Climate change and

India’s energy policy

options
New perspectives on sectoral CO2
emissions and incremental costs

Jyoti Parikh and Subir Gokarn

This paper presents an analysis of COP Global negotiations on climate change have generated considerable
emissions in the Indian economy and interest among environment policy makers, economists, atmospheric
examines the implications of alternative
policies to reduce them. This analysis scientists and various other interested parties. There are four major
goes beyond the conventional greenhouse gases (GHGs): carbon dioxide (CO,), methane (CH,),
approaches of looking at energy supply chlorofluorocarbons (CFCs), and nitrous oxides (N,O). Among these,
structure and end-uses of energy. In-
stead, it examines flows of energy in CO2 receives the most attention, because:
the economy of India through a 60-
sector input-output model. The authors COZ emissions can be most reliably estimated from the energy
show that direct emissions of CO2 are balances of each country because they are directly related to energy
highest in the electricity sector fol- consumption and cement manufacturing.
lowed by iron and steel, road and air
transport, and coal tar. If a similar COZ is the most important greenhouse gas emitted by the developed
analysis by final demand is carried out, countries in terms of magnitude (as well as radiative forcing).
incorporating both direct and indirect Increases in CO2 emissions are measured regularly and global
emissions, the highest emitting sector
is construction, followed by food crops, emission levels for CO2 are increasing more rapidly than, say,
road and air transport, and so on. This methane.
indicates that, in addition to energy
efficiency, improving construction For these reasons, various authors have carried out analyses of the
efficency could also lead to CO, sav- possibilities of reducing CO* emissions at global and national levels.
ings (by using less energy-intensive
materials or by making optimal use of While global approaches highlight the policy direction and the
them). It is also shown, by generating magnitude of the efforts required, Blitzer et al’ have pointed out that
alternative energy policy scenarios, the possibilities of GHG emission reduction needs to be discussed using
that if India saves energy from coal
rather than from imported oil to reduce country-level models with sufficient structural detail. Their model for
COP emissions, then savings foregone Egypt shows that if Egypt curtailed GHG emissions in 20 years by 20%
are more than Rs 5634 million for only over base year CO* production levels, it would reduce the GDP growth
10% of energy saving. Sectoral priori-
ties also change. To save coal, the pow- rate by 3.13%. A reduction of 40% would slow GDP growth by 32.4%.
er sector, iron and steel, coal tar, etc Alternatives at country-level depend inter aliu on:
will require attention. To save oil, trans-
port, refinery and fertilizers will require l Energy resources and technologies used (ie coal, oil, gas, hydro or
attention. Similar arguments are made nuclear).
for substitution of coal by oil and gas.
Additional costs of Rs 10 billion would l Development patterns (whether agrarian, industrial or service-
be incurred for 10% substitution of coal oriented economy).
by oil and gas as compared to the
continued on page 277 India and China are considered to be major players in global climate

276 0959-3780/93/030276-l 6 0 1993 Butterworth-Heinemann Ltd

 Climate change and India’s energy policy options

Table 1. Fossil-fuel consumption and carbon emissions in India.

BSource: Estimation of Greenhouse Gas Emis-
sions and Sinks, OECD, Paris, August 1991; Oil
%oufce: Input-Ouput Transactions T&/es of the Coal (tonnes) HSDlLDO FOlLSHS
Indian Economy, Central Statistical Organisa- GJ/tonne’ 21 44 38
tion. Government of India. New Delhi. 1990: ‘for TC/GJb 0.026 0.020 0.021
oil resources, 656 billion cubic metres are also TC/tonne 0.546 0.88 0.79
available. HSD = high-speed diesel; LDO = light Consumption (1983-64), 10” tonnes 121.3 14.125 5.6
diesel oil; FO = fuel oil; LSHS = low-sulphur Resources, 1O6 tonnes 186 000 756’
heavy stock

continued from page 276 change because of their likely increase of CO;? emissions due to
current policy of substituting oil and
increases in income and level of population. Moreover, both depend on
gas with coal. This article offers
another Interpretation of the notion of coal. Several authors, for example Mathur* and Sathaye and Ketoff,’
‘incremental costs’ though comparison have carried out COz accounting exercises by considering energy supply
of two alternative development
and energy end-use activities such as manufacturing steel, fertilizers,
strategies.
cement, and so on. While this simple and quick method could show that
The authors are with the Indira Gandhi India’s emissions in 1985-86 were 115 million tonnes and will rise to 615
Institute of Development Research, Gen. million tonnes by 2025, it is not adequate to give policy guidance or to
Vaidya Marg, Goregaon (East), Bombay
assess the impacts on the economy of alternative emission reduction
400 065, India.
policies, which may depend not only on technologies but also on fuel
The authors are grateful to the Rockefeller substitution, fuel consumption, patterns of development, etc. Indirect
Foundation, in particular to Mr Kenneth
CO* emissions can also impact substantially. Thus, an overall economy-
Prewitt, for funding this project. They also
acknowledge valuable discussions with wide exercise can provide additional insights and policy guidance. This
Professor Richard Eckaus, MIT, USA; Pro- article reports on such an exercise, using the input-output table for the
fessor M.G.K. Menon, Professor Kirit
year 1983-84 that was used for the Seventh Plan, 1985-90.
Parikh and J.P. Painuly, IGIDR, Bombay;
Dr Jayant Sathaye, LBL, USA; and Profes-
sor N.S.S. Narayana, ISI, Bangalore. They
are grateful to Mr Abheek Barua for his India and global negotiations for climatic change
excellent research assistance. Mr Subrata
Rana also assisted during the initial A case study of India is of particular interest, because India may be the
phases of the study. most populated country in the world by 2025 and its GHG emissions
may rise substantially. Despite the fact that in 1986 it emitted only 0.2
This article is an edited version of a paper
presented at the Indo-British Symposium tonnes per capita of fossil CO* (compared to 5.4 tonnes per capita in the
on Climate Change, New Delhi; the USA), it is the sixth largest CO2 emitter in the world. Parikh et aZ4 have
National Symposium on Environment and
shown that, to accommodate even a modest rise of emissions by only
Development: A Scientific Approach,
Meerut, UP; the Physical Research India and China, the developed countries would have to reduce their
Laboratory, Ahmedabad; the Workshop on GHG emissions by 30% by 2025, to keep global emissions in 2025 at the
the Economics of Global Warming Issues
same level as in 1986. India’s emissions are projected to increase
for Developing Countries, Bellagio; and the
ECOTECH seminar during the Earth Sum- fourfold compared to 1986, but even then would be only 0.36 tonnes per
mit at Rio de Janeiro. The authors are capita below the world average of 1.2 tonnes per capita in 1986.
grateful to all those who commented on
these presentations, thus improving the
There is yet another concern about India’s future fossil CO2 emissions
final version of this article. (Table 1). India’s major energy source is coal, with resources of more
than 186 billion tonnes, compared to production of 221 million tonnes in
‘C.R. Blitzer, Richard S. Eckaus, Supriya 1990-91. Proven coal resources are estimated at 56 billion tonnes, while
Lahiri, and Alexander Meeraus, ‘The oil and gas resources are only 756 million tonnes and 686 billion cubic
potential for reducing carbon emissions metres respectively. Thus, coal will continue to provide more than 60%
from increased efficiency: A general
equilibrium methodology’, Proceedings of of India’s energy needs. Coal has the highest CO;! emission coefficient
the Workshop on Economic/Energy/ per primary Giga Joule (GJ). Coal in India has nearly 35% ash content.
Environmental Modeling for Climate Policy Standard Indian coal is calibrated to have 20.9 GJ per tonne as
Analysis, MIT, Washington, DC, 1991.
‘A.J. Mathur, ‘The greenhouse effect in compared to the United Nations standard coal at 29.7 GJ/tonne. This
India: Vast opportunities and constraints’, difference in the Indian energy data system has not been kept in view
in M.J. Grubb et al, Enecqy Policies and and has created confusion in international data systems.
the Greenhouse Effect, L&l II, Technical
Options and Countrv Studies, Dartmouth, Thus, the combination of high population, coal predominance in
AidershotIRoyal ln&tute of International energy-use and high potential growth due to currently low income levels
Affairs, London, 1991. causes concern about India’s carbon emissions in international circles.
3J. Sathaye and A. Ketoff, ‘CO2 emissions
from major developing countries: Better On the other hand, India’s viewpoint is different. From its perspec-
continued on page 278 tive, India’s fossil-based carbon emissions were only 115 million tonnes

