The wind power industry which is characterised by a small number of firms using highly specialised forms of technology and concentrated geographically in particular regions usually disseminate information through ‘national level technology innovation systems and firm level learning networks’. The market for wind power is thus less diverse and open than the market for solar energy that sees a burgeoning simplification and diversification of technology. This presents significant challenges to the developing nations who then have limited access to wind power systems. Despite this, ‘the country leading the sector in terms of manufacture of utility-scale (multi-kilowatt) wind turbines is India which is followed closely by China. Suzlon and Goldwind, the two developing countries firms are the lead wind turbine manufacturers globally’ (Lewis, 2007), which hence represents a significant digression. Also, while India ranks first in the manufacture of wind turbines, it ranks fourth in terms of utilisation capacity. China however leads the table, whereby in 2014, alone, it installed almost half of the world’s added wind power capacity. Both the countries have aggressively promoted wind power development through necessary policy support and creation of extensive market for domestic manufacturers. Approved in September 2015, the Ministry of New and Renewable Energy released a National Offshore Wind Energy Policy that forms a part of the government approved NAPCC announced in the year 2008. Through this, the government plans to ‘encourage indigenization of offshore wind energy technology, promote research and development as well as create skilled manpower in the sector’, among other things (NOWEP, 2015). This comes against the backdrop of India’s ambitious plan to achieve the target of generating 60GW of wind power by 2022 from the current levels of 25GW. India has managed to acquire leading spots in renewable energy initiatives. What is also important to note here is that in 2007, Indian wind energy giant Suzlon set up a plant at the Weihai wind farm in China’s Shandong province. This came about with an investment of US$60 million and generates 600MW of electricity annually, making it the first investment by an Indian company in China’s rapidly expanding wind energy sector. The investment signifies a major turn of events for the two countries which could potentially collaborate in the renewable energy sector. With both the countries aiming for ambitious targets by 2020, the area offers a huge potential for mutual trade and exchange of technology and capital.
Despite the remarkable growth witnessed in the sector during the last few years, the wind energy sector in India however faces challenges on multiple fronts. Until 2016, through the GBI scheme, the Indian wind energy developers were provided with ₹ 0.50 for every kWh of electricity generated. However, with the GBI now set to expire by the end of the current financial year by 31 March 2017, the domestic manufacturers could face challenges. Along with this, another incentive in the form of accelerated depreciation tax benefit is set to be reduced from 80 per cent to 40 per cent. This is expected to come as a major blow to the wind energy sector which already suffers from inadequate grid infrastructure, unattractive incentive policies as well as the absence of an integrated policy framework. This makes the absorption of the generated power into electricity particularly difficult.
The growth of the wind power sector in India and China has also increasingly come under scrutiny at the international level. Few incidents are notable in this regard. In 2010, the United States initiated dispute proceedings against China at the WTO, alleging that the country’s special fund to its domestic wind power equipment manufacturers was an illegal subsidy under the provisions of the international trade law and violated Article 3 of the SCM agreement. In addition to this, failure of China to notify these measures also violated Article XVI:1 of the GATT 1994 and Article 25 of the SCM agreement. The United States claimed that China’s award of funds discriminated against the imported goods and was a type of import substitution subsidy which is explicitly prohibited under the WTO rules. What is interesting to note here is, however, the fact that the United States itself has local content requirements in renewable energy in some of the states including Texas, California and Pennsylvania (Sahdev, 2016). Under this clause, businesses that employ locally manufactured technologies are subsidised by the government. Energy subsidies doled out in the last five years alone touched the figure of US$39 billion a year (EIA, 2015). The final decision of the WTO, however, saw China put a halt to the grant of subsidies to wind power firms.
The incoherence in domestic and international policies on wind energy therefore continues to plague the growth in this sector. Developing countries like India and China which seem to have taken a lead continue to suffer from shortcomings that have much to do with how countries frame their domestic energy policies and how these policies subsequently stand the test of the WTO provisions.
Biofuels
IRENA defines biofuels as the ‘liquid and gaseous fuels produced from the biomass’ (IRENA, 2013b). The two major liquid biofuels include ‘bioethanol and biodiesel’. The IRENA refers to the liquid biofuels as conventional or advanced biofuels. The conventional biofuels are produced from processes and livestock, knowledge about which is commonly established. While bioethanol is produced from sucrose, biodiesel is produced from the fermentation of vegetable oils. Bioethanol can be harnessed into a high-octane fuel that is usually blended with gasoline. Globally, in the year 2010, biofuels contributed to about 3 per cent of the transport fuel demand, while 2–3 per cent of the arable land is under cultivation for their production (IRENA, 2013). However, besides sugarcane ethanol, the rest of the conventional biofuels are hardly sustainable in terms of large-scale production because they would cut down on the land available for farming and forestry. A better alternative to conventional biofuels are the advanced biofuels that prove to be more sustainable as they use “bio mass resources and land not used for primary needs”. Residues from agriculture and forestry, organic waste from urban waste and micro algae are converted and processed into biofuels.
