Discussion Paper Series No.213
High Economic Growth, Equity and Sustainable
Energy Development of India

Ramprasad SENGUPTA

Jawaharlal Nehru University

December

2007

The Discussion Papers are a series of research papers in their draft
form, circulated to encourage discussion and comment. Citation anduse of such a paper should take account of its provisional character.
In some cases, a written consent of the author may be required.

High Economic Growth, Equity and Sustainable Energy Development of India

Ramprasad Sengupta
Visiting Researcher,
Research Institute for Economics and Business Administration (RIEB)
Kobe University, Kobe, Japan&
Professor of Economics
Jawaharlal Nehru University (JNU), New Delhi, India
E-mail: rps0302@gmail.com
Fax: 91 – (0)11 – 26717580 (JNU)

December, 2007

Acknowledgement
The author acknowledges his gratitude to the Research Institute for Economics andBusiness Administration (RIEB), Kobe University, Kobe, Japan for the support
provided for this research work which was carried out during his visit to the Institutein 2007. He would like to thank Shalini Saksena and Kaushik Ranjan Bandyopadhyay,
Ph.D students of JNU for providing research assistance. The author would also like toacknowledge the help and assistance of his wife Sheila Sengupta in the word
processing and editing of the paper and for providing all round support for finishing it
on time. However, the author alone would be responsible for any error that may
remain in the paper.

1High Economic Growth, Equity and Sustainable Energy Development of India
Ramprasad Sengupta
Abstract
India has been experiencing sustained high economic growth in the recent
years. However, there exists substantial amount of unacceptable poverty among thepeople in the country. The expressions of symptoms of such poverty include among
others inadequate educational and health attainment of the people and lack of accessto basic amenities like modern clean energy, safe water and sanitation which are
crucial determinants of capability development. There exists in fact significant
amount of energy poverty among the people, particularly in the rural India which has
more than 70% share of its population, in the form of use of traditional inefficientbiomass as the primary fuel with injurious health effect and the lack of connectivity of
the households with electricity. The eleventh five year plan of India which has
recently been initiated has taken the approach of inclusive faster growth for thedevelopment of the Indian economy. This paper analyses the implications of this highinclusive growth in respect of the twin challenges of environmental sustainability ofthe energy use required by such growth and the removal of energy poverty, whichhave to be addressed in India’s energy planning. The paper defines the concept ofsustainable development and points out its resource accounting implications in respectof energy related resource use. It focuses in this context on the instrumental role of theefficiency of energy use and energy supply, fuel composition and technology indetermining the strength of the linkage between the GDP growth and the growth ofenergy use and that between the energy use and the pollution intensity of energy.
The paper also defines, on the other hand, the notion of energy poverty anddiscusses the problem of equity and energy development in a dual society like that ofIndia. It then reviews the past trend and pattern of energy use and the future
projections of energy requirement and supply with special reference to the twin issuesof equity and environmental sustainability. In this context it makes a decomposition
analysis of the past energy use and CO2 emissions in India for examining its
environmental sustainability and if economic reforms of India could make any impact
on it. It makes further a brief review of the methodologies of projections and policy
planning for the future energy sector development in India as existing in the recent
literature. Finally, the paper discusses certain selected issues of energy security andmacroeconomic viability of such energy development in the background of thesustained steep rise of oil prices and high cost of carbon free new technologies. It
concludes by highlighting certain policy issues relating to pricing, technology andinstitution for the attainability of inclusive growth and particularly for meeting thegaps in such attainment that would possibly remain as per the existing alternative
projections for the future. However, this paper does not pay any special attention to
the climate change related global policy issues that would affect India and gives
priority to the national level issues relating to energy equity and energy related
environmental sustainability of Indian development

2

Contents
1. Introduction
2. Energy, Optimal Pollution and Economic Growth.
3. Energy Resources, Sustainable Availability and Environmental Effects
3(a). Fossil fuels3(b) Hydro electricity
3(c) Nuclear Energy
3(d) Biomass energy3(e) Non conventional Energy
4. Economic effects of Limitation of Resources
5. Economic Effects of Environmental Degradation due to Energy use
6. Adjustment in national account system due to energy depletion anddegradation of the natural environment
7. Efficiency analysis of energy use and supply for sustainability
8. Equity Issues : Economics of Energy Transition
9. Trend and Pattern of Energy Use in India
9(a) Primary Energy Resources9(b) Final Energy Use9(b)(i) Electricity9(b)(ii) Direct Use of Fossil Fuels
10. Sectoral Analysis
10(a) Sectoral Distribution of Fuel Use
10(b) Sectorwise Fuel composition
10(c) Direct and Indirect Sectoral Use of Primary Energy Resources
11. Specific Sectoral Issues
11(a) Electricity
11(b) Transport Sector
12. Delinking Economic Growth and Growth of Energy Consumption.
13. Decomposition Analysis of Energy Use and Emissions.
13(a). Decomposition of Energy Use
13(b). Decomposition of Pollution Intensity of Energy
14. Energy – Environment – Economy Modelling
15. Application of Models for the Future Energy Scenarios of India
16. The Projections of Energy Requirement by the Expert Committee on
Integrated Energy Policy of the Planning Commission

317. Future Projection of the Energy Requirement of the Household sector
18. Energy Transition and the Role of Decentralised Development of New Energy
Technologies
19. Energy Security and Macro Economic Feedback of the Energy development
20. Energy Pricing and Institutions
20(a). Petroleum Products20(b). Electricity
21. Summary and Conclusion

References
Abbreviations for all the Tables and Charts that follow
Tables 1 – 33
Charts 1 – 134

High Economic Growth, Equity and Sustainable Energy
Development of India
Ramprasad Sengupta
1. Introduction
Energy plays a crucial role in both economic growth and human development.
In view of the recent experience of sustained rise in global oil prices, geopoliticalturmoil and the secular trend of growing greenhouse gas (GHG) emissions, energy
economics till now has focussed mostly on issues relating to the challenges of energy
security and global environmental sustainability. The policy research in the area has
mostly been concerned with the reduction of CO2 emissions, fossil fuel demands,
imports and the associated economic cost without sacrificing economic growth. Theenergy sustainability issue therefore zeroed in on mainly (a) de-linking the Gross
Domestic Product (GDP) from the growth of energy use by improving energy
efficiency and (b) de-linking the energy use and the carbon emission by thediversification of choice of energy resources towards more of carbon free or lesscarbon intensive fuels.

So far as the local environmental externalities of energy use is concerned , themind set of energy economists being oriented mainly towards the global concerns forclimate change, induced them to explore the possibilities of co-benefits of mitigationof GHG emissions and local pollution through policy linkage. The control of local
emissions has been at least implicitly viewed mostly as a bonus from the abatement of
CO2 emissions. However, most of the developing countries view the challenge ofdevelopment for poverty removal and human development as far more important in
the short and medium run policies than the control of climate change. The recent higheconomic growth of China and India have been the causes of global environmental
concern because of their significant share in the growth of CO2 emission , although
their shares in the total annual absolute flow of such emissions as well as their per
capita emissions of the gases are far too small compared to that of the industrializedparts of the world.(see Table1).

With more than 1 billion population, Indian economy experienced a sustained
annual rate of growth of 8.5% in the last 3-4 years while China’s growth has been5

above 10% per annum in the recent years. Since the introduction of economic
liberalisation in 1991 as evidenced in the rising share of trade in GDP among others
and the structural adjustment reforms, the Indian economy has experienced an overall
trend annual growth rate of 6% during the last 15 years of the period of reforms(1991-2005) ( See Tables 1 & 2). This growth has also been accompanied by some
reduction of poverty and definite improvement in the indicators of human health andeducational development. (See Table 3). This development has required the use of
primary commercial energy resources to grow at the rate of 5.6% in India during theperiod since 1991 and particularly at the rate of 4.8% in the recent years since 2000,
reaching the level of 379 million tonne of oil equivalent in 2005. The Carbon Dioxide
emission has been 347 million tonnes of carbon equivalent as per the latest estimate
available for 2003.

In spite of the developmental experience of the recent decades and particularly
the acceleration of growth in the recent years , more than one fourth of India’s
population still live in an unacceptable condition of poverty as they are deprived ofadequate livelihood which can ensure the meeting of their basic minimum needs. The
head count poverty ratio for India declined from a high of 54.9% in 1973-74 (when it
was first estimated by the government of India ) to 36.0% in 1993-94. As per thelatest estimate based on the National Sample Survey Organisation (NSSO) survey 61st
round on the monthly consumption expenditure for 2004-05 (which is comparable inmethodology to that of 1993-94), the poverty ratio has shown a further decline to27.5%. However the pace of such poverty reduction has been quite slow in India at ameagre 0.8 percentage point per year. At this pace India will take another 30 years toachieve the current poverty level of less than 4% of China.

The achievement of India in the attainment of level of human development as
per many of the indicators of quality of life relating to education, wealth, energy use,water supply, sanitation etc. has also been substantially lower than those of thecompeting developing economies like China and the average of the industrialised
countries. This has been due to the fact that a large number of people are excluded
from participation in the process of development and are deprived from sharing thebenefits of growth .The life expectancy, education and overall index of humandevelopment have been respectively 0.64, 0.61, and .611 for India for 2004, while the6cut off value of such indices for high human development is considered to be 0.8 .The
low quality of life of the Indian people is also reflected in the pattern of energy use in
India. The per capita uses of modern commercial energy and electricity have been 530
kg. of oil equivalent (oeq) and 457 kwh in 2004 while the world averages for thesehave been 1792 kg oeq and 2606 kwh respectively. With 17%of world’s population,
India has in fact accounted for 5.2% of world’s total commercial energy use in 2005
and 4.8% of CO2 emission in 2003 ,as per the latest available estimates for the latter.
(See Table 1).