GLOBAL ENVIRONMENTAL CHANGE September 1993 277

Climate change and India’s energy policy options

4.5

4
r -0

3.5

Debtors

2.5
2.1:

1.5
--- 1.2 World average ___t__
Figure 1. Per capita CO2 emissions 1
t
by world regions (from fossil fuels and 0.66 I
cement). CredItor
0.5
Source: Trends 90: A Compendium of
Data on Global Change, Oak Ridge o - I
National Laboratories, Nashville, TN, or turope ana Latin America Asia- Africa
1990. America Ocearla Japan

continued from page 277
understanding the role of energy in the
long term’, The Energy Journal, Vol2,
No 1, 1991, pp 161-196.
4J. Parikh, Kirit Parikh, Subir Gokarn, J.P.
Painuly, Bibhas Saha and Vibhooti Shukla,
Consumption Patterns: The Driving Force
of Environmental Stress, Indira Gandhi In-
Mute of Development Research, Bom-
bay, India, 1991.
in 1985 compared to 5.4 billion tonnes for the world and 1.3 billion
tonnes for the USA. Even in 2025, its total emissions are likely to be
only 0.6 billion tonnes - a per capita emission of 0.36 tonnes compared
to a world average of 1.2 tonnes per capita. These emissions would not
be a problem if the developed countries’ present and past use of fossil
fuels had not resulted in an excessive build-up of CO* in the atmos-
phere. India has to tackle basic problems of health and nutrition and
needs to work on basic environmental problems such as increasing
access to safe drinking water and sanitation and reducing the use of
bio-fuels which harm the health of women and children. Under the
‘Polluter pays principle’, those above the world average should pay
money to those below the world average (see Figure 1). Under certain
conditions, a tradeable emission quotas system is recognized as econo-
mically efficient in allocating resources to the reduction of CO2 emis-
sions. ‘Debtor’ countries who find it costly to reduce CO2 emissions will
transfer resources to ‘creditor’ countries by purchasing emission rights.
Creditors can then use these resources according to their own priorities.
This is the best option in international negotiations. However, until such
an international system is in place, there are possibilities for other
countries to invest in India to reduce CO;? emissions in those projects
which are of interest to India while others can claim credit for the
reductions in CO2 emissions. These are known as ‘offsets’ in other
countries. This may be a second-best solution from the viewpoint of the
creditor countries. Offsets lack the flexibility of the tradeable quota
system because the transfer of resources from debtors to creditors is
restricted to emission-reducing investment, and funds may not be
directed towards the environmental priority of their choice (eg drinking
water). However, such measures may be negotiated even bilaterally by,
say, one of the EC countries in response to the CO2 emissions-reduction
policy of the EC.
Regardless of these negotiation issues, the structure of India’s CO2
emissions is of interest to policy analysts in India and elsewhere. We try
to quantify emissions here by economic sector, using the input-output
approach described in the next section.

278 GLOBAL ENVIRONMENTAL CHANGE September 1993

 Climate change and India’s energy policy option

The base case input+mtput exercise

The transformed commodity flow matrix for the Indian economy5
generates a technology coefficient matrix simply by dividing each
column, representing all inputs into a given activity divided by the level
of output of that activity. These coefficients are conventionally express-
ed in value of input/unit value of output. In the present exercise, for coal
and petroleum refining activities, all inputs other than coal and pet-
roleum products are interpreted as value of input/tonne of carbon
equivalent. In the case of coal and petroleum product inputs into these
activities, the coefficients are interpreted as tonnes of carbon
equivalent/tonne. Similarly, coal and petroleum product inputs into all
other activities are interpreted as tonnes of carbon equivalent/unit value
of output. Other technical details are given in Appendix 1.
The conventional solution to the input-output system is represented
by:

X = [I - A]-‘F (1)
Where X is a (60 x 1) vector representing levels of output of each
activity; A is a (60 x 60) matrix containing input usage coefficients for
each activity; and F is a (60 x 1) vector representing the final demand
for each commodity. F is the sum of vectors C, Z, G and E-M,
representing private consumption, gross investment (gross fixed capital
formation + changes in stocks), government consumption and net
exports (exports - imports) respectively.
For any row i (i = l-60) of the (I - A)-’ matrix, the jth element
represents the combined direct and indirect requirement of commodity i
to satisfy one unit of final demand for commodity j. We have two rows
in the (I - A)-l matrix (i = 8, 26) denominated in terms of tonnes of
carbon emissions. Representing these rows as CE’ and CEP (carbon
emissions from coal and petroleum products, respectively), we derive
the following measure of total (direct + indirect) carbon emissions
arising from the satisfaction of each component of the final demand
vector F:

