A Manhattan Project For Coal

http://indianexpress.com/article/opinion/columns/a-manhattan-project-for-coal/

Written by Arvind Subramanian

Published:Nov 30, 2015, 0:11

ABOUT AUTHOR

Arvind SubramanianThe writer is chief economic advisor to the government of India.

A decade or two from now, the world should be able to look back at the UN climate conference in Paris and say with the wistfulness of the ex-lovers in Casablanca: “We’ll always have Paris.”

But will we? There is real anxiety in India, and other poorer countries that rely heavily on coal, that the stance of advanced nations might in one vital respect stand in the way of successfully fighting climate change.

In the run-up to the conference, there is a growing call — first articulated clearly at this year’s summit of the Group of Seven leading industrialised nations — to phase out fossil fuels. The US and others have also vowed to vote against fossil fuel energy projects in developing countries when multilateral development banks are voting on them. Meanwhile, the US produces at least 35 per cent more coal than India.

For India — a country struggling to provide basic electricity to about 25 per cent of the population, according to conservative estimates — this smacks of a “carbon imperialism”. And such imperialism on the part of advanced nations could spell disaster for India and other developing countries.

In fact, rather than replacing coal, the only way India and other poorer nations can both meet their needs and minimise damage to the environment may be to find effective techniques to “clean and green” coal.

Under any plausible scenario, coal will provide about 40-60 per cent of India’s energy until 2030. It will, and should, remain the country’s primary energy source because it is the cheapest fuel available.

But India is neither unaware of the social costs of coal nor is it lax in promoting renewables. It has already started taxing carbon, both explicitly and implicitly. The coal tax has quadrupled to Rs 200 ($3) a tonne since 2014. This has resulted in an implicit carbon tax of $2 a tonne of CO2 on domestic coal. This may, of course, still not be enough to cover all the social costs of carbon use.

There has also been a substantial indirect tax on carbon. In response to the fall in the oil price, the government has eliminated subsidies on petrol and diesel and increased taxes. India has therefore moved from a negative price — that is, a subsidy — to a positive price on carbon emissions. In contrast, the governments of most advanced countries have simply passed on the benefits to consumers, setting back the cause of curbing climate change.

It is encouraging, too, that the problem of pollution is becoming part of domestic political discourse. New Delhi is requiring monitoring mechanisms for pollution in a number of cities. The pressure on local governments elsewhere in the country to take account of the domestic social costs of increased carbon-related pollution — health, accidents and congestion — will almost certainly grow.

India is committed to an ambitious renewables programme, ramping up renewables capacity from 35 gigawatts today to 175 gigawatts by 2022. But as Bill Gates, Microsoft co-founder and philanthropist, has pointed out, the prices of properly costed renewables are not competitive with coal today, and they are not likely to be any time soon. It is wishful thinking to imagine that renewables can replace coal in the foreseeable future.

So, although Delhi is committed to curbing climate change and to promoting renewables, making coal clean is vital to the country’s development. However, this cannot be done by India, or anyone else, alone.

Technologies that are already available, such as carbon capture and storage, have proved prohibitively expensive. To discover truly effective techniques, the world collectively needs to embark on a programme akin to the Manhattan project that produced the first nuclear bomb.

This would require investment from both public and private sectors, in advanced and developing nations, as well as a range of policy instruments. But the rich world’s preoccupation with phasing out fossil fuels creates a risk that the private sector — already lukewarm about investing in cleaning coal — will read the signals and abandon this project altogether.

In the past few months I have met senior leaders from the US, the UK, France, Germany, Australia and Japan. All appreciated that the need to clean coal is a significant part of efforts to fight climate change. The time is ripe to create a global green and clean coal coalition. That, rather than unconscionable calls to phase out India’s cheapest form of energy, would best serve the cause of fighting climate change.

The writer is chief economic advisor, government of India. This article first appeared in the ‘Financial Times’ on November 27.

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