In view of the tardy progress of India in poverty reduction and the persistenceof socio economic disparities among the people in spite of the experience of therobust economic growth after the turn of the century, the Approach Document of theEleventh Five Year Plan of India (Planning Commission 2006b) for the period 200708 to 2011-12 has decided to accelerate the annual GDP growth rate to 9% and makethe growth process more inclusive. The “inclusiveness” has implied the fast removalof poverty , generation of employment and equitable distribution of benefits of growthand particularly human capability development through education, health, and otherbasic amenities like clean energy, safe water etc. It is now a consensus that highgrowth is a necessary though not a sufficient condition for poverty removal, and formaking the development process inclusive as it can create conditions for thegeneration of enough savings, taxes and inflow of foreign resources to finance theadditional requirements of the inclusiveness of growth and for the greater
employment opportunities.

At the present juncture of India’s development, the high inclusive growth astargeted requires immediate acceleration of growth of agriculture in order to get theeconomy out of the agricultural stagnation and its productivity crisis as well as agreater emphasis on the growth of the manufacturing industry for the faster pace ofindustrialization and concomitant urbanisation and motorisation of the economy. All
these would require massive investment in energy and transport infrastructure andhigh growth of primary commercial energy resource use as per the business as usual(BAU) scenario which builds into itself the current trend of improvement in energy
efficiency induced by the policies to continue in the future. The energy planners andpolicy researchers have simulated various future energy scenarios for India for7

alternative policy interventions with the implications of environmental sustainability
different from that of the BAU scenario.

In view of the recent growth experience and the various projections of energy
requirement of India , the global concern for the adverse impact of such Indiandevelopment on the global environment is however quite real. One basic problem isthat the pollution intensity of energy use of an economy is often determined by its
energy resource endowment as given by its natural environment in the interest of bothminimisation of development cost and energy security. Since coal of low quality is the
major energy resource to rely upon for the supply of primary commercial energy, aserious challenge arises for India in respect of planning the environmentally
sustainable development of its energy sector to support the targeted inclusive higheconomic growth with energy security.

However, in the context of energy planning, one needs to keep in view twobasic issues specific for developing countries like India having substantive amount of
unacceptable poverty. First, both the global society as well as the Indian society arecharacterised by the dualism arising from the divide between the rich and the poor in
respect of income, pattern of consumption, energy use and their environmental
consequences (Reddy 1997). The rich pollute the environment by the wasteful use ofcommercial energy intensive goods and services resulting in harmful emissions while
the poor degrade the natural environment by directly over harvesting the resources
and living at its expense. The rich are responsible for CO2 emission from automobile
emissions and emissions from power generation. The poor are responsible for
deforestation or forest degradation due to over harvesting the forest woods, grazing
common lands etc for cooking fuels and fodder. They are also responsible for thediversion of forest land for agricultural use in an economy with highly skewed
distribution of ownership of land. The degradation of such natural resources in turnaffect the poor most. There has been no research done on the distribution of theincome class-wise contribution of the people of a society to the different kinds ofpollution and degradation of the natural environment because of the lack of therequisite data.(Reddy1997). While, the emissions caused by the rich of the world arehaving global as well as local externalities, they are more concerned about the adverse
global changes for which they are mainly responsible. This concern arises because of8the threat of sustainability of the long run capitalist development as per the Business
As Usual (BAU) scenario. The poor would be more affected by the pollution andmostly local externalities caused by mainly the rich due to the adverse health effects
as they are more vulnerable to diseases. The requirement of development for poverty
alleviation and improvement of the quality of life of the masses, an inclusive growthprogramme would require primary attention to the control of local pollution andconservation of natural resources which are crucial for the health and livelihood of thecommon people. The global environmental issues would be viewed as important by
the developing countries like India particularly if the reciprocal externalities fromclimate change affect them seriously too. However, it is not surprising for them toview the problem of control of such emissions as one of obtaining a bonus from local
pollution control through policy linkages rather than the other way round.

The second important aspect of the energy –environment related problem isthat so far as energy use is concerned, the poor of India as well as those of the world
suffer from energy poverty due to the lack of access to modern energy services likeelectricity, or to clean cooking fuel like LPG ( Birol 2007, Barnes and Toman 2006).
About 1.6 billion people in the world have no electricity connection in their homes.
Again about 2.5 billion people (i.e. 40% of world’s population) have to rely on thebiomass of fuel wood, dung-cake and agricultural residue without any conversion for
meeting their cooking needs. The share of the traditional fuel consisting of fuel wood,
dungcake, agricultural wastes etc, still constitutes to be about 30% of the total primaryenergy supply of the Indian economy. A major part - 90% of such non-commercial
energy resources is used by the households for meeting its cooking needs only. In
India with 71.5 % of its people living in villages, 84% of the rural households and
23% of the urban households have to depend on biomass for cooking as per the NSS
Survey 61st. round for 2004-05. For the lighting need, 51.4% of the rural households
and 7.7% of the urban households are denied access to electricity either due to income
poverty or due to the lack of adequate investment in energy infrastructure. (NSSO
2007).

Besides, the meeting of the basic needs of food, shelter, education and healthservices for all lies at the heart of any meaningful strategy of inclusive growth as
characterised by poverty alleviation and human capability development. The
9availability of high quality commercial energy and appliances for cooking andelectricity for lighting would have a dramatic impact on the quality of life of its
people. The day finishes earlier without electricity and the children have to struggle toread in candle light and inefficient kerosene lamp to prepare for their next day’s
school homework. The use of the traditional fuel in country chullah generates
adverse indoor air pollution affecting the health of women and children who aremostly exposed to it. The collection of biomass takes away time and opportunity of
their earning income. The access to modern energy services is in fact a crucial
requirement for not only food and shelter but also for the health and education andcapability development of the people. (Birol 2007)

These modern energy services have in fact a high marginal value contribution
to human welfare in the context of broader socio-economic development. If we define
energy poverty to be either lack of connectivity with electricity or reliance on biomass
as primary fuel for cooking and water and space heating or both, the removal of suchpoverty would be of critical importance for the human development and improvementof quality of life. It is unfortunate that energy economics as of today has paid only
marginal attention to this issue of energy poverty. (Birol 2007). The central theme ofthis paper is the energy economics and planning of India’s high economic growthwith special reference to the issues of environmental sustainability of energy use andsupply as well as those of energy poverty removal for human development

This paper addresses the major issues relating to the demand and supply side
efficiency of energy and fuel choice and makes a decomposition analysis of the pastpattern of energy consumption to assess the de-linking of economic growth withenergy use and that of decarbonisation of energy. While the paper refers to a few
recent economy wide studies on the future projections of energy use and emissions inIndia, it makes a closer analysis and review of the past trend and pattern of energy
usages in India and of the future projections of the energy requirement and supply as
made by the Expert Committee on the Integrated Energy Policy for India of the
Planning Commission (Planning Commission 2006a) This review discussion isoriented more towards the challenges to be faced in energy planning and policies forenvironmental sustainability and energy poverty removal than the choice ofenvironmental policy instruments as such for the purpose. While the paper discusses
10the impact of energy use on CO2 as an important part of energy – environment
linkage, it does not focus the discussion as such on the Green House Gas (GHG)
mitigation and climate change. It is oriented towards the local or national level impactof emissions of all kinds from energy and the removal of energy poverty.

2. Energy, Optimal Pollution and Economic Growth.
Energy is an item of life support for our economy and society. It is a basic
need of all households throughout the world for cooking food, lighting, space heating
and cooling and private transportation and several other amenities. Energy is also
universally required as an input directly or indirectly in the production processes ofany economy. All energy is provided by energy resources or energy carriers which are
drawn from the source of the natural environment. Modern use of energy services
requires however conversion of these energy resources as available in the naturalenvironment into more convenient form that can more easily or efficiently serve thehuman needs. The examples are the conversion of coal or oil or gas into electrical or
propulsion energy and that of biomass into biogas for lighting or heating. Such
conversions often require substantive amount of capital and involves some energy
loss and other costs. The poorer people often depend heavily on the direct use of
biomass like fuel wood, cow-dung, agro waste for meeting the basic needs with little
conversion because of their problem of affordability of paying for such costs.

The conversion of energy resource into modern energy services and the use of
the latter involves two kinds of environmental disturbances due to the law of materialbalance and the entropy law of thermodynamics. The first source of disturbance is theprocess of extraction of the energy rich resource, its refinement and its transportation
to a point of use. The other disturbance arises from the disposal of the residuals ofenergy conversion and of the use of the refined or converted final energy after
combustion –atmospheric gases (CO, CO2, SO2, NOX etc), solid wastes, particulatematters and unusable heat particularly for fossil fuels. The disposal of the waste
residuals involves cost. They often generate serious negative externalities at the local,
regional or global level adversely affecting the health of the humans and the primary
productivity of the terrestrial eco-system, if the rate of such residual waste flow
exceeds the average absorbing capacity of the latter. Such environmental damage
would involve costs which need to be internalised for the assessment of social cost of11

fuel use. In a market driven economy part of the environmental damage would be
abated which would involve costs for meeting the prevailing environmental standards
or taxes as imposed. Thus, the environmental cost of energy would conceptuallycomprise (a) the cost of abatement and (b) the damage value of the unabatedemissions. The market transactions would however reflect the damage value to theextent the polluters are required to pay taxes or buy permits for the unabatedemissions.

There exists however a wide spectrum of energy carrier resources- fossil fuels,
biomass, uranium, hydro-resources, wind flow and solar radiation etc – available in
the nature, each having different extraction and conversion cost, efficiency of use andenvironmental impact. The environmental and energy economics would warrant suchchoice of energy resource mix and that of technology of their conversion and final usethat the integrated social cost of energy for supporting a given growth path –high or
low –is minimised. The availability of energy resources for the economy, theinternational supply prices of traded energy and the cost of technology of energy
conversion and use in the primary or final form would determine such optimal choiceof energy resource and technology mix.