TCEi ~ TCE”i + TCEPi = pi (CEi Fi) + (CEPi Fi) (2)

where TCEi is total carbon emissions attributed to the ith element of the
final demand vector F, TCE’i is total carbon emissions attributed to the
ith element of F from direct + indirect coal usage; TCEpi is total carbon
emissions attributed to the ith element of F from direct + indirect
petroleum product usage; CEci is the ith element of the coal row of the (I
- A)-’ matrix; CZ!?‘i is the ith element of the petroleum products row of
the (Z-A)-’ matrix; and Fi is the ith element of the final demand vector
F.

Ci CEci Fi = r = total carbon emissions from coal.

xi CEPi Fi = XP = total carbon emissions from petroleum.

Further,

PCEi = TCEiICi TCEi (3)

%put-Output Transactions Tables of the
Indian Economy, Central Statistical Orga-
nisation (CSO), Government of India, New
Delhi, 1990.
where PCEi is the share of the ith sector in total carbon emission. Note
that this exercise is carried out for carbon generated from production
activities only. Carbon emitted from direct consumption of fuels (eg
private transportation) is not accounted for. These, however, constitute
a relatively small proportion of total carbon emissions.

GLOBAL ENVIRONMENTAL CHANGE September 1993 279

Climate change and India’s energy policy options

3ou--l
38

26

24

Figure 2. Direct carbon emissions in

India by sector, 1983-84.
Source: Model results by J. Parikh and S.
Gokarn. Iron and steel Coal tar Hotels Cotton textiles

The next section analyses the picture for unit carbon emissions by
sector, and percentage distributions of carbon emissions across sectors
for the 1983-84 technology coefficient matrix and final demand vector.

Discussion of results: base case 1983-84

Direct carbon emissions by sector
It can be seen in Figure 2 that electricity is the largest sector, and is
responsible for 28 million tonnes, or 33%, of all carbon emissions from
fossil fuels. The second largest sector is iron and steel, with a 9.8% share
of the total. Other transport, excluding railways, accounts for only 8.6%
of emissions. This is in contrast to the developed countries, where
emissions from power and transport are comparable. Coal tar used in
road buildings is the next largest (8.1%). Non-metallic materials (4.5%)
which include glass, pottery, asbestos and so on, railways, cement,
hotels and fertilizers all contribute similar amounts (roughly 4-5%
each). Hotels and restaurants also include a wide variety of informal
units, such as tea shops and sweet shops. Fertilizer production excludes
fuel for feedstock because its use for feedstock does not contribute to
carbon emissions. Emissions from cement include fuel-use as well as
CO* emitted by the process of cement manufacturing. Together with
cotton textiles (2.5%), these ten sectors account for 82% of total
emissions.

280 GLOBAL ENVIRONMENTAL CHANGE September 1993

 Climate change and India’s eplergy policy options
6

4.89

Figure 3. Carbon emission coeffi-

cients, India, 1983-84. 0 L
Source: Model results by J. Parikh and S.
Gokarn. InorganIc chemlcais

Direct and indirect carbon emission coefficients

So far, our results have been similar to those which could have been
obtained from some of the conventional methods. However, it is here
that the input~utput approach gives considerable further insights by
tracing fuel flows across sectors through all the elements of the [I-A]-’
matrix. For example, to run a power plant for a whole year, coal is
required as fuel. However, to produce and transport coal, further fuel is
needed. Similarly, fuel may also be needed to produce output of other
sectors of the economy, used as inputs in the power plants. These
indirect requirements change the original patterns considerably. One
has to be careful in interpreting the indirect requirements to avoid
double (or multiple) counting. However, what this emphasizes is that
the associated carbon emissions are an essential part of a sector’s
activity, and need to be considered as an integral part of performing that
activity. The direct and indirect carbon emission coefficients for all 60
sectors are listed in Appendix 2. It can be seen in Figure 3 that
electricity coefficient increases from 3.47 tonnes per Rs 1000 (from
matrix A) to 4.89 tonnes (from matrix [l--A]-‘). The cement coefficient
also goes up from 2.18 tonnes to 2.95 tonnes. Due to its large transport
requirements, the iron and steel sector moves from fifth to third place
and its coefficient goes up from 0.92 to 2.22 tonnes. Once indirect
emissions are accounted for, many major sectors in Figure 4 significant-
ly increase the emission of carbon - paper (0.94 to 1.89); fertilizers (0.6
to 1.8); and inorganic chemicals (0.26 to 1.82). Non-metallic minerals
increase from 1.2 to 1.8 tonnes.
This analysis stresses the importance of indirect emissions. However,
to estimate emissions in the economy, these coefficients should be
multiplied only by the final demand and not by the gross output vector.
Otherwise, there would be double counting.
It must be emphasized that the direct coefficients described above
refer to the production of goods or services by each sector (tonnes of
carbon/unit of output), whereas the indirect coefficients refer to the
final (as opposed to the intermediate) demand satisfied by the product

GLOBAL ENVIRONMENTAL CHANGE September 1993 281

Climate change and India’s energy policy options

16

8-

6-

4-

2-

Figure 4. Percentage share in total

carbon emissions, India, 1983-84. o-
Construction Other cotton Food
Source: Model results by J. Parikh and S. transport textlIes products I
Gokarn. Food crops Hotels Electricity Wool Railway

of each sector (tonnes of carbon/unit of final demand satisfied). As the

denominators are different, the two are not comparable. The compari-
sons made in this discussion are intended to highlight the different
perspective that one gets about carbon emissions when the indirect
coefficient becomes the basis of analysis.
These sectors, along with their ratios of total to direct emissions, are
given in Appendix 2, which shows values for all 60 sectors of the
input-output table. Extremely high ratios of total to direct emissions
can be seen in cash crops, animal husbandry, wool and synthetics,
printing and publishing, petroleum products, machinery for food,
textiles and electronics and other transport equipment. Most of all,
construction has a very large indirect component. Some of the service-
oriented activities which will increase in volume in future are com-
munication, trade, medical and education, each of which has not
insignificant indirect emissions.
Thus, the conventional approaches in the literature could gain
substantial additional insights if the indirect emissions are studied in
detail. As is shown in the next section, a very different picture emerges
when we obtain emissions by final demand. Appendix 3 gives definitions
of major sectors in India’s input-output table.

