Growth with less energy

By Dr Bharat Jhunjhunwala
Chief Minister of Tamil Nadu, Ms Jayalalitha has given the green light to the Kudankulam nuclear power project. A report of the World Bank also places availability of electricity as the main constraint to economic growth. Indian businessmen have been hollering for increase in supply of coal by Coal India Limited. The earth’s capacity to produce electricity, however, is limited. It is not possible to raise the consumption of energy of the 1.2 billion Indian citizens to the levels of the West. We will have to, therefore, necessarily find ways of attaining economic growth with less consumption of energy. Every country must dovetail its growth process to its natural endowments. For example, the rulers of Saudi Arabia do not rant that they require more water for sustaining economic growth. They grow dates instead of grapes and sugar cane. We must similarly adopt a growth strategy that is in tune with our natural resources.
We have help coming. There is much evidence that economic growth in India is no longer linked with higher levels of energy consumption. A study titled “Electricity consumption and economic growth in India” by Sajal Ghosh of Indira Gandhi Institute of Development Research, Mumbai found an absence of long-run relationship between economic growth and electricity consumption. Implication is that economic growth leads to higher consumption of electricity but higher consumption of electricity doe not lead to economic growth. The study concludes, “Electricity conservation policies can be initiated without deteriorating economic side effects. In another study, titled “Electricity Prices in India” by Pierre Audinet of International Energy Agency, Washington concludes: There has been a “sharp decrease of the ratio of electricity consumption growth to GDP growth in the 1990s (in India).”
This same phenomenon has been observed for China. Fengqi Zhou has made a study titled ‘Economic development, energy, and the environment in the People’s Republic of China’. Zhou tells us: “Energy consumption per 10,000 yuan GNP decreased from 13.36 lee in 1980 to 9.3 lee in 1990. Nearly two-thirds of this was saved indirectly through changing macroeconomic structures; the rest was saved directly by industrial enterprises. This indicates a de-coupling of energy consumption and economic growth” Similarly S.-H. Yoo of Hoseo University, Republic of Korea says in a study that “uni-directional causality runs from economic growth to electricity consumption in Indonesia and Thailand without any feedback effect. Thus, electricity conservation policies can be initiated without deteriorating economic side effects in the two countries.”
The reason of this decoupling between energy consumption and economic growth is that high price of electricity impacts growth in only a few energy-intensive industries but saves many hidden costs of environment like global warming. The final impact of lower consumption of energy is positive if the savings from hidden costs is greater than the costs from higher price of energy. The argument that we need to increase production and consumption of energy to sustain economic growth, therefore, does not hold.
The straightforward method of dealing with the problem is to discourage energy-intensive industries like aluminium and steel and promote the services sector. Likewise we must discourage energy-intensive crops like grapes and sugar cane and encourage coarse grains that consume less water. Our businessmen do not understand this because they are enthralled by the Western growth model.
The demand made by our industrialists for increased production of domestic coal by Coal India Limited (CIL) is really a ruse to access the scarce natural resources at a low price. There is a conflict of interest between the producers and consumers of electricity. High price of electricity is beneficial to the producers while low price is beneficial to the consumers. The strategy adopted by them to get out of this contradiction is to seek low price for domestic coal. Then the price of electricity too will be low and both producers and consumers can make merry. They have demanded increased production by CIL so that cheap domestic coal is made available aplenty. Coal could, of course, be imported and the shortage of electricity removed. But international prices of coal are high. Therefore, they want domestic production to be speeded up so that cheap domestic coal can be made available in greater quantities. In other words, the issue is not inefficiency of CIL but the cheap price of domestic coal. Note that the price is cheap because the Government imposes fewer taxes on this resource.
The capacity of earth to produce energy is limited. Mankind will necessarily have to adopt consumption patterns and life styles that are energy-extensive. The solution is to increase the price of coal as well as other sources of energy such as uranium, oil and water; and reduce consumption so that we do not hollow the earth and leave it denuded for the future generations. This is not to justify the inefficiency of CIL. However, increased efficiency should lead to more tax collections and not to higher sale of cheap coal.
Another aspect of the matter is the pattern of domestic consumption of electricity. Data from the 17th Electric Power Survey indicates that between 2004 and 2012 domestic consumption is expected to increase by 7.4 percent pa. In comparison the consumption for ‘production’-inclusive of agriculture, manufacturing and commercial-is expected to increase by a meager 2.7 percent pa. Implication is that increase in generation of electricity is required more for consumption than production. This is not to decry increase in domestic consumption which is justified on its own. This is to point out that increased generation is not such a major bottleneck for economic growth.
There is need to reduce domestic consumption as well. The monthly electricity bill of the house of a top industrialist in Mumbai is Rs 74 lacs. It is common for kothis in Delhi to burn electricity worth Rs 25,000 for a family of four. Then there is a car for each person. Such consumption of energy would add little to the welfare of the country while it imposes huge costs on future generations by depleting natural resources. A back of envelope calculation indicates that diversion of mere two percent of electricity produced at present is sufficient to provide lifeline consumption of 30 units per month to all unelectrified households of the country. Instead of diverting this small amount of electricity, the Government has embarked upon increasing generation to provide for luxury consumption by the richer sections.
Conclusion is that electricity is not the major bottleneck for economic growth. We can further minimize the impact of less generation by discouraging energy-intensive manufacturing and encouraging service sectors. This will be in tune with our endowment of natural resources. We should increase rates of electricity for domestic consumption should be made highly progressive with, maybe, a rate of Rs 20 per unit for consumption beyond 1000 units per month per family. The solution to energy crisis lies not in perpetual increase in generation and consumption of energy. On the contrary the solution will lie in reducing the consumption of energy to levels that are sustainable in terms of the capacity of earth.

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