There exists here a problem of consistency of a given growth trajectory andthe evolution of energy prices as the latter would be required to efficiently support theformer for the rational allocation of resources. The macroeconomic overall growthand its structure may, in fact, in turn be affected by the energy prices, taxes and costs
themselves, if the social cost of energy to income ratio becomes high or significant at
the aggregate or sectoral levels. In the case of large effect of energy price variation on
the economic system a complete dynamic general equilibrium formulation would infact be required for deriving the sustainable growth trajectory which would takeaccount of the economy-energy-environment interactions in optimising inter-temporalsocial welfare.

There has in fact been some econometric enquiry into the nature of causal
inter-dependence among the growth of energy, income and energy prices in thecontext of India and other countries using time series analysis of co-integration andvector error correction model based Granger causality. (Asafu-Adjaye 2000, Paul and12Bhattacharya 2004).While the study of Asafu –Adjaye study points to theunidirectional Granger causality running from income and prices to energy
consumption in the long run, the analysis of Paul and Bhattacharya arrives at theresult of existence of bi-directional causality between energy and income without ofcourse considering prices into the model.

3. Energy Resources, Sustainable Availability and Environmental Effects
3(a). Fossil fuels.
The energy system of India primarily consists of the energy carriers –fossil
fuel, hydro and nuclear resources, and biomass. (See Chart 1). The use of theseresources would generate two kinds of effects for the economy with sustainability
implications –(a) depleting effects on the stock of natural resources and (b) degrading
effects of the different phases of fuel or resource cycle on the natural environment.
(Velthuijsen et al 1999) . There are also other non-conventional renewable resources
which can emerge as significant resources in India’s future energy balance. The
current pattern of energy use in India is heavily dependent on fossil fuels - coal, oiland natural gas – which would be depleted faster with any acceleration of growth of
economic output. As of 2005, while the share of primary commercial energy in the
total primary energy supply in India has been 70.6%, the share of fossil fuel in thesame has been 68%. In the total commercial energy, the coal resource had thedominant share of 55%, followed by oil 34% and gas 8% . The shares of hydro andnuclear resources in the total primary commercial energy supply have been 2.27% and1.19% respectively in the same year.

Table 5 gives the deposits of reserves of fossil fuels and their respective
reserve to production ratios which are indicative of the sustainability of the resource
supply. The reserve to production ratio indicates that India has 86 years of productionof coal as proved coal deposits while she has deposits of only 23 years of production
requirement as proved deposits for crude oil and 38 years of similar requirement forgas.

However, if one compares the reserves with the annual energy requirement,
the self sufficiency index (production to total supply ratio) for oil has been declining
over time, its value being 29 % in 2005. India is also a net importer of coal because of13the inferior quality of coal, particularly of coking coal, the import dependence in 2005
being 12% of the requirement. It is the deteriorating coal quality which is going tocontribute to India’s increased dependence on coking coal in future particularly in theinterest of the competitiveness of the Indian steel industry.

While coal is the most abundant fossil fuel and commercial energy resource, it
has unfortunately the most disruptive effect on the environment. The extraction ofcoal often gives rise to acid mine drainage and toxic effluents which pollute water
streams and rivers. The combustion of coal on the other hand produces particulates,
CO2, SO2, NOX, particulate matters, and hydrocarbons as air pollutants, and fly ash,sludge and toxic heavy metals, and insoluble inorganic materials as solid wastes. Of
these, CO2 and NOX are greenhouse gases , while SO2, NOX and acid drainage havedestructive impact on the primary productivity of the eco systems due to effects ofacidification of forests , soil and water bodies. Besides, the air pollutants and water
bodies have adverse health impact on the humans. The inferior quality of Indian coalparticularly due to high ash makes its environmental impact per unit of oil equivalentof coal obtained worse than that of the internationally traded coal. The air pollution
problem of oil cycles is virtually the same as that of coal, the difference lies only inthe amount of emission per unit of oil equivalent of energy. The refining of oil
generates waste water carrying toxic heavy metal contents. The solid waste arising inoil cycle is negligible as compared to the coal cycle. Natural gas on the other hand has
mainly an air pollution effect due to CO2, SO2, and other hydrocarbons like methane.
Natural gas is the cleanest among the fossil fuels. Coal in fact generates 11% more
CO2 than oil and 67% more CO2 than natural gas.

3(b) Hydro electricity
Among the renewable modern energy forms, hydroelectricity has been themost important one in all countries. The water in storage or flowing along a gradientis the resource which is used to generate the electrical energy, involving substantive
use of capital. The same is true for wind, tidal, solar and other forms of nonconventional energy. The flow of such renewable resource for generating electricity
or heat, or their converted final energy forms have also an upper bound per unit oftime as all of them are driven by solar energy and involves substantive use of capitaland costs which vary across the resources. Table 6 gives the potential of hydro14electricity and other renewable energy resources in terms of maximum annual flow ofenergy it can supply. India’s hydel resource potential is estimated to be 84000 MW at
60% load factor. The installed hydel capacity of the utility system as in 2005 has been
about 32,326 MW which was operated at 29% load factor. In view of the low loadfactor due to the limitation of the water resources, the economics of small hydel plantof less than 25 MW capacity would work out better for peaking power than that of thelarge storage dams. Besides, most of the future hydel resource potential to be
developed in India are in the North Eastern region, Himachal Pradesh, andUttaranchal. This implies the importance of fast development of the integrated
national power grid for taking advantage of the full hydel potential for sustainableenergy supply (Planning Commission 2006a).

Of the commercial non-fossil fuel resource, hydel resource is a clean one inrespect of air quality compared to the fossil fuel resources. However, the constructionof dam or storage for the purpose causes destruction of land and modification of theecosystem. The submergence of large areas of land in the catchment area for water
resource of a river basin has adverse dislocating effect on human settlements, wild life
habitats, forests, and biodiversity loss, etc. The deforestation in the energy catchment
area of such river basins has also led to serious soil erosion and siltation of thereservoir and downstream rivers and channels resulting in floods during the monsoon
season in India. The environmental impact of hydel project is however site specific. It
is difficult to generalise and arrive at some representative impact measure inquantitative terms for this option. However, case studies of environmental impact
assessment have been found to be useful for evolving sustainable development policyof hydel capacity for meeting the energy need.

3(c) Nuclear Energy
Nuclear energy represents a different technology and different implications
regarding exhaustibility although the basic energy resource like uranium or thorium is
non renewable. It is in fact a vital component of the energy industry of the world andis going to be of increasing importance in India in the future. Unfortunately India ispoorly endowed with low grade uranium which can supply fuel upto the requirementof 10,000 MW Pressurised Heavy Water Reactors (PHWR). The uranium content ofIndia’s low grade ore is 0.1% while the same is 12-14% in the major sources abroad
15

making the process costlier.( Planning Commission 2006a). India has substantive
reserve of thorium which has to be converted into fissile material through breeding touranium 233for any energy generation.

India has developed a programme of three stage development of nuclear
power : the first stage with PHWR, the second stage with Fast Breeder Reactor (FBR),
and the third stage with reactors based on uranium 233-thorium 232 cycle. (Planning
Commission 2006a, Kakodkar 2004). It is envisaged that the plutonium fuel and therecovered uranium from the PHWR of the first stage will provide the major fuel forthe second stage. Thorium will be used as a blanket material in the breeder reactor to
produce uranium 233 for the fission in the third stage. Table7 shows the potential
availability of nuclear energy which is quite large for the third stage. However, it isalso envisaged that the PHWR of the first stage would be supplemented by someLight Water Reactor (LWR) based on the import of technology and fuel to produce
enough plutonium for the second stage. If the nuclear programme is successful, then
the nuclear option can provide large amount of clean energy. The success of thisprogramme would however depend on India’s ability to import nuclear fuelovercoming the political constraints at home and abroad.

Among the non-fossil fuel resources, nuclear energy is a clean energy optionin terms of air pollution and has no other significant environmental impact except
those relating to the safe disposal of the radioactive wastes and low-level radiationfrom reactors. The mining and enrichment process of uranium however causes somecontamination of surface and ground water with radioactive elements of minerals
which is also a source of health hazard. An issue of safety of course arises from therisk of accidents due to possible malfunctioning of the nuclear reactor or due toaccidents caused by factors beyond the control of the management. The relative
significance of such accidents vis-à-vis other accidents in terms of expected value ofdamage needs to be assessed for the sustainability of the nuclear option.

3(d) Biomass energy
Biomass constitutes more than a quarter of the total primary energy supply
even as of today in India. It is only a negligible fraction of such biomass including
wastes that is converted today into biogas or electricity. Energy conversion
16

technologies for biomass in traditional country ovens are highly inefficient and theharmful gaseous emissions (CO, HC, particulate matters) cause problems of health for
women and children in the households in the lower income classes who are exposedto these emissions. The indoor pollution causes respiratory infections and diseases
leading to premature deaths. According to the estimates of World Health Organisation(2006), 1.3 million people, mostly women and children in developing countries, dieevery year prematurely due to the use of bio-mass which is a threat of health next inorder of magnitude to only malnutrition, HIV/AIDS and water borne diseases (WHO,2006).

Besides, valuable time and effort are devoted by mostly women and children
for biomass fuel collection sacrificing the opportunity cost of a productive earning
employment. In India , a case study points out that 85 million households spend 30
billion hours annually in fuel wood gathering (Parikh, et.al 2005).