Emissions by final demand

Insights given by emissions by final demand (the vector F) lead to

interesting policy conclusions.

282 GLOBAL ENVIRONMENTAL CHANGE September 1993

 C&mate change and India’s energy policy options

Sector& shares. Figure 4 shows that as much as 22% of the emissions in

the economy are attributable to the construction sector, which is the
destination of energy-intensive materials such as iron and steel, cement,
bricks, non-metallic minerals like glass, concrete and asbestos and
wood. Much electricity goes into energy-intensive materials for con-
struction to provide infrastructure for a growing economy (see defini-
tions in Appendix 3). The second most carbon-emitting basic need is in
the food crop sector (8.6%). As yet, agriculture in India is not
energy-intensive. Moreover, food processing is listed as a separate final
demand. ‘Other transport’, including personal and public transport, is
the third largest (6%). (Goods and materials transported for construc-
tion or food production or processing are already included in those
activities.) Hotels, cotton textiles, electricity and food processing
account for roughly 5% each. Together with wool and synthetics
(3-S%), trade (3.7%) an d railways (3.1%), the ten sectors account for
67% of emissions by final demand.
When one compares direct sectoral emissions to final activities
emissions, one is struck by a major alternative policy conclusion.
Optimization of construction methods is as important a policy measure
as improving energy efficiencies, which is the most common policy
prescription for reducing COZ emissions. In a growing economy, the
need for infrastructure is very large, and alternative methods of
construction should be considered side by side with energy-efficiency
measures for CO* reduction.

Structure of final demand. The structure of final demand is also of

interest (see Figure 5). Of the total emissions due to construction
activity, understandably its investment component, rather than private
and government consumption, accounts for the largest share - 19% of
the total 22%. Food crops and food processing emissions are essentially
due to private consumption, with some amounts due to seeds, stock and
exports. Emissions attributable to the export component are higher in
the road and air transport and hotels and restaurants sectors than in the
other sectors.

Energy policy scenarios

So far we have seen the relationships between the structure of Indian
economy and CO;! emissions as they are captured in the input-output
matrix of 1983-84. We have seen which are the largest emitting sectors.
After inverting the matrix, we also saw which final demand sectors are
the most CO2 emitting. How do these structural details help to
formulate policy for COZ reduction? That is, given the structure of the
system, how will it respond to external policies such as reducing COZ
emissions? We consider two types of policies for reducing COZ emis-
sions:
l Reducing use of either coal or oil by conservation of the same amount
of useful energy, so as to highlight the difference between these two
conservation alternatives.
l Substituting oil for coal, a fuel with higher CO2 emissions than oil,
keeping the same energy use in the economy.
It is assumed that these policies can be effected without affecting the
levels of production. Undoubtedly, it will take some time before the

GLOBAL ENVIRONMENTAL CHANGE September 1993 283

 #zB Prwate consumption

Govt consumption
!SSl

lizzz3
Investment

Net exports
KXB
I8 -

6-

4-

2-

Figure 5. Carbon shares from final

demand, India, 1983-84. o-
C:onstructlonI Other 1
Source: Model results by J. Parikh and S. transport j textiles / products /
Gokam. Food crops Hotels E!ectricity WOO!

changes are made, and some think that, for this reason, a simulation of
scenarios for, say, the year 2000 or beyond is necessary. However, this
compounds two uncertainties - the accuracy with which the scenario for
2000 can be constructed and the accuracy with which the effects of
policies can be captured. To avoid being diverted into another exercise
of generating scenarios for the future, we consider the following
problems in the base year itself, 1983-84, assuming these policies work
instantly. What can we learn about the effects of CO2 reduction
policies? This question is addressed for two separate policies - energy
conservation of coal and oil and energy substitution of coal with oil.

Energy conservation and CO, reduction

Energy conservation has been a goal of India’s energy policy for some
time. Several organizations have been established. One of these is the
Petroleum Conservation Research Association (PCRA) under the
Indian Oil Corporation, which is the oil refinery and distribution
agency. This represents the priority for energy conservation, where
conserving oil/products is seen as saving precious and scarce domestic
oil resources which cater for only 50% of consumption, and the foreign
exchange required to purchase the remaining 50% at international
prices.
However, conserving coal is not one of the major goals of India’s
energy policy. Since coal generates more CC& per GJ than other energy
resources, saving coal for the sake of global warming would require a
shift in India’s energy conservation policy.

284 GLOBAL ENVIRONMENTAL CHANGE September 1993

 Climate change and India’s energy policy options

Table 2. Comparison of base case with energy savings from coal and oil.

Coal reduction by 10% Oil reduction by 13.5%

Difference from Difference from
Base Case Values base case Values base case
Tonnage (million tonnes)
Coal 121.3 109.17 12 121.3 0
HSDlLDO 14.13 14.13 0 12.22 2
FOlLSHS 5.6 5.6 0 4.84 1

Emissions (million tonnes)

Coal 66.2 59.58 7 66.2 0
HSDILDO 12.43 12.43 0 10.75 2
FO/LSHS 4.43 4.43 0 3.83 1
Total 83.06 76.44 7 80.78 2

Value (million Rs)

Coal 24 260 21 834 2 426 24 260 0
HSDILDO 41 431 41 431 0 35 830 5593
HSD = high-speed diesel; FO = fuel oil; LDO = FOlLSHS 15 120 15 120 0 13003 2117
liaht diesel oil: LSHS = low-sulohur heavv stock. Total 80811 78 735 2 076 73 101 7710
iodel results by J. Parikh and’s, Gokarn

