May 7, 2007 — drsubrotoroy
First published in India’s Energy Security edited by Anant Sudarshan and Ligia Noronha, Konrad Adenauer Stiftung, New Delhi 2007
“On the Political Economy of India’s Energy Policy: One Citizen’s Viewpoint”
For the idea of “energy security” to have meaning, “energy insecurity” must hold meaning as well. Looking back a generation, the average American, European and Japanese citizen became anxious and insecure when the cartel power of the oil exporting countries was first exercised, and energy prices quadrupled. The idea of the US Government accumulating a “strategic reserve” of petroleum originated due to the oil crisis, and amounted to no more than a buffer-stock or commodity price-stabilisation scheme so “cheap gasoline” could be had always, and lifestyles would not be suddenly inconvenienced, and hence presidential popularity ratings would not suddenly drop.
In many ways energy insecurity has been a creation of bad design. Hawaii is a good example of this. Hawaii’s renowned climate is cooled by the magnificent trade-winds which blow all year long except in September. Architecture suitable to those trade-winds would have created homes a few stories high with windows which could be opened. Instead, Honolulu has become a city of high-rises and skyscrapers in the middle of the Pacific Ocean — many with New York-style permanently closed windows and centralised airconditioning.
Energy Insecurity, and hence Energy Security, may be notions mostly relevant to advanced Western economies. North American, European and Japanese homes, lifestyles, architectures and urban sprawls are all highly capital-intensive and inelastically dependant on domestic or imported energy. The reason a vague undefined notion of “Energy Security” tends to make New Delhi anxious is because many inside the Delhi Beltway live in dreamlands or fantasy-worlds where they would like to imitate Western lifestyles in their personal lives. But New Delhi is not Europe or America and certainly India is not New Delhi.
There are hundreds of millions of Indians in rural India. What is the appropriate National Energy Policy for them? It quite simply is for there to be genuine electrification of India’s 600,000 villages (where more than 70% of the rural Indian population still have no electric lighting even according to Government data), as well as better trains, better all-weather feeder-roads to reach bus routes and primary schools, and conditions to arise for technological change and normal prosperity among ordinary people, so those who are today transporting a whole family of four on a bicycle, are able in a few years to do so on a motor-scooter, and some years after that perhaps in a small private car. Economic theory speaks of preferences, resources and technologies. Preferences define and give rise to the demand-side; resources and technologies define and give rise to the supply-side. Relative prices (which include interest-rates, reflecting the force of the present relative to the future) tend to intermediate equilibria between demand and supply conditions. In policy-making, private preferences for public goods and services must somehow become translated through a tolerable political process into reasonable public preferences. It must have seemed a good idea privately to someone to create skyscrapers with closed windows in Honolulu forgetting the trade winds and ignoring the energy-dependence of the Hawaiian Islands, yet in retrospect that may seem to have been publicly unwise. Similarly, India is a coal-abundant coal-exporting and diesel-importing country yet we got rid of all our steam locomotives and replaced these with diesel engines – if there were enough reasons to do so, I at least remain ignorant of what they were. One problem with our energy policy-making that has emerged in the current nuclear deal-making with American businessmen and politicians, is that it has seemed to lack rational assessments being made of relative costs and benefits in the Indian case of nuclear/fossil fuel/renewable energy, especially hydroelectric energy. Indeed it reveals the same lack of transparency as other policy-making in this country – like the $12 billion worth of commercial aircraft from Boeing and Airbus bought for our bankrupt nationalized airlines.
Moving from preference-formation to resources and technologies, it will be recalled that no economist of any school of thought anywhere ever backed the Club of Rome/“Limits to Growth” idea a generation ago that mankind was doomed in some sense to run out of resources. There are always alternatives, each with a relative cost attached to it, and there are always new and unpredictable opportunities and ingenuities arising which dynamically change the set of alternatives on offer at a given time. Prices and costs tend to adjust when possible to make myriad individual decisions consistent with one another, and in fact, futures, forward and option markets for petroleum products are among the most active and well-traded that there are in the world. Design improvements in nuclear reactors will also improve productivity; e.g. “fast breeder” reactors “breed” more fissile material than they use, and may get 100 times as much energy from a kilogram of uranium as existing reactors do. We in India also have one innovatively designed thorium reactor under construction.