Over harvesting of biomass, particularly fuel wood as collected from forests
may have the adverse impact of deforestation. In poorer regions of India, particularlyin the Himalayan regions where access of the people to commercial energy is limited,
there has been degradation of forests due to over use (Baland et al.2006). A decreasein forest area or its degradation due to the lowering of crown density would adversely
affect the carbon sequestration and would contribute to the accumulation of the stockof CO2 in atmosphere and therefore to the global warming.

3(e) Non conventional Energy
Although India depends on the renewable biomass for 30% of her total
primary energy requirement, this resource is used with low efficiency and without any
conversion directly by the households causing health risks for them. The sustainableenergy development for inclusive development will have to target the replacement ofpolluting biomass by cleaner modern energy with higher efficiency. Apart from theconventional commercial energy like electricity, kerosene and LPG, there exists thepotential of development of non-conventional new renewable technologies using
solar, wind and biomass resources to provide clean energy. The biomass resource
itself can be converted into environmentally clean fuel like biogas by way of wood or
dung gasification . In view of the inevitable dependence on biomass for cooking fuel,17

this option of biomass conversion has assumed importance of policy significance as a
strategy for rural energy development. It is possible to organise both family sized andcommunity sized plants if a critical minimum dung of animals can be mobilised forthe plant involving voluntary cooperation of all the stakeholders in an incentive
compatible way (Parikh and Parikh 1977).

Apart from the animal wastes, plant biomass can also produce biogas as wellas liquid fuel. Bio -diesel from plants like Jatropa , Karanj, and Mahua and fromethanol are economically viable options which can reduce India’s oil dependence
provided sufficient waste lands can be mobilised or good quality land can be diverted
for such use. The potentials of such bio fuels for India are given in Table 6. However,the land use change for the development of such options can have important socioeconomic effect (e.g, impact on food security) which needs to be factored in before
taking any decision on the large scale implementation of such option.

Finally, wind energy and solar thermal as well as photo voltaic energy forelectricity have also substantive potential in India as indicated in Table 6. Wind power
can be generated from the energy potential of on shore wind flow but only at a low
load factor of about 20%. The solar thermal, on the other hand, is an economicallyfeasible option mainly for water heating. The solar power is still a high cost option(Rs. 20 /kwh). Even if further R& D effort reduces the cost of solar photo voltaic
option as is hopefully expected , it would require substantive use of land. (Planning
Commission 2006a)

However, of all the non conventional energy options, hydro , wind and dung
based biogas have the advantage of no significant land use diversion, while the solar
power and any plant based fuel would require land which may have high social
opportunity cost if it impinges on the food security of the country. The exploitation ofsuch options would therefore require careful land use planning for maintaining intersectoral balance for maximising the social welfare of the people.

4. Economic effects of Limitation of Resources18

Since the energy system of India is predominantly based on fossil fuel (Chart
2) causing depletion of our domestic stock of such renewable resources, India is being
increasingly dependent on imported energy – mainly for oil – with the acceleration of
economic growth (Table8). This has become particularly acute because of the growthof requirements of oil not matching with the growth of supply from domestic
production due to inadequate accretion of reserves through discovery. There has beenno significant discovery of hydrocarbon reserves in India after the discovery of
Bombay High excepting that of gas in the Krishna-Godavari basin and in Gujarat, inspite of large investments in the last two decades. As a result , the crude oil
production in India has stagnated although only one third of India’s potential oil
bearing structure has been explored for development. New technology may berequired to be developed involving high cost to overcome the geological barriers ofdeep drilling both on shore and off shore to exploit those oil potentials and increase
the volume of domestic proved reserves which are economically viable.

India’s energy industry will in fact have to face conditions of increasing
marginal cost of extraction and supply of fossil fuel -both oil and coal-per unit ofenergy in oil equivalent unit with the acceleration of its demand as induced by highGDP growth. The reason behind such likely rise in cost is that either more difficult
geological structure will have to be developed for exploitation or fuel resource ofinferior quality (like high ash or high sulphur coal or heavy oil, etc.) will be left for
extraction with cumulative extraction of stocks.

The cost of renewable energy like hydel power is again site specific. For any
positive time discount rate , the electricity industry will have to move on to hydel
project of higher real cost per unit of energy over time as the water resource of eachhydel potential of lower order of cost gets projectised and fully utilised for meeting
the growing demand for electrical energy for supporting high growth. As the rational
allocation of resources in India would equate the marginal cost of supply of energy
from the domestic sources with the import price of energy, the supply sidesustainability of resources and India’s energy security will be highly dependent on the
future movement of the world oil prices in a liberalised regime.

19

There has been a steep rise in the global oil prices index which has been partly
due to the rise in the global demand fuelled by the growth of the developing countries,
and partly due to the growing market imperfection and geo-political developments.
Such rise in global oil prices with which all energy prices are globally linked would
raise the real cost of development with any acceleration of GDP growth rate unlessenergy and GDP can be decoupled. The real price of oil had risen for India at thephenomenal rate of 25% per annum during 1971-1980 followed by a decline at therate of 4.3% per annum during 1980-95. However it has again risen sharply at the rateof 10% per annum during the last one decade since 1995. (See Table 8)

5. Economic Effects of Environmental Degradation due to Energy use
We have also observed that the fuel cycles of the energy carriers of the Indian
energy system has a wide range of environmental impact comprising air pollution,water pollution, forest, and soil and land degradation. These impacts are often
distributed widely over space and time making both the physical impact assessment
and its monetisation challenging. In view of the dominance of the policy
considerations for abating global warming and climate change in the entire discourseof environmental sustainability of energy use and supply, the focus of research anddiscussion has been on the reduction of CO2 emission. While the assessment of CO2
impact of any strategy of energy sector development for supporting macroeconomic
growth has been highly important, some physical and monetary accounting ofemissions of other pollutants, like SO2 ,NOx, TSP and hydrocarbons have also
attracted some attention, though not adequate ,particularly in the context ofassessment of health effects of emissions for the Indian energy system .

The estimation of social cost of safety of nuclear power and that of dislocationof human settlements and the land use change of hydel projects have been addressed
only in the context of project evaluation to the extent necessary for obtaining
clearance. Academic research in the area has been limited and not involved
adequately rigorous economic analysis as reflected in the literature of environmental
economics in the Indian context. The true cost of externalities of the fuel cycle ofenergy carriers affecting the environment, people and the economy thus need to beassessed for resolving the problem of sustainable fuel policy.

20

In view of the difficulty of monetisation of many of the physical damages ofthese externalities generated in the resource cycle , the policies of environmental
control in India have been mostly formulated in terms of setting physical standards
and norms (See Central Pollution Control Board website reference ) for the various
emissions for different sectors and other regulations including the environmental
enactments (Sankar 1998) requiring environmental clearance of projects and not
really on explicit market based instruments of taxes or permits for the purpose as yet.
Such standards and norms are often set on the basis of scientific, legal and socioeconomic considerations on the basis of the data on hybrid physical-monetaryaccounts as available. The development of a hybrid physical monetary satellite
account of resource depletion and environmental degradation for an economy has also
been recommended by the UN’s approach for integration of environmental andeconomic account (United Nations Statistical Division 2003) and has been found to be
useful for policy analysis.

While there have been a large number of studies mainly on CO2 arisings andtheir mitigation costs from the energy source in the Indian context to be listed, thestudies on monetising the value of damage cost of such pollution at local level are
relatively limited. Some of these studies of monetising damage have been done in the
sectoral context of emission arising from fuel burning, while some others have been
attempted to evaluate the damage of air pollution as such irrespective of the source or
the causal factor (Brandon and Homman 1995). Kumar and Rao 2004 estimates thehealth cost of SO2 emission of a power plant. Sengupta and Mandal 2005 estimatedthe cost of health damage of automotive pollution from all major emissions. Parikh et
al 2005 estimates the damage cost value of indoor pollution from biomass cooking
fuel. Murty et al.2004 on the other hand has estimated the value of reduced air
pollution irrespective of the identity of the source.

Most of the country level studies for India on the economic impact of thevariations in GHG emissions have been worked out in a partial or general equilibrium
framework through simulation for alternative policy intervention for mitigation ofemissions. Such macro level studies do not necessarily provide the precise monetisedvalue of variation in the consequent environmental damages. It is only the result ofsome sensitivity analysis or the values of some of the dual variables of the model
21

which may be indicative of the monetised value of the damage due to pollution.
However, such shadow values of damage obtained from the macro model may not be
precise enough for use in the micro economic context of any project evaluation forenvironmental control. It is in fact the hybrid data of the physical impact of thedamage of emissions and the monetary values of economic benefits from thereduction of emissions which often provide the basis of inference regarding the trade
off between the developmental and environmental benefit and policy choice.

6. Adjustment in national account system due to energy depletion anddegradation of the natural environment.
It is to be noted here that an ecosystem is affected by the absolute load orconcentration of pollution and that the marginal cost of damage of pollution rises withrise in the absolute load of pollution. With the rise in energy use as driven by
economic growth, the marginal damage cost is likely to rise over time and with thescale of use of energy. The rise in the cost of fuel resource because of cumulative
depletion and that of environmental externalities would thus have an eroding feedback
effect in the process of economic growth itself. The rise in the marginal integratedsocial cost of fuel use of the energy system has thus a cannibalising effect on theeconomic system as the second law of thermodynamics of energy and the limited
capacity of the source and the sink of nature would make their effects felt in changing
the patterns of resource allocation sooner or later (Commoner 1982). The increasing
proportion of economic resources of the economy will have to be allocated forsupporting the energy system with rise in the growth rate which would ultimately
result in rise in energy cost to income ratio of the economy. The sustainable resourceand economic accounting at macro-level warrants such adjustment of the conventional
national income accounting that it can take account of the depletion of the natural
capital and the degradation of the natural environment.