To assess the implications of this shift, we compare two scenarios,

both of which save the same amount of useful GJ (107 million GJ). To
save this energy from coal, we would require a 10% reduction of coal
use (ie 10% of 121 million tonnes of coal). To save this energy from oil,
a 13.5% reduction in oil use would be necessary. We compare saving
250 million GJ from coal with saving the same amount from oil. Table 2
gives this comparison, along with base case results with no such policy.
Table 2 highlights two scenarios in which 107 million useful GJ are
saved from coal and oil respectively, assuming that the relative efficien-
cy of oil to coal is 2.35. Since the economy uses much more coal than oil,
despite the lower heat value, only 10% coal savings are required to save
the same useful GJ as a 13.5% reduction in oil consumption. In actual
amounts, this translates into 12.1 million tonnes of coal and 2.7 million
tonnes of oil. It will be assumed that it is possible to do this without
incurring capital costs, or that they have similar capital costs. Both
results are compared with the base case (ie no energy savings). It can be
seen that 6.6 million tonnes of carbon will be saved if this energy is
saved from coal, but only 2.18 million tonnes of carbon are saved if it is
saved from oil. Both save the same amounts of GJ, and values of fuel
used are much lower compared to the base case for both the cases.
However, more valuable fuel in the oil-saving scenario is saved - Rs7.7
billion compared to the base case. On the other hand, only Rs2.4 billion
would be saved if this much energy were saved from coal. Clearly, it is in
India’s interest to save oil rather than coal. The marginal cost of the
additional carbon savings from coal as opposed to oil is Rs1150 per
tonne of carbon (US$l = RslO in 1983-84).
However, one should look beyond the amount of carbon savings and
at the details. Table 3 indicates which sectors require more attention.
For example, in the case of saving coal, it would be necessary to save
carbon from the power sector (2.7 million tonnes of carbon), iron and
steel (0.8 million tonnes), coal tar (0.7 million tonnes) and 0.2 to 0.3
million tonnes each from non-metallic minerals, railways and cement.
On the other hand, if one has to save this carbon from oil, a
completely different sectoral strategy is required. Most attention will be
required for the transport sector (0.9 million tonnes), iron and steel (0.7
million tonnes), and fertilizers (0.2 million tonnes). This diversion of
attention to different sectors will also translate into diversion of efforts -
manpower, fuels, technology development etc. Thus the GHG reduc-

GLOBAL ENVIRONMENTAL CHANGE September 1993 285

Climate change and India’s energy policy options

Table 3. Sectoral emissions under alternative scenarios of savings from coal and oil.

Base case Coal reduction by 10% Oil reduction by 13.5%

values (lo6 (Values lo6 Values (lo6
tonnes of tonnes of Difference from tonnes of Difference from
Sector carbon) carbon) base case carbon) base case
Electricity 27.73 25.00 2.73 27.67 0.06
iron and steel a.18 7.43 0.75 8.1 0.08
Other transport 7.18 7.16 0.02 6.25 0.93
Coal tar 6.75 6.08 0.67 6.75 0.00
Non-metallic minerals 3.75 3.42 0.33 3.68 0.07
Railways 3.64 3.36 0.28 3.52 0.12
Cement 3.37 3.04 0.33 3.36 0.01
Hotels 3.33 3.12 0.21 3.32 0.01
Fertilizers 3.2 3.08 0.12 3.00 0.20
Cotton textiles 2.13 1.95 2.13 2.08 0.05
Model results by J. Parikh and S. Gokam

tion savings policy would be at variance with India’s energy conserva-

tion policy, which has emphasized saving oil.

Fuel substitution scenarios

Currently India follows the policy of substituting coal for oil because of
an abundance of coal resources and inadequate oil production, resulting
in large imports. When oil cannot be substituted by coal directly, it is
done through electricity production. For example, diesel pumps have
been systematically replaced by electric pumps over the last 15 years,
oil-fired boilers by coal-fired boilers, and so on. Even diesel in transport
is substituted by electricity through electrification of railways and by
encouraging suburban electric railways when possible. The need for
massive investment has limited the progress of these substitutions, but
they are a part of strategic planning. These measures are not only for the
limited purpose of fuel substitution, but also to speed up transport and
reduce congestion. Therefore, we construct two fuel substitution scenar-
ios as described above along with the assumption of relative efficiency of
a factor of 2 between oil and coal. Unlike in the previous case, where
energy was reduced (conservation), here only substitution takes place,
ie energy in the economy in terms of GJ does not reduce. There are two
equivalent scanarios: 10% of coal consumption substituted by oil and
13.5% of oil or gas consumption substituted by coal. The difference
between the two can be interpreted as the implications of changing the
fuel substitution policy from its current policy.
It should be pointed out that currently much more gas is available to
make it possible to carry out gas substitution. Indeed, gas-based power
generation is already picking up rapidly. But gas is also priced as an
oil-equivalent fuel. Therefore, the results discussed below are likely to
be similar for gas substitution for coal.
It can be seen in Table 4 that the current policy of substitution will
lead to 12 million tonnes of additional coal and would cut nearly 3
million tonnes of oil, leading to 4.3 million tonnes and 8.7 million tonnes
of additional carbon emissions compared to base case and oil substitu-
tion, respectively. However, it saves fuel worth RslO 600 million over
the alternative policy of coal substitution by oil (or gas). Thus, the
alternative substitution policy will cost Rs10.5 billion in fuel alone, but
will save 8.7 million tonnes of carbon.
The magnitude of the trade-off is, in this framework, purely a
function of the relative price (per unit of useful energy) of the two
energy sources. This cost measure captures only the variable cost
implications of fuel substitution, and ignores the differences in capital
requirements of substitutions in different sectors of the economy.

286 GLOBAL ENVIRONMENTAL CHANGE September 1993

 Climate change and India’s energy policy options

Table 4. Comparison of alternative substitution scenarios.

Substitution of Substitution of Difference

Base case coal for oil oil for coal between (2) and (3)
(1) (2) (3)
Fuel tonnage (million tonnes)
Coal 121.30 133.43 109.17 24.26
HSDILDO 14.10 12.52 16.07 -3.55
FOlLSHS 5.60 4.84 6.36 -1.52

Emissions (million tonnes of carbon)

Coal 66.20 72.82 59.58 13.24
HSDILDO 12.43 10.75 14.10 -3.35
FO/LSHS 4.43 3.83 5.02 -1.19
Total 83.06 87.40 78.71 8.69

Value (million Rs)

Coal 24 260 26 686 21 834 4 852
HSD = high-speed diesel; FO = fuel oil; LDO = HSDILDO 41 431 35 838 47 024 -11 186
light diesel oil: LSHS = low-sulphur heavy stock. FO/LSHS 15 120 13 079 17 161 -4 082
Model results by J. Parikh and S. Gokarn Total 80 811 75 603 86 019 -10416

In a wider sense, the costs of fuel substitution should also consider (i)
the opportunity costs of increased foreign exchange outlays on pet-
roleum products and capital goods; (ii) the costs of diminished output of
coal in terms of regional income and employment effects; and (iii) the
costs (or benefits) of the change in the nature of local pollutants
resulting from the substitution. It is difficult to assess a priori which of
these various components will eventually dominate the cost of substitu-
tion. If the variable energy costs are the most significant element, then
the trade-offs quantified here may be reasonable approximations of the
true costs of carbon savings achieved through fuel substitution.

