How To Decarbonize

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.