Context: A large-scale change in the mechanisms of production and consumption of energy is required.
Mechanism of Decarbonisation in India
Local trade-offs at every location in India is the most efficient mechanisms for decarbonisation as energy and fossil fuels are deeply interwoven into the economy. For Example,
Renewables + pumped storage hydropower (PSH) are quite attractive in Western Ghats.
Natural opportunities to buy hydel power in Nepal and Bhutan.
Decarbonisation requires a process of search: Self-interest and the profit-motive continuously guide buyers and sellers to find innovative solutions to their problems.
Leveraging technology and information possibilities: Central planners are not yet maximising the objectives of the people, and are handicapped by low state capacity.
Carbon tax be imposed by Union Government: It is the correct separation between use of state powers to address the negative externalities, to remove state control from decarbonisation.
Price of fossil fuels would drive up following this, which will encourage self-interested private entity to look for most efficient solutions.
Process of discovery will deliver the required decarbonisation at the lowest cost to society.
Leveraging price system for decarbonisation: It has five strengths-
Induces responses on supply: As the economics of renewables producers would improve when compared with users of fossil fuels.
Induces responses on demand: Data centres would move out of India into countries with a low cost of capital and high renewable energy opportunities.
A decentralised process: thinking and problem-solving at each location of the country would be done reflecting local conditions.
Involves constant adaptation based on technical change: Private people will place bets based on visible technologies, owing to technical changes in future, and both supply and demand will ceaselessly respond to the changing global technological frontier.
Avoids the difficulties by state: As heavy-lifting is done by private people, who are self-interested, as opposed to the state which has its own objectives and has low capabilities.
Way Forward
Role of the state: To establish present and future values of the carbon tax.
Review of tax rates would be required every five years to ensure that overall CO2 emissions are on desired path.
Visionary investments: To engage in intellectual analysis, envision the future, think about megatrends and to place speculative investment bets based on the point of view.