Concluding remarks
India’s energy policy planners need to take note of the current debate
on global warming. This concern has devalued India’s coal resources.
There will be pressures from international aid agencies to substitute gas
and oil in place of coal. India needs to study its options carefully.
We have estimated CO2 emissions for 60 sectors for India from the
input-output matrix for 1983-84. The highest emissions are from the
electricity sector (33%) followed by iron and steel (9.8%), road and air
transport (8.6%), coal tar (8.1%), non-metallic minerals (4.5%), rail-
ways (4.3%), cement (4.0%), hotels and restaurants (4.0%). While
comparing direct and indirect emission coefficients from each sector, it
can be seen that total emission coefficients could be much larger than
direct emission coefficients for many sectors, such as electricity, iron
and steel, cement, and so on. The Indira Gandhi Institute of Develop-
ment Research (IGIDR) has carried out a detailed exercise concerning
the possibilities of reducing carbon emissions by the power system in
India.6 It may be possible to do that with modest investment.
When one inverts the matrix and multiplies it with the final demand
vector, an entirely different picture emerges. We get emissions by
demand, where all indirect and embodied emissions are seen. The order
of emissions for final demand are: construction (22%), food crops
(8.6%), road and air transport (6%), and so on. Construction by itself is
not a very C02-intensive activity, but that picture changes when one
‘0. Chattopadhyay and J. Parikh, CO2 considers the coal and oil embodied in construction materials such as
Emissions Reduction From Power System iron and steel, metals and alloys, glass, cement and bricks. When
in India, DP-79, Indira Gandhi Institute of
Development Research, Bombay, India,
multiplied by the final demand vector, it is the largest COz-emitting
1992. sector. Understandably, the construction needs of a growing developing

GLOBAL ENVIRONMENTAL CHANGE September 1993 287

Climate change and India’s energy policy options

country, which needs to build factories, offices, roads, schools, hospitals

and houses, are considerable. On the other hand, food crops produc-
tion, which is the first basic need, is not as energy-intensive because it is
carried out with labour-intensive technologies. Electricity, which is
more an intermediate good, moves to sixth from first place. This
exercise brings out the important policy conclusion that increasing
construction efficiency by optimizing the use of construction materials,
as well as by implementing construction technologies that use less
energy-intensive materials, could be as important as improving energy
efficiency for reducing carbon emissions. While the latter is well known,
not enough attention is given to the former to reduce CO* emissions.
Much of the construction is needed for infrastructure and production
purposes. Carbon is embedded in exports in transport and hotels, and it
is embedded in imports, in iron and steel and electricity.
Policy scenarios of energy conservation for fossil fuels are also carried
out. Two scenarios are constructed, both of which save 2.50 PJ (PJ = lo6
GJ) of primary energy: one saves it from coal and the other saves it from
oil. They show that while both coal and oil reduction lead to reduced
CO2 emissions, to reduce energy from oil is more attractive for India
due to savings in imported oil. India’s preferred energy policy would be
to save oil rather than coal. For example, saving 250 PJ from coal saves
only Rs2706 million. The same amount of useful energy savings (about
107 PJ) could be obtained from primary energy reduction from oil and
would save Rs7710 million. This difference of Rs5634 million could be
inerpreted as incremental costs to India to follow coal-conserving
policies. It is necessary to take such wide interpretations of incremental
costs where two development strategies are compared and not just to
apply a cost-benefit analysis of coal conservation projects separate from
other alternatives. Also at stake are the totally different sectoral
approaches necessary to achieve this reduction. For example, to reduce
CO2 from coal would require efforts for power (2.7 million tons), iron
and steel (0.8 million tonnes), coal tar (0.7 million tonnes), and so on.
On the other hand, reducing CO2 from oil would require efforts in road
and air transport (0.9 million tonnes), iron and steel (0.7 million
tonnes), fertilizers (0.2 million tonnes), and so on. This diversion of
attention to different sectors will also translate into diversion of
manpower, fuels, technology development, etc. Thus, a GHG reduction
policy which would emphasize coal conservation would be at variance
with India’s energy conservation policy, which has emphasized saving
oil rather than coal. When coal substitution by oil and gas is promoted,
the incremental costs of following such a strategy are even larger,
because precious resources are substituted in place of cheap and
abundant coal. Substitution of 10% coal in energy terms leads to
additional costs of RslO 416 billion. This would also be at variance with
India’s current substitution policy which promotes the substitution of
coal for oil.

Appendix 1

Technical note on input- output exercise usage patterns of each activity of the
model. The exercise was performed
This note describes the various steps model which directly incorporates car- on the 60-sector commodity x com-
taken to develop an input-output bon emissions arising from the energy modity transactions matrix of the Indi-