Given the capital theoretic result of the equality between the optimal value ofinter-temporal social well being and that of the initial capital stock of an economy
comprising both the man made assets and the natural resource and environmental
capital, the conditions of weak sustainability as defined in environmental economics
would require that the genuine investment comprising the total value of investment in

22

all such capitals together should be non-negative (Dasgupta 2001, Dasgupta et al2000). For the estimation of the true rate of growth , sustainable income and genuinesavings at the macro-level, it is necessary to adjust both the GDP and the Gross
Investment not only for the depreciation of man-made capital , but also for the
depletion of minerals and fossil fuels and for the degradation of the naturalenvironment due to pollution. The World Bank’s data base of World Development
Indicators (World Bank 2007), in fact shows the time series estimates of genuinesavings for the different years with the details of components of adjustment for the
depletion of resources on a few major accounts. In the definition of genuine savings
as indicated in the formula given below , educational expenditure is considered by theWorld Bank as an investment in human capital and therefore as a use of savings on
the one hand, and the energy depletion, mineral depletion and damages due to CO2
and particulate emissions as depreciation of natural capital on the other.

Genuine Savings =Gross National Savings –Consumption of Man made Fixed Capital+ Educational Expenditure –Energy Depletion –Mineral Depletion-Forest Depletion–CO2 damage –particulate damage

Of these adjustments, the adjustments due to energy depletion, CO2 damage
and particulate emission have been mostly on account of use of energy resources inthe economic system. A large part of forest depletion is also accounted for the use offuel wood. Table 9 shows the energy related resource depletion and environmental
degradation along with the overall genuine savings as estimated by the World Bankfor the different years. For 2005, these estimates, as proportion of Gross National
Income have been found to be 4.831 % for energy depletion, 1.3 % for CO2 damage,0.741 % for particulate damage, and 0.569 % for net forest depletion. Thus out of the
29.7% of Gross Domestic Savings, 9.19% is the share of consumption of fixed capital,
while another 7.4% needs to be deducted to take account of energy related factors ofenvironmental sustainability in the calculations of genuine savings and investment.
The depletion of natural capital on account of energy would thus reduce thesustainable growth potential of the Indian economy. It may be further noted from
Table 9 that the rate of adjustment of savings on account of the cannibalising impactof the total energy related depletion has grown over time from 6.53% in 1990 to23

7.44% of Gross National Income in 2005, which has been a period of economic
reforms and acceleration of pace of economic growth of the Indian economy.

7. Efficiency analysis of energy use and supply for sustainability.
The primary energy resource use in India has depended largely on theaggregate size of the economy, population and composition of energy resources as
supplied by the extractive activities of these resources from the natural environmentand by their net import from the rest of the world. The composition of fuel has been
an important factor for the aggregate measure of energy use which ultimately
determines the extent of the environmental stress as this measure in oil equivalent unit
varies widely with the energy resources composition due to the widely varying
efficiencies of conversion and final use.

The environmental effect of a macroeconomic growth process depends on thegrowth of volume of energy requirement to support the growth and the energy
resource mix of the energy system. Apart from the fact that the environmental effectof the fuel cycle differs across the energy carriers, the efficiency of delivering energy
services varies across fuels, end uses and its associated technologies. While theenergy industry converts the primary energy resources into more efficient forms of
final energy (like crude oil into oil products, coal, oil and other resources into
electricity etc.), the non-energy producing sectors and the household sector make thefinal use of such converted energy in inputs for production or for consumption (SeeChart1). It has to be remembered here that it is not only the effect of growth but also
the inclusiveness of development requiring specifically the removal of energy poverty
among others which would create the upward pressure on the scale of energy use andpollution. The challenge of sustainability is essentially to counter this upward pressure
on scale by weakening the link between the growth and the energy use and thatbetween the energy use and the pollution arising by improving energy efficiency on
both the demand and the supply side of the energy industry. Sustainable energy
planning for high growth is to build into the plan the maximum use of the potential ofsuch efficiency improvement vis-à-vis the BAU policy scenario by new policy
interventions.

24

8. Equity Issues : Economics of Energy Transition
While the concern for environmental sustainability focuses on the reducing ofenergy consumption and emissions, the challenge of inclusive growth requires energy
efficiency to be combined with energy equity by removing energy poverty of thehouseholds. As inclusive high growth is based on the principle of “universalism” inthe distribution of benefits of growth (Anad and Sen 2000). The energy planning andpolicy needs to address the issues of equity and empowerment of the socioeconomically poor section of the population in the context of energy supply and use in
the households of India. Tables 23-26 show how the people belonging to the rural
areas, and poor states are being left behind in enjoying the higher quality of life by
way of access to and affordability in terms of spending on the modern energy services
as per the NSSO 61st round survey data. These cross section observations broadly
correspond to the hypothesis of the upward movement along the energy ladder with
development. Besides, Chart 9 based on World Bank 2002 as obtained from Barnes
and Toman 2006, shows how poorer people have to spend higher proportion of theirmeagre income on energy in spite of suffering from energy poverty .

With the growth in income and greater availability of more efficient fossil fueland electricity at lower unit cost of end use energy service, households make use ofincreasing share of cleaner and efficient fuels like LPG, electricity etc. leading to risein their consumer’s surplus (Barnes and Toman 2006). Pachauri and Spreng (2004)
has (replace ‘has’ by ‘have’) in fact estimated the energy efficiency of various fuels
and appliances and worked out the price per unit of useful energy for biomass
traditional fuels and commercial fuels for India. This shows how modern commercial
fuels are cost-effective in the choice of meeting a given requirement of energy
services in terms of lighting, cooking, space heating in appropriate unit, by the choiceof device, fuel and associated pollution removal technology. The major problem forthe poor is the first time cost of use of a cheaper fuel for obtaining connectivity andbuying equipment, which causes the problem of access for them.

The use of cleaner fuels like LPG or electricity for cooking and lighting would
again help the households to achieve better health and educational attainments anddevelop capabilities for higher income. The dynamic externalities of use of highergrade fuel as one moves up along the energy ladder would thus in turn raise the25household income and raise further the demand for cleaner and efficient energy forms.
This would further raise both the consumer’s surplus and the material level of wellbeing by expanding the options of use of various modern appliances reducing bothmonetary cost and time cost of energy collection and use. Contrary to the common
belief, the percentage of energy used by the households would not decline with
development but would rise in the initial phase of income rise when a household rises
above the poverty line and move upwards along the income ladder.

9. Trend and Pattern of Energy Use in India
9(a) Primary Energy Resources
The institutional and structural changes brought about by the economic reforms ofIndia are of substantive importance for the analysis of environmental sustainability ofIndia’s energy system. The total primary energy resource use increased at an annual
average rate of 4.1% in the pre-reform period 71-90, and at the rate of 2.84% in thepost reform period 1991-2005. The share of non-commercial combustible biomass
traditional fuel has declined throughout this period from a high share of 61% in 1971
to 49% in 1990 and to 38% in 2003. (See Table 4 & 10, Chart 2) As more than one
third of gross energy used has thus been obtained from biomass and bio- waste tillrecently without any conversion and out of which 90% in turn was used by thehousehold as fuel for cooking and space heating, this dependence has had serious
implication of the environmental stress both in the form of forest depletion and healthcost of poorer households. It is to be noted that the absolute level of such fuel grew at
the trend rate of 1.5% per annum over the period 1971-03. As the income poverty, as
well as the lack of adequate supplies of modern energy services due to the deficiencyof energy infrastructure have been the factors behind such dependence on inferior
biomass fuel, the cross country comparative data given in the Table 1 indicate India’s
relative level of energy poverty in terms of quantity and quality.

With economic growth, the total commercial energy resource supply of India
has grown at the trend rate of 5.8% in the pre –reform and 4.8% in the post reformperiod. This has implied a total GDP-elasticity of primary commercial energy use of
1.30 for the pre-reform and 0.78 for the post reform period as estimated using theyearly time series data for the concerned periods by the author using auto regressive
conditional heteroskedasticity regression model giving GDP elasticity of primary and26

final energy. (See Table 4) The substantive drop of the GDP elasticity value below
1.00 indicates significant improvement of efficiency in the use of primary energy inthe economy in the post reform period.

However, the share of the most polluting fuel ,i.e. coal in the total primarycommercial energy supply has remained mostly in the range of 55-60% in the entire
period 1971-2005. (See Table 11 and Chart 3). The share of primary oil (crude oil
production + crude oil import + imported petroleum products) has remained also
relatively stable during the same period, in spite of the volatility of the world oil
prices. While the share of oil in the total primary commercial energy was 36.6% in
1971, it has been 34% in 2005 (Table 11). Finally, as a net importer of energy, theshare of net import of energy in total primary commercial energy supplies has
increased from around 17% in 1990 to 32% in 2005 in the post reform period toprovide support to the accelerated growth (See Table 8). However, it is the share ofprimary gas which increased substantially from 0.931% in 1971 to 7.6% in 2005
because of supply side factors of discovery and increased supply from the newly
found gas reserves throughout the period (See Table 11). The share of all fossil fueltogether has remained around 95% in the entire 35-year period under reference. It is
the failure in raising the share of hydro and nuclear power in the total electricity
generation which has been responsible among others, for the environmental pressureof air pollution by this high dependence of India’s energy system on fossil fuels andcontributing also to India’s problem of energy security. The non-conventional
technology based energy supply has been until now able to make only a non-zeroshare of at the most 0.14% as attained in 2005. It is a matter of far cry to expect any
significant support from such non-conventional energy sources for the sustainabilityof high growth of the Indian economy in the near or medium term. (See Table 11 andChart 5 for the growth of Primary and Final Commercial Energy and that ofcorresponding CO2 emission.)9(b) Final Energy Use
As per the energy balance of 2005, a share of 82% of primary energy
resources was converted into final energy in the forms of electricity and petroleum
products and the balance 18% of the primary resource –mostly coal and natural gas
27

had direct final use in various industries . The total delivery of final energy in oil
equivalent unit through conversion has been around 37% of the total primary energy
supply to the economy in 2005 (See Table 10). The loss in conversion, handling andtransportation of energy has remained in the range of 29% to 37% in the entire periodof 1971-2005. These losses are supposed to be more than compensated by the benefitof final energy supply for various end uses. The total supply of such final commercial
energy services as provided to the non-energy sector grew at the annual rate of 4.7%
during the pre-reform years and 3.4% during the post reform period. The total GDP
elasticity of final energy has been estimated by this author to be 1.09 and 0.56 for the
pre-reform and post reform periods using the time series data and ARCH model ofregression (See Table 4). These drops in elasticity imply changes in any combinationof the factors of sectoral structure, fuel composition and technology of the economy
raising the level of energy efficiency.