Coming to the nuclear deal, the plausible part of the Government of India’s official line on the Indo-US nuclear deal is that removing these international restrictions will — through importation of new technologies, inputs, fuel etc — improve the functioning of the 14 existing nuclear plants that are going to be designated as “civilian”. However, those purchasing decisions involved in enhancing India’s efficiency gains must be made by the Government’s nuclear scientists on technical grounds of improving the working of our existing nuclear infrastructure.
It would be a different animal altogether to be purchasing new nuclear reactors on a turnkey basis from American, French or any other foreign businessmen in a purported attempt to improve India’s “energy security”. The central question over such massive foreign purchases no longer would be the technical one of using the Indo-US deal to improve efficiency or productivity of our existing inefficient and even crippled nuclear infrastructure. Instead it would become a question of calculating social costs and benefits of our newly investing in nuclear power relative to other sources like hydroelectric power. The contribution of nuclear power to India’s electricity production has been close to negligible. Among India’s energy sources, the largest growth-potential has remained hydroelectric. Even if all other sources of electricity remained constant, and our civilian nuclear capacity alone was made to grow by 100% under the deal that Dr Manmohan Singh and Mr Montek Singh Ahluwalia have been promoting, that would still make up less than 8% of total Indian electricity produced.
In 2004, the International Energy Agency’s estimated that the new energy capacity required by rising economic growth in 2020 will derive 1400 GW from burning coal (half of it in China and India), 470 GW from burning oil, 430 GW from hydro, and 400 GW from renewable sources like solar or wind power. Because gas prices are expected to remain low worldwide, construction of new nuclear reactors for electricity will mostly remain unprofitable. By 2030, new energy expected to be required worldwide is 4700 GW, of which only 150 GW is expected from new nuclear plants which in any case will replacing existing plants due to be retired. I am afraid the thought cannot be avoided that a proper cost-benefit analysis may reveal that the reason why potential American, French and other sellers of new nuclear reactors to India are becoming so keen on India using civilian nuclear energy is that they are unable to sell these reactors under free market principles elsewhere in the world economy. There is enough circumstantial evidence that the current nuclear deal-making has been promoted mostly by big business lobbies and has had little to do with anything else. The nuclear deal was promoted by the US-India Business Council and the US-India CEO Forum. The Confederation of Indian Industry registered as an official lobbyist in Washington, and went about spending half a million dollars lobbying American politicians for the nuclear deal. After President Bush’s visit to India, the US Foreign Commercial Service reportedly said American engineering firms, equipment suppliers and contractors faced a $1,000 billion opportunity in India, and the US Chamber of Commerce said the nuclear deal can cause $100 billion worth of new American business in India’s energy-sector alone.
If the Indo-US nuclear deal helps India improve or maintain its existing nuclear infrastructure, well and good. If in fact the underlying motivation of the local and foreign business lobbies driving the deal has been to sell India nuclear reactors on a turnkey basis at a time when nuclear energy is uneconomical elsewhere in the world because of low gas prices, then India’s ordinary citizens may demand to know from the Government whether the deal is principally aimed at allowing such importation of new nuclear reactors, and if so, why such an expensive alternative is being considered. Thus must include a realisation that while the transactions, organisation and political costs of getting new hydroelectric power investments off the ground are high, it is hydroelectric and not nuclear power where India’s real future potential exists. As a general rule, I put it to you that we need to be less worried about “Energy Security” anywhere and more worried about thoughtless irresponsible corrupt governments everywhere. There is no shortage of energy or resources as such anywhere in the world; what should be making us feel insecure is the shortage of wisdom in political decision-making. That there is everywhere.