288 GLOBAL ENVIRONMENTAL CHANGE September 1993

 Climate change and India’s energy policy options

an economy, published by the Central we were able to obtain the proportions convert the rupee values of coal us-
Statistical Organisation, Department of coking and non-coking coal con- ages by each sector into physical units
of Statistics, Ministry of Planning, sumed in the country in 1983-84. No (tonnes). The same formula was ap-
Government of India. The exercise further disaggregations were available plied to the components of final de-
used sectoral energy transactions (in from the same source. Our first task mand for coal.
value terms) reported in the above was to make a distinction between fuel
matrix as the starting point, converted and non-fuel uses of coal. Since we (2) Petroleum products. The conver-
these values into physical quantities of were unable to obtain data on sectoral sion exercise for petroleum products
fossil (carbon-emitting) fuels and then consumption of various types of coal, involved an additional step. We made
converted these physical fuel quanti- we started off with the assumption a distinction between categories of
ties into their carbon emission equiva- that coking coal was used predomi- distillates (light, middle and heavy),
lents. These carbon equivalents re- nantly by the iron and steel and found- since each of these has somewhat
placed the original values of energy ry activity (Sector 35). This sector was different carbon emission implica-
transactions in the 60-sector matrix, assumed to use an amount of non- tions. We assumed that the demand
and the modified transactions matrix coking coal as well (eg for captive for fuels by the production activities
was used to compute a technology power generation). In this activity, (intermediate demand) in the system
coefficient matrix, which was used as coking coal, under our criteria, would consists of furnace oil, LSHS (both
the basis of analysis of various de- represent the non-fuel component of heavy distillates), HSD and LDO
mand, production and conservation coal usage, whereas non-coking coal (middle distillates). Two sectors, ferti-
scenarios. The following sectors de- would represent the fuel component. lizers (Sector 30) and organic chemi-
scribe in detail each stage of the trans- In the coal tar production activity cals (Sector 29)) were treated as using
formation of sectoral energy value (Sector 27), a similar distinction has to petroleum products for feedstock (ie
transactions into carbon emissions. be made. In the iron and steel case, non-fuel) purposes. The final demand
coking coal is first decomposed into component for petroleum products
coke and volatile matter; the coke is was assumed to consist of LDO (mid-
Stage I: Conversion of sectoral fed into the blast furnace, in which it is dle), motor spirit and kerosene (light
energy transactions from value oxidized, and emerges as a mixture of distillates).
units to physical units carbon oxides. This mix (comprising For all production sectors other
The original matrix provided informa- some other gaseous emissions as well) than fertilizers and organic chemicals,
tion on fossil-fuel usage by each of the is termed ‘blast furnace gas’, and is the following procedure was used. The
60 sectors in terms of the Rupee used as a fuel gas by the rest of the document Indian Petroleum and Natu-
values (1983-84 prices) of coal and iron and steel making activity. The ral Gas Statistics (PANGS) (1983-84,
lignite (Sector 8), crude petroleum volatile matter extracted from coal is 1988-89) provided us some idea of the
and natural gas (Sector 9), and pet- fractionally distillated into a number usage patterns of refinery products by
roleum products (Sector 26) used by of products, the most important being some of the production sectors. We
each sector during the accounting year coke-oven gas, which is also used as a also obtained the prices of various
1983-84. The coal classification in- fuel gas throughout the plant. Thus, distillates from the same source (on a
cluded all varieties of coal, including even coking coal is, at least indirectly, Rs/kl basis, which were converted to a
coking coal. Crude petroleum and used as a fuel. We therefore avoided Rs/tonne basis, using specific gravities
natural gas were almost entirely any distinction between fuel and non- for various distillates). We chose to
shown as an input into the petroleum fuel uses of coal in the iron and steel represent all middle distillate usage as
products activity, as was to be ex- sector. We used the same reasoning HSD, and all heavy distillate usage as
pected, with some small values feed- for the coal tar sector, and treated all furnace oil, since the calorific values,
ing into several other sectors. We in- coal usage by this sector as fuel, carbon emissions and prices within
terpreted these flows as the amount of although, in reality, the bulk of the each distillate category were quite
natural gas being directly consumed; energy requirement in the coal tar close to each other. The value of
as they were relatively insignificant, sector is met by the gaseous fraction petroleum product usage provided by
and a price of natural gas was difficult remaining after the condensation of the input-output matrix was decom-
to obtain for 1983-84, we ignored tar. posed into HSD and FO components,
these values. Thus, we have attributed Since we abstracted away entirely using the value distributions obtained
zero carbon emissions from natural from non-fuel uses of coal, the next from the P&NG Statistics. Since we
gas usage (both combustion and flar- step was relatively simple; using the could not obtain this value decomposi-
ing). The petroleum products classifi- proportions of coking and non-coking tion for all sectors separately, some
ciation is, again, an aggregated one, coal production as weights, we judgments about usage patterns were
inclusive of all refinery products. Our obtained a rough weighted average necessary. The final result was, there-
conversion exercise thus concentrated price of Rs200 per tonne of coal (at fore, a combination of P&NGS dis-
on coal and petroleum products. 1983-84 levels). This price was tributions applied to as many sectors
assumed to be uniform for all coal- as possible and our own judgment for
(1) Coal. From coal production data, using sectors. This price was used to the rest of the sectors. The rupee

GLOBAL ENVIRONMENTAL CHANGE September 1993 289

Climate change and India’s energy policy options

value for HSD and FO thus obtained For the inorganic chemicals activity, tonne of fuel. The calorific values
were converted to physical units (ton- we also needed to make a fuel- assumed (in GJ/tonne of fuel) were
nes) using the price information de- feedstock distinction. We obtained 21, 44 and 38 for Coal, HSD and FO
scribed above. this ratio from the Annual Survey of respectively.
In the fertilizer activity, petroleum Zndustries (various years) volumes on For coal, this carbon emission para-
products are used as feedstock as well this industry, and then arrived at meter was applied to the physical
as fuel. Based on technical norms physical quantities as in the fertilizer quantities of coal usage, computed for
available for various (nitrogenous) case. For the final demand compo- each sector and for each component of
fertilizer processes, we took the ratio nents of petroleum products, as well final demand in Stage I, to derive total
of feedstock to fuel as 80:20. We as for imports, we used the value carbon emissions from coal usage in
attributed no carbon emissions to the shares provided in the P&NG Statis- each activity. For petroleum products,
feedstock component, because tech- tics to convert the matrix information the carbon emissions from the usage
nical descriptions of the process indi- on aggregate values into product-wise of HSD and FO were separately calcu-
cate that, ideally, all CO2 generated in values, and then to physical quanti- lated for each sector (for the final
the process of hydrogen production is ties, using price information from the demand components, MS, HSD and
recycled as an input into the urea same source. kerosene were taken into considera-
production process. Only the fuel tion) and these were aggregated to
component of petroleum usage was derive a figure for total carbon emis-
deemed to emit carbon. Thus, 20% of sions from petroleum products usage
Stage II: Conversion from
the total rupee value of petroleum by each activity, as well as by each
physical units of fossil fuels
product usage shown by the fertilizer component of final demand.
(tonnes) to carbon emissions
activity was taken as fuel, and con- We then inserted these carbon emis-
(tonnes)
verted into HSD and FO components, sion figures back into the original 60-
and thence to physical components by We obtained information on carbon sector matrix, simply replacing the
the process described above. We have emissions in tonnes/GJ for various rows containing the value transactions
obviously made an assumption here fuels from Estimation of Greenhouse for coal and petroleum with their re-
that all fertilizer produced in the coun- Gas Emissions and Sinks, OECD, spective derived carbon equivalents.
try is nitrogenous; in reality, while it August 1991. Multiplying these para- We thus created a matrix containing
has the largest share of output, there is meters by the calorific values of the all the original 60 sectors, but two of
significant production of phosphatic various fuels considered gave us car- the rows were entirely denominated in
fertilizers as well. bon emissions in tonnes of carbon/ terms of tonnes of carbon.