9(b)(i) Electricity
Of the different forms of final energy, electricity has been the most important
one from the point of view of the efficiency of use, convenience, cleanliness in use
and the integrated cost of supply and use. The gross generation of electricity had
increased at the trend rate of 8% per annum in the pre-reform and 5.7% in the post –reform period. (See Table 4) However a substantial part of gross electrical energy
generated in India is lost in auxiliary consumption, transmission and distribution
before reaching the final user. (See Table 14) The estimate of such loss has been 32%
in 2005. The final consumption of electricity in the non-energy sector has in factgrown at the trend annual rate of 7.5% in the pre-reform period and 4.5% in the post
reform period. The GDP –elasticity of the generation and the final use of electricenergy has been respectively 1.00 and .75 in the post reform period. These represent a
substantive drop from the elasticity values of 1.8 and 1.7 for the generation and thefinal use of electricity respectively during the period 1971-80. (See Table 4, See also
Chart 4 for the growth of absolute level of supply of final electrical energy delivered
to consumers of non-energy sector).

While electricity is a high quality clean fuel used widely across every segmentof the economy and society , the power sector would cause pollution and involve
substantial material and energy loss in the process of its generation. This would have28

implications in respect of environmental stress as per the principle of material balance
between resource and waste flows between the power industry and the naturalenvironment. It is therefore the supply side efficiency of the electricity sector which isof significant importance for environmental sustainability as distinct from the demandside efficiency of its use in the rest of the economy

9(b)(ii) Direct Use of Fossil Fuels
Among other fuels, the absolute level and share of final use of coal declined
during the post reform period as its direct use for steam and heat was replaced by oil,gas and electricity. The share of coal in final energy use in fact declined from 51.6%
in 1971 to 34.7% in 1990 and 19.0% in 2005. The share of final use of oil and gas, on
the other hand, increased substantially from the respective figures of 38.4% and0.59% in 1971 to 53.4% and 7.01% in 2005. (See Tables 12, Chart 4). Table 15 shows
the distribution of each commercial primary fossil fuel between the direct use andelectricity generation.

10. Sectoral Analysis
The total final energy use of an economy is driven fundamentally by theindividual producing sectors- agriculture, industry and services including transport
and the household sector. However, for the purpose of energy analysis, the transport
sector including the share of private transport owned and operated by the household
as part of its consumption activity, is considered separately from the services becauseof its significant share in the total energy use in the economy.

10(a) Sectoral Distribution of Fuel Use
As the environmental sustainability of the energy system depends on the fuelchoice and the energy usage per unit of sectoral activity of production or consumption,
it is important to analyse the sectoral distribution of energy use, the sectoral fuelcomposition of final use, along with the sectoral structure of the economy itself.
Tables 17 & 18 provide these data regarding the fuel-wise sectoral distribution of
final energy consumption and sector-wise fuel composition for the years 1971, 1990
and 2005. The industry had the largest share of 52.1% in final energy consumption in
2005, followed by transport 18.6%, residential sector 16.7% , agriculture 7.2% , andcommercial and public services 5.5 % in 2005. The charts 7 & 8 show the sectoral29

distribution of the total final commercial energy supply and that of the total primary
direct and indirect use (through power) of energy including the share of traditional
fuels.

10(b) Sectorwise Fuel composition
The fuel composition of the energy use varies widely across the different
sectors. The efficiency of use of fuels and the functions performed by them in the
different sectors being different due to the specificities of technology and appliances,
the share of final use of a given fuel in oil equivalent unit does not indicate therelative significance of a fuel in terms of useful energy service provided or work done.
Nevertheless, since the environmental pressure created by a fuel depends ultimately
on the gross energy used in the process in oil equivalent unit, the fuel composition as
per oil equivalent unit is also of some significance for the environmental andindustrial policies. The share of oil in the total final energy at the economy level is thelargest being 53%, followed by electricity 21% and coal 19% . (See Table 18).

Coming to the individual sectors, for the transport, oil itself has the share of
96% of its total requirement , electricity and natural gas having also small shares of
2.4% and 1.8% respectively although having the potential of larger shares in future
under an appropriate policy regime. The energy requirement for the agricultural sector
being mainly for irrigation and land preparation, electricity has been the dominantfuel having a share of 58% in its fuel composition, oil meeting the balance 42% of thesectoral final energy need. The commercial and public services mainly use electricity
for energy whose share in the composition has come down recently to 50.4% in 2005
and depends on the direct use of coal to meet the balance of its requirement as per the
IEA data. The reporting of the data in the Energy Balances for India in the IEA
publications of recent years require further scrutiny regarding the reason for theabsence of oil consumption for this service sector and for all of its direct fossil fueluse being shown against coal. This goes against the expected notion of lower carbon
intensity of direct energy use by service sector. If the reported data are correct, thischanging pattern of fuel composition of this sector raises concern for the implied
rising carbon intensity of energy use by it, particularly in view of the high share ofservices in the GDP of the Indian economy (See Table 18).

30

Finally , the residential sector depends mainly on the traditional fuel for 79%
of its total energy requirement, while of the balance 21% as supplied by thecommercial energy, 13% has been the share of oil and only 6% that of electricity.
(See Table 18, which gives the shares of fuels in the final commercial energy
consumed by the sector).

10(c) Direct and Indirect Sectoral Use of Primary Energy Resources
While electricity is a clean fuel, its generation involves emission of air
pollutants and solid waste. The sectoral fuel composition of final energy indicates
how a given sector has access to cleaner and more efficient fuels like natural gas orelectricity. However, any use of electricity by a consuming sector would cause
generation of pollution in the electricity plants and their neighbourhood. The higher
efficiency of electricity to do a given work compared to that of the primary fuels intheir direct use would imply both the integrated energy use of the final consumer
sector including the share of the power and the associated integrated pollution load tobe lower for the substitution of the direct use of other fuels by electricity. Besides, thedirect use of energy through electricity would also localise a large part of pollution to
the power generating stations compared to widely dispersed arising of pollution
reducing possibly both the number of people exposed to pollution at the places ofenergy production and energy use . However, this geographic redistribution ofpollution load would lead to the emergence of more of large point sources of pollution
with higher ambient concentration. Besides, the global and regional externalities ofenergy use like the effects of global warming or acid rain are often the sameirrespective of how geographically pollution is distributed.

For all the primary energy resources the use of which is ultimately responsible
for the energy related pollution, each sector would directly and indirectly account forthe pollution arising as per the usage of electricity and the fuel composition of power
generation. It is in fact important to ascertain both the total of direct and indirect useof a given primary fuel resource across sectors as well as the composition of the total
direct and indirect primary energy resource use by a sector for the purpose of policies
for energy related environmental control. The sectorwise share of the indirect use ofenergy through power in its total direct and indirect use of energy as well as thesectoral distribution of the latter for the aggregate economy are shown in Table 19. It
31

is the energy intensity of such total direct and indirect energy use including the shareof power which would be relevant for the macro level analysis of the dynamics ofenergy efficiency and energy sustainability of India.

11. Specific Sectoral Issues
11(a) Electricity
In the sectoral balance of primary energy the pattern of its direct usage by thenon energy sectors would reflect the demand side efficiency while their use by theelectricity or oil refinery would indicate the supply side efficiency. The overall
primary energy intensity of the economy which is indicative of the strength of linkage
between energy and growth is thus determined by the efficiency of energy on both thedemand and supply side of the economy. The Tables 10 and 14 and Chart5 show theratio of final energy to commercial energy over time in the aggregate economy andthe shares of losses due to total conversion, own consumption and T&D losses in the
total primary energy used in the power sector. The major share of the losses and thecosts involved in the energy system in the process of conversion, transport anddelivery of energy has been due to the electricity sector.

However, it is also to be remembered here that decline in the ratio of final
energy to primary energy also indicates conversion of greater share of primary energy
into the forms of electricity and substitution of direct use of primary energy byelectricity and substitution of non-commercial energy by commercial energy.
However, both these substitutions contribute to the higher efficiency of final energy
use depending on the technology and device of energy use in the end use sector. This
warrants that the sustainability analysis needs to be an integrated one of energy supply
and use combined with the choices of technology, devices, pollution removal process
to minimise the integrated social cost of meeting the needs or demand of the ultimate
need of energy services, rather than fuels, for supporting a high or low growth.

Of the total primary energy use in electricity generation, it is in fact a share
68.6% that was lost in the conversion process of gross generation in 2005. The own
power consumption of the electricity plants accounted for a further loss of 6.9% ofgross electricity generated and the transmission and distribution accounted for a lossof 24.8% of electrical energy despatched at busbar in 2005. All these imply as high a32total loss as of 78.5% of primary energy resource before it is actually reaching theconsumer (See Chart 6). This flags the importance of the role of electricity in theenergy sustainability of an economy. While the fuel composition of the final energy ofa non-energy sector is indicative of the cleanliness of energy use, the fuel compositionof the electricity sector is a crucial determinant of the cleanliness and carbon
dependence in the supply side of the energy system of India.

