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Monday, Oct 09, 2006
Kirit Parikh Report on Energy Policy: Inadequate focus on alternatives
The Kirit Parikh Committee on Integrated Energy Policy submitted its report in August 2006. It is based on a revision of the draft report that the Committee had presented earlier, in December 2005. The report is more or less on the same lines as the earlier draft, although it has taken into account some of the comments made by various observers.
In general, however, there is a lack of the sense of urgency in regard to development of alternative energy sources, such as bio-diesel and ethanol, about which it makes the conventional points that at least some of these alternative sources require more land and more energy. All the same, the report is to be commended for the number of new initiatives suggested.
The report rightly stresses the need for energy independence. To attain this, the Committee suggests resort to a number of alternative policy options, which include acquisition of oil reserves in other countries as also resort to increased energy efficiency in the economy itself. As the Committee points out, our record on energy efficiency may not be too bad in comparison to that of the US. But it does fall far short of the efficiency achieved by countries such as Germany.
The report does, however, admit that there is scope for increased energy efficiency. The Committee stresses the need for policy incentives to encourage manufacturers to improve energy efficiency. There are still, however, perverse policies that penalise undertakings, as in fertiliser industry, when they make investments to improve energy efficiency. The benefits of such improvements are subtracted from the subsidies, for which they would otherwise be eligible.
Hopefully, energy policies would take an integrated view in the light of the emphasis placed by the Parikh Committee on the need for improved energy efficiency, which can contribute, in effect, to greater energy availability. Investments in energy efficiency are as significant as investments in generating more energy, as "energy saved is equivalent to or more advantageous than fresh energy generated".
The importance of energy security is adequately highlighted by various references in the report to the increasing demands within our growing economy. The report emphasises the need for a coordinated rational transport policy, including improvements in using rail freight. Much has been done in recent years to improve the efficiency of the Railways. The Kirit Parikh Committee recommends continued stress on these initiatives.
What one misses in the report is the need for a coordinated fiscal policy with focus on energy efficiency. A fiscal policy that subsidises the use of imported fuel by keeping prices below import parity is counterproductive. Whatever the political sensitivities that contribute to subsidised petroleum product prices, it is economic commonsense that lower prices encourage wasteful consumption.
Lower petroleum prices run definitely counter to the overall declared purpose of energy independence. The need to emphasise the goal of energy security cannot co-exist with a fiscal policy that irrationally supports uneconomically lower petroleum product prices.
As I noted in my review of the draft report of the Committee, there is inadequate emphasis on the generation of alternative fuels. The present proposal also continues on the same lines. There has to be a focussed national policy on production of both bio-diesel and ethanol, including R&D, to achieve these goals in a cost-efficient manner.
While the report does refer to cellulosic resources as raw materials for ethanol, it does not emphasise adequately the fact that emerging new technologies had proved efficient in converting straw and agricultural wastes to ethanol. There had been a reference to these alternative sources in the US President, Mr George Bush's message to Congress on energy independence last year.
We need to focus our energies also on such sources of ethanol in preference to dependence on land-and-water-hungry sugarcane. There are, however, some important comments in the report on diverting potable alcohol to grain-based raw material. To what extent this will be feasible in India with its foodgrain shortages is a matter for further discussion.
One of the important suggestions of the Committee is regarding provision of rural households with cheap and convenient sources of energy to replace traditional biomass, such as dung and wood-chips. To what extent this is feasible will depend on the efficiency of implementation.
The large investments needed and the difficulties of control of such widely-dispersed sources of power generation using biomass remind me of the Chinese experiment with backyard steel manufacture. I hope Kirit Parkh's experiment will meet a better fate than the Chinese attempt at producing steel in every village.
In my comments on the draft report, I had pointed out that it should be more practicable to introduce smokeless chulhas rather than use traditional sources of biomass generating power. The idea that biomass generated power can be efficient and economical has to be tested on ground.
There is also the problem that dependence on local wooded plantations for such generation can involve questions of access. Populations in villages are known to treasure their rights to wooded resources. Whether they will consider the access to power generation is not clear.
The Committee has suggested a novel solution to the problem of supplying subsidised kerosene and the consequent diversion of kerosene for adulteration of diesel. In its place, the Committee suggests payment of cash subsidies to families below the poverty line through "smart" cards.
I understand credit will be given to the families through smart-cards, but can be accessed only when drawing on the entitlement of diesel or kerosene or LPG.
The mind boggles at the thought of the problem of implementation of the electronic system of smart cards in a country with large illiterate masses, while clever manipulators abound. Shades of the kind of scam that was perpetrated in respect of IPOs by using multiple demat addressees, can be expected! The Government would do well to do a pilot exercise before embarking on a widespread implementation of the Parikh Committee's suggestion in this regard.
The report has a number of ideas on power reforms, but these seem to be related more to implementation at the State-level. There is also the problem that power reforms will not make much sense unless thirst for free power is controlled. To this end, the Committee makes no specific suggestions. The basic flaw in power reforms continues to be the provision of subsidised or free power for agriculture, leading to wasteful uses and increasing energy dependence rather than energy security.
Overall, the Kirit Parikh Committee has done a professional job of analysing a complex subject and has put forward various options for the consideration of the Government. Some of the suggestions in its draft report have been implemented.
I do hope the Government will take the necessary steps to implement such of the recommendations as are practicable and include provision for investment to make the goals realisable.
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