Appendix 2
Direct and indirect carbon emission coeffkients

Direct and indirect

Sector energy Direct Ratio

(1)Food crops 0.260 0.040 6.522

(2)Cash crops 0.191 0.019 10.217
(3)Plantation crops 0.089 0.028 3.233
(4)Other crops 0.162 0.028 5.871
(5)Animal husbandry 0.109 0.001 216.634
(6)Forestry and logging 0.077 0.021 3.676
(7)Fishing 0.070 0.044 1.592
(8)Coal and lignite 1.007 0.211 4.783
(9)Crude petroleum natural gas 0.115 0.036 3.215
(IO) Iron ore 0.387 0.123 3.138
(11) Other minerals 0.365 0.108 3.369
(12) Sugar 0.298 0.074 4.000
(13) Food products (excluding sugar) 0.404 0.124 3.247
(14)Beverages 0.826 0.336 2.458
(15) Tobacco products 0.278 0.061 4.532
(16) Cotton textiles 0.634 0.211 3.007
(17) Wool, silk and synthetic textiles 0.741 0.122 6.091
(113)Jute, hemp and mesta textiles 0.530 0.169 3.135
(19) Textile products 0.374 0.100 3.741
(20) Wood products (excluding furniture) 0.184 0.041 4.454
(21) Furniture and textiles 0.180 0.042 4.273
(22) Paper and paper products 1.892 0.943 2.007

continued on facing page

290 GLOBAL ENVIRONMENTAL CHANGE September 1993

 Climate change and India’s energy policy options

Direct and indirect

Sector energy Direct Ratio

(23) Printing, publishing and allied activities 0.825 0.044 18.852

(24) Leather and leather products 0.266 0.042 6.270
(25) Plastic and rubber products 0.406 0.065 6.200
(26) Petroleum products 1.028 0.090 11.420
(27) Coal tar products 10.956 9.713 1.128
(28) Inorganic heavy chemicals 1.817 0.258 7.035
(29) Organic heavy chemicals 0.644 0.146 4.399
(30) Fertilizers 1.824 0.591 3.084
(31) Paint varnishes and lacquers 0.675 0.142 4.769
(32) Pesticide drugs and other chemicals 0.615 0,143 4.296
(33) Cement 2.951 2.185 1.351
(34) Non-metailic mineral products 1.783 1.197 1.489
(35) Iron and steel industry and foundries 2.219 0.923 2.403
(36) Other basic metal industries 1.455 0.338 4.302
(37) Metal product excluding machinery 1.221 0.267 4.570
(38) Agricultural machinery 1.003 0.145 6.915
(39) Machinery for food and textile industries 0.855 0.045 18.972
(40) Other machinery 0.822 0.043 18.915
(41) Electronic, electrical machinery 0.613 0.041 i5.081
(42) Railway transport equipment 1.033 0.404 2.554
(43) Other transport ~uipment 0.699 0.059 11.838
(44) Miscellaneous manufacturing industries 0.613 0.118 5.207
(45) Construction 0.862 0.003 292.086
(46) Electricity 4.892 3.474 1.408
(47) Gas and water supply 1.002 0.094 10.690
(48) Railway transport services 1.265 0.720 1.756
(49) Other transport services 0.726 0.497 1.461
(50) Storage and warehousing 0.651 0.024 27.143
(51) Communication 0.169 0.010 17.637
(52) Trade 0.219 0.008 25.904
(53) Hotels and restaurants 0.968 0.675 1.434
(54) Banking 0.134 0.004 31.586
(55) Insurance 0.114 0.003 44.450
(56) Ownership of dwelling 0.092 0.000 _
(57) Education and research 0.107 0.002 46.501
(58) Medical and health 0.364 0.007 54.543
(59) Other services 0.333 0.067 4.991
(60) Public administration and defence 0.000 0.000 0.000

Notes: Carbon emission coefficients are in tonnes per thousand rupees, apart from the coal and petroleum product diagonal elements which are in tonnes
of carbon equivalent. The (direct and indirect) coefficients are obtained from the (/-A) inverse matrix. ‘Ratio’ refers to the ratio of total (direct and indirect) to
direct coefficients.

Appendix 3
Sectoral definitions for the major sectors

Sector Definition
Cotton textiles Cotton ginning, cleaning and baling, spinning, weaving and finishing of cotton textiles in mills and power looms, printing,
dyeing and bleaching of cotton textiles.
Non-metallic minerals Manufacture of glass and glass products, earthenware and pottery, chinaware, sanitaryware, porcelainware, insulators,
lime and plaster, mica products, structural stone goods, stoneware, stone dressing and crushing, earthenware and
plaster statues and products, asbestos cement and its products, slate products, cement and concrete products, mineral
wool, silica products and other non-metallic mineral products.
Construclion Construction and maintenance of buildings, aerodromes, roads, railways, bridges, tunnels. pipelines, ports, harbours,
runways communization systems, waterways, water resefvoirs, hydroelectric projects and industrial plants and activities
allied to const~ction.
Eledricity Generation and transmission of electric energy and its distribution to households, industrial and commercial and
other users.
Railway transport services Government railways, private railways, services incidental to this transport.
Other transport services Buses, tramways, trucks, taxies, auto-rickshaws, animal services, urban bullock, urban buffalo, horses and other animals
drawn carts, cycles, hand pulled rickshaw and pack animals, shipping transport by boats, steamer, ferry etc. by canal
or rivers and unorganized water transport by sea, air transport and services incidentical to these forma of transport.
Hotels and restaurants Services rendered by hotels, boarding houses, eating houses, cafes, restaurants, canteens, etc.
Cement Cement
Trade Wholesale and retail trade.
Iron and steel Iron and steel, special steel and ferro-alloys.

GLOBAL ENVIRONMENTAL CHANGE September 1993