However, the share of coal-the most polluting fuel in electricity generation has
increased over time from 49% in 1971 to 66% in 1990 and 69% in 2005. While theshare of oil in power generation has marginally declined, that of gas has increased
from 0.57% in 1971 to 3.47% in 1990 and 8.94% in 2005 (See Table 13). Among thecarbon free primary resources, while the share of nuclear resource increased
marginally during 1971-2005 from 1.8% to 2.5%, that of hydro declined substantiallyfrom 42.22% in 1971 to 24.7% in 1990 and 14.31% in 2005 (See Table 13). The
Table 16 on the other hand shows the primary fuel composition as an input in theaggregate power generation. The share of hydro resources declined because of thelong gestation and high capital cost on the one hand and the big social and politicalresistance to such project due to environmental problems arising from the dislocationof human settlements and serious biodiversity loss for the submergence of the dam
area. In view of the global politics of nuclear energy and historically India’s nonparticipation in the nuclear non-proliferation treaty agreement has stood in the way ofobtaining any collaboration in nuclear power project. The entire indigenousdevelopment of this technology in power generation, the financial resource limitationof the Indian state as well as the poor quality of uranium resources have constrained
the pace of expansion of nuclear energy. The fuel mix of generation of electric powerin India has thus been largely supply driven. The abundance of coal reserves, thoughof inferior quality, and the accretion of gas reserves over the 35-year period has madethe power generation growingly dependent on these two resources. The electricity has
had a share of 75.5 of all supplies of coal, 44.5 of gas and 6.4% of oil of total primary
supplies.

11(b) Transport Sector
Transport service is a basic infrastructural service which is a universal
necessity and it requires energy as the prime driver for any mode of transport –33

railway, roadway, airways and waterways. It is worth noting a few points of concern
relating to the pattern of growth of India’s transport sector and its energy use. The
GDP elasticities of the freight and the passenger traffic were estimated by the Expert
Committee on the Integrated Energy Policy of the Planning Commission (Planning
Commission 2006a) to be 1.0 and 0.8 respectively implying the requirement of highgrowth of freight and passenger traffic service with high GDP growth. The challengeof environmental sustainability of the growing transport sector has been due to thenon-substitutability of oil in road transport and the growing share of road traffic in the
total traffic in India. The fuel efficiency of rail traffic service is substantially higher
for both passenger and freight traffic. In a case study of comparative modal efficiency
between the road and the rail for selected railway sections and the competing highway
sections for intercity transport of freight and passenger, the present author estimatedthe energy saving to be 89% for every tonne km. freight traffic for rail with electrictraction in plain terrain(New Delhi-Mughalsarai section ) and 83% for rail with diesel
traction in similar terrain ( Lucknow-Gorakhpur section) (Sengupta 2001). For thepassenger traffic in passenger km, the extent of similar savings is 33% for electrictraction and 41% for diesel traction in the same rail-road sections. However, while theper capita passenger transport service and freight traffic intensity of GDP havesubstantively increased over time , unfortunately the share of the relatively
unsustainable mode of road transport increased in passenger traffic from 64% in
1971-72 to 87% in 2006-07 and that in freight traffic increased from 31% in 1971-72
to 62% in 2006-07. This has caused serious pressure on oil demand resulting in boththe problem of energy security and environmental pollution.

Urban transport, on the other hand, is the single largest source of urban air
pollution in India causing substantive health damage from the emissions of CO, HC,
NOX and PM10 , the latter having the most damaging effect in value terms . Withhigh economic growth, industrialisation, urbanisation and motorisation of theeconomy, some cities in India are experiencing explosive growth in private
automobile ownership resulting in rise in the share of the private transport in the total
urban passenger traffic. The oil usage and road space requirement per passenger km
being lower for public transport because of the higher passenger-loading factor, thesubstitution of the private transport by public transport can substantively reduce thepressure on oil consumption and emissions. The recent growth of India’s middle class34

due to rising urban income and educational opportunities and decision of thegovernment to expand the highways would tend to push the road passenger traffic andthe share of private transport to be higher implying higher environmental pressure andhigher health cost due to automotive pollution. Sengupta and Mandal 2005 estimatedthe saving of health cost for 35 urban agglomerations to be substantive for the upgradation of the quality of motor gasoline and HSD undertaking appropriate
investment for refinery up-gradation. The study used the health cost parameters fromthe study of Delucchi for US cities ( Delucchi 2000 and Delucchi et al 1999) withappropriate adjustments for population density, income and purchasing power parity
for the Indian condition. Since automotive pollution is the single largest source ofurban air pollution, the findings of Murty and Gulati 2004 which estimated thebenefit of reduced air pollution in terms of willingness to pay, using a generalised
method of hedonic property prices as well as hedonic travel cost, are also significant
for being noted in this context. All such studies have warranted the raising of theshare of the railway in particularly the freight traffic, the share of public transport inurban traffic, the quality of fuel and the standards of vehicular emissions for theenvironmental sustainability of transport development.

12. Delinking Economic Growth and Growth of Energy Consumption.
The empirical theory of the Environmental Kuznet’s Curve (Sander et al 1999)
expects that with growth in per capita income, the energy intensity of production andthe pollution intensity of energy will increase initially and decline beyond a stage ofdevelopment. It is expected that in the initial phase of industrialisation anddevelopment of infrastructure, the sectoral share of GDP will change in favour of theindustries with higher energy and pollution intensity. However, the sectoral share of
the service sector which is less energy and pollution intensive increases at the expenseof the industrial sector beyond a threshold of development in terms of per capita
income. This can be explained in terms of changes in the pattern of demand for goods
and services as indicated by the behaviour of their income elasticities. Again, with therise in per capita income, the preference of the people for environmental services vis-a–vis other goods and services rises and gets reflected in the higher environmental
standards of the economy which would induce reduction in the pollution intensity ofenergy and the products . The financial affordability of the people to invest for thedevelopment of cleaner fuels and technology and in R& D also rises with the rise in35the rate of savings at higher per capita income. The costs of new technology also
decline due to the higher R&D efforts in terms of investment and its rate of success at
such stage of development. However, the level of per capita income or the stage of thedevelopment in terms of such maturity at which the downturn in energy or pollution
intensity curve is anticipated to take place varies from economy to economy
dependant on the government policies and institutions. We digress to a decomposition
analysis of the overall energy and pollution intensity of GDP of the Indian economy
to analyse the respective roles of structural change and technological progress in thelink between growth and energy related environmental pressure.

13. Decomposition Analysis of Energy Use and Emissions.
13(a). Decomposition of Energy Use
As the environmental pressure created by energy depends on the absoluteamounts of energy used and the pollution load generated , a common method ofsustainability analysis of macroeconomic growth has been that of decomposition ofsuch absolute totals by their drivers using the following identity (Ang 1999).The totalenergy (E) and any pollutant emissions like CO2 at the aggregate economy level canbe decomposed as the product of population (P), per capita GDP (y), energy intensity(e), and CO2 or any other pollution intensity of energy (a)E =P*y*e
CO2=E*c
Again, e and c can be decomposed as follows:e = ∑ ei y i , where ei and yi are energy intensity and sectoral share in GDP of sector i.
ic = ∑ f j c j , where cj and fj are carbon intensity of energy and share of fuel j injenergy at aggregate economy level.

c = ∑ ei (∑ f ji c j ) y i , where fji is the share of fuel j in a unit of energy used by sectoriji. or equivalentlyc = ∑ c j (∑ f ji ei y i ) .
ji

In continuous time, the rate of growth of CO2 will thus be the sum of the rates ofgrowth of population, per capita GDP , energy intensity and CO2 intensity of energy.
While the growth of population and y together provide the effects of change of scale36

of the economy on the energy and the environmental pollution, the change in energy
intensity of GDP is driven by the structural effect due to the change in the sectoralcomposition of GDP as well as that of technological change represented by thechanges in sectoral energy intensities.

As pollution is a by -product of output or GDP at macro level, depending
mainly on the fuel and the associated technology used, one can similarly decompose
the effects of change of carbon intensity of energy into the fuel composition effect andthe carbon or pollution intensity effect of the individual fuels. The carbon intensity ofa given fuel (though largely stable) may change because of the change in its internal
quality composition, or due to the statistical errors in the compilation of data. Thus
while the change in the aggregate energy intensity is the effect of structural change ofthe economy and that of energy conserving technical change, the overall carbon
intensity of energy is mainly the effect of fuel composition and fuel quality. We may
refer to the following identities for such decomposition of energy intensity and CO2
intensity.

However, as the energy intensity of a sector depends on the fuel composition
itself along with technology and the carbon intensities of individual fuels aresupposed to be stable over time unless the quality of the fuels changes significantly, it
is worth focussing on the decomposition of the changes of the energy intensity for theaggregate primary and final energy forms into the structural effect and thetechnological effect and estimation of the changes in the carbon intensity of energy
due to fuel composition .

In the development process of India, the primary energy intensity of GDP had
increased by 20.2% over a 19-year pre-reform period, while it declined by 28.8% overthe 15 year post reform period. (These are implicit in the data as per the results of theDivisia Method of Decomposition Analysis (Ang 1999), the structural change pushed
up the primary energy intensity as implicit in Table 20 at an annual rate of 0.8% andthe energy intensity had increased only at the annual rate of 0.18% during the prereform period. In the post reform period, the structural adjustment caused little change
in energy intensity contributing only an annual increase of 0.04% per annum on thisaccount. On the other hand, the technological changes brought about by the increased37industrial competitiveness and the inflow of foreign investment and technology due toliberalisation contributed to the decline of energy intensity at the rate of 2.3% perannum as implicit in Table 20.

