Visit of Australian Consulate General
October 25, 2022
India’s Maritime Security Architecture-Challenges & Threats
November 1, 2022

Green Paradox and the need for supply side climate policy making: An Indian Perspective

As per a recent report assessing global air quality, three of India’s largest cities are amongst the most affected by air pollution. It suggests that more than 76% of the population lives in places where the air quality is adverse. With 13 of the 20 most polluted cities in India, a rethink and most importantly prioritization is needed pertaining to climate policy and sustainable practices. With poverty, corruption, the widening gap between rich and the poor, weakening currency, political milestones, macroeconomic issues, infrastructure issues, energy poverty,  population, etc., being the main bones of contention in India, climate, and environment are overtly at the backfoot of policy transcendence. 

Following the recovery from the Oil shocks of the 1970s, when India progressed economically along with rapid industrialization and urbanization, growth externalities like rising emissions provided the much-needed motivation towards climate policymaking. A formalized inception of climate policymaking can be traced along the various international conferences aimed at adopting sustainable climatic and environmental measures and acts. This can be seen starting from the Stockholm Conference of 1972 to the recent COP26 summit.

Under the Union Budget 2022, various measures like Battery Swapping Facilities, Energy Service Companies (ESCOs)’, Sovereign Green Bonds, and so on, have been devoted to enhancing sustainable practices.

Throughout the climate change redressal attempt, demand-side policies, for instance, carbon taxes, emissions regulations, nudging, etc. have been employed. The effectiveness, implications, and long-term feasibility is yet a matter of assessment and discussion. Obsolescence, technical hindrances, staffing issues in overseeing authorities, bribery, lobbying, labor shortages, funds shortage, and implementation lags have been consistent along the climatic and environmental policy discourse. A majority of the measures are directed at the consumer or rather the demand side, very rarely do we see measures that are a hit on the producer’s side. With ambitious goals like Net Zero Emissions by 2030, a systemic re-haul is needed in the way environmental and climatic issues are addressed, especially pertaining to fossil fuels and other industrial emissions. There is sufficient evidence and literature which promulgate the need to shift from conventional fossil fuels to green energy sources. A major step in this direction is the exit from coal, which is a much-debated step in contribution towards India’s net zero policy. Given the huge population of India and economic growth, energy requirements are bound to swell down the lane, yet there is a compelling call for warrantable policy on coal and other fossil fuels, alongside the tractable implementation of sustainable practices.

Infamous hypotheses like the Green Paradox, proposed by German economist Hans- Verner Sinn, posit that demand-side policies increase current-term emissions and fossil extraction. The logic underpinning the same is that producers find it more profitable to produce in the current period, than in a period where regulations are enforced or in anticipation of the same. This phenomenon is stipulated as “Domestic Leakage”, of demand-side policies. International leakage, on the other hand, would be for two major trading blocs, if one imposes regulations and the other does not, emissions and environmental degradation will increase substantially in the bloc that does not impose regulations on emissions, absence of either demand or supply-side policies. Economic models and much of the research literature assessing demand v/s supply-side climate policymaking, propound that such leakages are lesser under supply-side policies.

Supply Side policies are essentially those which are directly targeted at the producers. There are price instruments, quantity instruments, and regulatory mechanisms. One of the most elucidated tools is the Emission Trading System, essentially the use of pollution permits to regulate and fixate the amount of emissions for a given industrial landscape. This system involves the use of market forces in the pricing of these permits and incentivizes producers to cut emissions. India had the world’s first pilot project in testing such a mechanism. Gujarat Pollution Control Board (GPCB) implemented the mechanism in Surat city, which has numerous textile and dye factories, a major source of both water and air pollution. The scheme was deemed to be successful.

Further measures like a capital income tax will also lead to the avoidance of the green paradox. Following such taxes, a producer would lose the incentive to extract or pollute more, as any rental profits are culminated or equalized. Cancellation or limiting subsidies is another promising supply-side measure. These subsidies currently exist in the form of tax credits, cash transfers, in-kind measures, and sub-market leasing of nationally owned lands. Formalized testing is needed for such new and marginal policies, and hence more pilot projects and shifting to renewable sources are a sheer necessity. 

It is quintessential to note that climate change is at the lower end in terms of precedence, when compared to other pressing issues, for most developing and emerging economies like India. Climate change affects each individual, whether rich or poor, but the extent varies. Climate policymaking does require a mix, policies just aimed at pollution and damage control do have an impact, but there will be a greater impact if the polluter itself is incentivized to cut emissions and manage output considering the environmental impact. For the successful functioning of such policies, it is necessary to account for emissions on a non-territorial basis, and implement mechanisms like the cap and trade system, effective carbon taxation, and a review of subsidies.

The entire perception of pollutants and especially fossils follow that “If we don’t produce too much, someone else will”, and then there are the political incentives aligning towards demand-side policies, all of these factors make supply-side policies a highly whimsical proposition for policymakers. 

Henceforth, there is a need for reevaluating how we view climate change. It is important that much research and due consideration is placed upon supply-side tools to address climate change. Furthermore, it is quite a need for climate change and environmental concerns to hold more weight in the political landscape, essentially votes and incentives, only then, we can expect fruitful results and further dialogue on the same.

Manish Vaidya is Research Intern, CPPR

Views expressed by the author are personal and need not reflect or represent the views of the Centre for Public Policy Research.

Leave a Reply

Your email address will not be published. Required fields are marked *