Wednesday, November 5, 2008

India and China need help to grow, not hectoring

By Rahul Tongia - Financial Times - October 31 2008

Every time there is a spike in oil prices, or when food costs more, or there is a renewed worry about carbon and climate change, academics, pundits, and the press immediately point to the high-consumption future of India and China.

They are wrong to do so when we consider the causes of energy and food challenges, and, more importantly, when we think of the actions and policies needed to manage changes in coming decades. If it is questionable that India and China are to blame for the global energy crunch, it is even less acceptable to expect them to adhere to pleas to moderate their energy consumption.

India and China certainly have similarities, being the two largest nations by population with rapidly-growing economies. It is likely that China will grow by almost $350bn in 2007-08, while India’s real growth will be $100bn. Less well-recognised is that, while OECD countries displayed lower growth measured in percentages, the absolute growth in the US has been higher than that of China, and that of the European Union significantly higher.

Historically, energy consumption has correlated with economic growth. The present debate over energy often focuses on two dimensions: climate change (from greenhouse gases), and the scarcity of fossil fuels.

With growing populations and economies, India and China will certainly consume a growing fraction of global resources, but they consume only 3 per cent and 9 per cent, respectively, of the world’s petroleum today. The global leader, the US, consumes just under a quarter.

The past also matters. There is a question of fairness, given that historical consumption has translated into economic might and human development. Examining the cumulative consumption of oil, the US and OECD countries have, respectively, consumed 6 and 15 times China’s consumption between 1965 and 2007, and 15 and 35 times India’s.

There is also a scientific reason for considering the past. The CO2 in the air today is not just from the toast we had this morning, it is from the Model T running in the US nearly a century ago. Scientists estimate the half-life of CO2 might be close to a hundred years. Even if we, say, halve all carbon emissions today, it would not have an immediate effect on atmospheric CO2 concentrations.

Looking at future options, why does it matter if India and China are or are not similar in terms of energy consumption and needs? Global treaties aim to modify future consumption, and mechanisms or formulae that are considered fair (and likely to be ratified) must be cognizant of differences. Given the differences in their systems, needs, and incentives, a proposal meant to appeal to both may not appeal to either. Without global participation, no solution is likely work.

China already has the world’s second-largest electricity grid, and, at current rates of growth, it will soon become the largest electricity producer in the world. Like India, most of this is based on coal, the least “green” of the leading fossil fuels.

India’s present installed electricity capacity is not in the same league. The result is that, for the coming decade, it will not be able to grow at a rate anywhere near that of China. In absolute net growth, the US will add more than twice as much capacity than India in 2007-08.

China’s growth of energy consumption has been positive for its population. It has now provided electricity to an estimated 98 per cent of households, unlike India or Africa. India has not met its energy growth targets even in the absence of carbon constraints – can we realistically expect it to moderate due to global concerns when it will say it is not the prime polluter?

Any global regime on climate change must take into account developing country ambitions. India needs help expanding modern energy services in a land where a sizeable fraction of the population lacks electricity. China’s major challenge is one of severe air pollution, reportedly responsible for about 10 per cent of all deaths in the country. This (alongside growth requirements) will drive policy, not worries about carbon.

Developing nations are aware of the risks of climate change, especially if they have coastal populations, but they are more worried about the present than the uncertain future. Developing countries also lack the resources to implement drastic changes, and drastic changes may be required to make a dent in the volume of greenhouse gases in the atmosphere in coming decades. Our best way forward will be to integrate human development and global climate, to come up with joint solutions instead of those that address one at the expense of the other.

Rahul Tongia is a faculty member at Carnegie Mellon University, Pittsburgh