The global interest in biofuels resurged during the 1990s when both the United States and the European Union in particular began to take greater interest in the energy resource. The potential advantages of the fuel ranged from a substantial decrease in GHG emissions, thus contributing to emission reduction important to keep climate change in check, to a reduced dependence on oil imports spiked interests of major agricultural producers and corporate firms in the market. Ever since, the political economy around biofuels has however grown into a contentious issue. The provision of subsidies and blending mandates to the biofuels by the governments has become one of the most controversial environmental policies in the recent years. The Global Studies Initiative report (Gerasimchuck, Bridle, Charles, & Moerenhout, 2012) noted that the market for biofuels was in fact artificially created by the governments through policy supports and subsidies and therefore, any kind of reduction in those would make the market ‘far less competitive’. Most of the subsidies provided to the biofuels fall under the WTO’s provisions on the agriculture subsidies and are therefore contended enormously. In addition to this, the issue of biofuels subsidies holds primary importance for developing and under developed countries wherein biofuels are seen as the new cash crops that can provide support to farmers and landowners and increase rural incomes. However, the dual purpose that these subsidies seek to serve, that is, both secure a supply of energy and provide income benefits to farmers becomes a sort of a mismatch under the WTO provisions that allow for income support to agriculture and rural development only under certain stipulated cases. The debate on the biofuels also centres on the ‘Food versus Fuel’ issue which came under spotlight during the years of drought from 2006 to 2012 and especially after the 2007 food crisis that saw eruption of food riots in countries like Yemen, Haiti and Zimbabwe. The conversion of staple food like corn into biofuels during times of drought brought into focus the contention between food and fuel. It was deeply and widely speculated that the diversion of food crops from the market for production of biofuels was causing an increase in food prices globally. Thus, from a potentially win-win situation that could benefit both climate and the rural poor, the biofuels evolved into a risky venture that could potentially push up food and land prices.
In India, the Ministry of Petroleum and Natural Gas introduced a National Policy on Biofuels in the year 2008. This policy aims to develop alternate fuels to ‘substitute/supplement petro-based fuels developed using indigenously produces renewable feedstock’ (MNRE, 2008). The policy identifies transportation as a ‘major polluting sector’ and plans to cut on automotive emission by promoting the use of biofuels. India has sought to address the global ‘food versus fuel’ debate by basing its policy on the sole use of ‘non-food feedstock to be raised on degraded or wastelands, not suited to agriculture’ (MNRE, 2008). Proposing an ‘indicative target’ whereby all biodiesel and bioethanol would contain 20 per cent of biofuels by 2017, the policy aims to achieve multiple goals of achieving energy security, cutting down on carbon emissions, bringing wasteland under cultivation and providing additional means of livelihood to cultivators, farmers and landless labourers.
There are, however, multiple challenges facing the biofuel industry in India. One of the prime challenges facing the sector is in the form of the political barriers which emanate from the kerosene subsidies which are provided by the GoI. Touching the figure of US$5 billion in the year 2015 alone, the kerosene subsidies in India distort the market for the use of biofuels. In addition to it, the fact that ethanol in India is primarily produced from the sugarcane molasses, the fluctuations in the yield of the sugarcane crop owing to the vagaries of the monsoon also leads to fluctuations in the amount of ethanol that can be produced every year. The shortage of ethanol supply was one of the major reasons why the Ethanol Blending Program (EBP), introduced in the year 2003 that made it mandatory for the Oil Manufacturing Companies (OMCs) to blend 5 per cent of ethanol, could not achieve its target (Bandyopadhyay & Roy, 2015). On the recommendations of the Planning Commission in 2003, a national mission on biodiesel was launched based on the use of non-edible tree-borne oils. This shifted the focus onto the cultivation of the Jatropha plant and the Ministry of Rural Development was appointed as the nodal ministry for the purpose. This process has however been impeded because of the inability of state governments to incentivise the cultivation of the plant as well as the plantation of a low yield variety of Jatropha, thus putting a huge constraint on the supply side. The implementation of the policy also witnesses strong resistance from the OMCs of the country which in 2014 cancelled ‘1200 million litre ethanol procurement tenders seeking a cut in the accepted price, given the fall in the crude oil prices in the international markets’ (Bandyopadhyay & Roy, 2015). In addition to these, the issue of small landholdings, and ownership issues relating to community-owned wastelands have also retarded the Jatropha production.
Biofuels offer an important alternative to the conventional fuels used in the automotive industry; however, policymakers in India have been slow to implement the reforms necessary to put the bioethanol to use, hence causing a delay in achieving the slated EBP targets.
Conclusion
This article tries to elaborate upon the political economy that surrounds the renewable energy sector in the developing nations, with a particular focus on India. Few broad themes can be concluded from this discussion. First, the renewable energy sector finds itself in the middle of a global transition whereby national economies are trying to broaden and diversify their supplies of energy. This is being done keeping two factors in mind; one, the prices of conventional fossil fuels are on the rise due to the fast depleting resources and increase in the cost of production and two, the global consensus on limiting the national GHG and carbon emissions has shifted the focus on the renewable sources of energy. The renewable energy sector is different from the conventional energy sector. This difference stems from the fact that while the resource is available in abundance globally, harnessing the resource requires a technological know-how and capital support over which developed nations have a monopoly. The transition to renewable forms of energy in developing countries that lack specialised technologies and infrastructure is hampered by the archaic subsidy regime of the WTO which, under its SCM and TRIMS agreement, prohibits specific forms of government support to the renewable energy sector. The heavily subsidised renewable energy sector in most developing nations has given way to some major conflicts in the WTO. The negative WTO rulings in the issue area has left very little policy space for national governments in the developing countries which already suffer from the twin problems of rising fuel costs and rising levels of GHG emissions. Economic development is directly linked to energy security which is now inextricably linked to achieving a secure access to renewable energy. Development of renewable energy will however require major incentives from the governments such that investments are not only more profitable but the sector can also generate employment opportunities for local populations. However, given the current structure of international laws, the developing countries with their subsidy policies and tax incentives are bound to run into trouble with the WTO’s provisions. Therefore, in the scenario where no significant reforms in the international trade rules are carried out, the incidents of trade related renewable energy disputes are likely to rise in the future.