In this decomposition analysis the primary energy intensity of a given end use
sector was based on the direct use and the share of indirect use of primary energy
resources through its power consumption, electricity having 55% share of the total
primary energy use in the economy. The results of the decomposition analysis of thetotal primary and the fuel wise final energy use by the non- energy sector of an
economy, on the other hand, as presented in Table 20 and 21, show quite clearly thatthe structural changes effect contributed to the rise of the final energy intensity of
GDP in both the pre-reform and the post-reform period, except for electricity.
However, the upward structural effect has been moderated in the post-reform period.
In the case of electricity, the structural effect reduced the electrical energy intensity ofGDP. The technological effect of fuel substitution and energy conservation on theother hand, contributed to the reduction of the energy intensity for the direct use ofcoal, oil and total final energy, while the similar contribution of electricity has beenmoderate comparatively. In the pre-reform period, the technological effect had raised
the electricity intensity of the over all GDP substantively simply because electricity
was penetrating the economy and replacing coal and oil in many areas of production
during this period. The moderate decline of the electrical energy intensity due to thetechnological adjustment effect in the post reform period also reflects the fuelsubstitution of other forms of energy by electricity and the extension of the area of useof energy service by electricity as a continuing process although the greater
marketisation and integration with the global markets induced material and energy
efficiency for cost competitiveness.

13(b). Decomposition of Pollution Intensity of Energy

The changes in the overall intensity of any pollutant due to primarily changes
in fuel composition have been of much smaller order as compared to the variation inenergy intensity. The CO2 intensity of primary energy in power sector, for example,
increased substantially during the pre-reform period while the same effect of rise wasmuch more moderate during the post reform period.(See Table 22).For the aggregate38economy, there has been little change in the over all CO2 intensity of energy during
the entire period 1970 to 2005 although the total effect of CO2 intensity was on therise in the CO2 in the pre-reform period because of the substantial substitution of the
non-commercial energy by the commercial energy and particularly the penetration ofelectricity into the economy.

14. Energy – Environment – Economy Modelling

There has been substantive work done on the analysis of sustainability of theenvironment –energy-economy interaction in the Indian context. Such work based onmathematical modelling of sustainable choice for energy use in the dynamic context
of a growing developing economy has been mostly application of modelling
framework developed for assessing the environmental and economic impact of
economic growth and mitigation of greenhouse gas emissions in the context ofclimate change. The dynamic multisectoral global models of resource allocation
developed for the purpose of simulating different scenarios for the alternative energy
policy interventions for environmental control, were adapted for country level energy
policy analysis for India for the attainability of environmental sustainability. There
have been two classes of such models for country level application as for India –thetop down and the bottom up model (Garg et al 2001 ). The top down models are
essentially computible dynamic general equilibrium models based on market
optimism of rational allocation of resources, generating a reference energy-emission
scenario following the Business As Usual path and then examining alternative policy
interventions for greater efficiency on the demand and the supply side of energy
markets for reducing the burden of environmental stress relative to growth. Such top
down models those of second generation models (Edmonds et al 1993, Crassous et al2006) assume that the energy and other prices would drive the substitution of one fuelwith the others and that between energy and capital leading to the optimal choice ofdevices and processes through efficient functioning of the market. This has warrantedsuch level of aggregation of sectors, goods and processes that the models do not enter
into the details of choice of end use devices to meet the demand for the energy service
for any end use sector.

The bottom up models on the other hand like Markal or AIM / END USE
models (Fishbone et al 1981, Kainuma et al 2003) on the other hand focus on the39

optimisation of the energy flow from the extraction of energy resource to the final useof energy service including the conversion and the transportation of energy at thedifferent stages of its transformation till the disposal of the residual waste andpollution abatement removal process with a view to minimise the total discounted costof meeting the demand of each type of energy service for the different sectors.

While the top down models endogenise the feedback effects of the energy andthe macroeconomic sectors on each other to generate the long run scenarios , thebottom up models are demand driven where the macro economic factors likeeconomic growth, population, structural change , trade pattern and institutional factors,
and government policies are exogenously given for the simulation of each policy
scenario. However, the Markal model formulation as widely used does not enter into
the details of choices of end use device and technology processes for a given end use
sector while optimising the energy flow in the reference energy –economy system.
The AIM/ END USE type model on the other hand is based on technologicaloptimism as it presumes the existence of an efficiency gap in a market driven technoeconomic system and enters into the details of choices for any given end use sector
from among the alternative types of fuel use , devices, and technologies including
those of associated pollution abatement. These models are essentially developed in apartial equilibrium framework and do not consider the feedback effects of choices offuel-mix and energy use on the macroeconomy through their impact on costs andprices. This class of energy-environment-economy models formulated at country level
initially focussed on the pollutions having global externalities only. However, thesemodels have been used later to examine the impact of alternative macroeconomic
growth and policy scenarios for local emissions too.

15. Application of Models for the Future Energy Scenarios of India

There have been several applications of the Markal and the AIM/End Usemodel framework separately or in an integrated way within soft link between them to
examine the future GHG and local emissions for the alternative growth and the CO2and SO2 emission mitigation scenarios (Garg et al 2001, Pandey et al. 2003).
AIM/End Use Model also has been extensively used to examine the spatial
distribution of pollution arising between the large point sources and the area sources
40

(Kapshe et al 2003). As per such studies, as 60% of CO2 and SO2 emissions would
arise from the industrial and urban centres, power plants which have become hot spotsof pollution due to unbalanced regional development induced by the acceleration of
growth of the Indian economy and uneven geographic distribution of energy resources.
On the other hand, Garg, et al 2003b also generated the projections of methane andNO2 emissions arising mostly from the activities relating to agriculture and livestock
which are widely dispersed spatially for a reference and alternative mitigation
scenarios to evaluate them for policy purpose. The Markal model along with the
AIM/End Use model as soft linked has also been used to assess the mitigation
potential of renewable energy technologies for the Indian power sector (Ghosh et al2002) and to explain the extent of co-benefits of CO2 and SO2 mitigation policies inIndia (Pandey and Shukla 2003).

There have also been applications of a dynamic recursive general equilibrium
models like IMACLIM-R in Indian context to examine the global and local
environmental effects of high growth and of alternative emission abatement policies
taking account of their macroeconomic feedback in equilibrium. Shalizi (2007) uses
the result of such model to examine the feasibility and optimality of the extent of
decoupling the link between growth of GDP and energy and that between growth ofenergy and emission in the context of high growth of India and China taking into
account the feedback effects on the macro economy.

16. The Projections of Energy Requirement by the Expert Committee on
Integrated Energy Policy of the Planning Commission
The long term projections of energy requirement of an economy is based on acomplex set of factors comprising the future rate of growth of GDP, change insectoral structure of the economy, population growth, growth of urbanisation andtransport infrastructure, the pace of replacement of non commercial energy bycommercial energy, the pace of energy conservation through improved efficiency andthe change in fuel mix. The Expert Committee of the Planning Commission on the
Integrated Energy Policy (Planning Commission 2006a) has provided the projectionof the total energy requirement for an inclusive growth of the Indian economy at the
GDP growth rate of both 8% and 9%, assuming some normative GDP elasticity of thetotal primary commercial energy requirements which is alternatively taken to be41

constant and falling over time. As per the falling elasticities, the report has indicated aconsistent set of projections of the total gross electricity generation and capacity
requirements, fuel/technology wise generation mix, energy resource needs for power ,direct non-power requirement of coal, oil and natural gas, household’s requirement ofbiomass fuels and finally arrive at the projections of requirements of total primaryenergy resources, total primary commercial energy resources and non-commercial
energy resources with fuel wise break-up. A summary version of these projections
with mostly 9% GDP growth and falling aggregate GDP elasticities of total primarycommercial energy resources and that of electricity are given in Tables 27-29 which
are of environmental significance (See also Charts 10 – 12). While interpreting thenumbers, one has to remember that the fuel mix for power generation underlying the
projections of Table 28-30 is based on one possible scenario which is consistent withmeeting the peak load and energy requirement of electricity for 9% GDP growth. The
choice of fuel mix for electricity generation (Table 29) is not to be interpreted as thepreferred scenario of the Expert Committee or the Planning Commission as it is not aleast social cost dynamic model based solution for the choice of fuel and technology
mix. These projections imply the comparative shares of the individual fuels and theirchange from the base year data as indicated in Table 27-29 and Charts 10 -12.

As per the projection of energy requirement by the Expert Committee, thefossil fuel, and particularly coal, will remain the dominant primary energy resource
for India over the time horizon upto 2031-32. The share of coal declines from 54.9%
in 2005 to 50.4% which is not at all a major fuel switch over more than 25 year
horizon. The fossil fuel share is shown at almost 95% of the total primary commercial
energy in 2031-32. However the share of traditional biomass energy resources is
projected to go down to 9.1% from the present approximate share of 30%. While theshare of hydro in the total primary commercial energy resource as well as inelectricity generation would go down over time , the shares of nuclear and natural gas
are required to grow respectively from 1.2% and 7.6% to 5.3% and 12.9% of the total
supply of primary commercial energy resources over the planning horizon up to 203132. Their respective shares in electricity generation would also have also to movecorrespondingly. This implies the possibility of no significant delinking between thegrowth of GDP and that of energy, and the rigidity of fuel mix not permitting
significant decarbonisation. The committee in fact used the results of a multiperiod,42multisector linear programming model of cost optimisation to simulate alternative
energy supply scenarios given the potential availability of energy resources and of thespectrum of technologies over the planning horizon up to 2031-32. As electricity uses
more than fifty percent of the primary commercial energy resources and offers
substantive scope of fuel substitution, and also as the transport sector is the dominantconsumer of oil and a major source of urban pollution, the model was used to solve
for the least cost fuel and technology choice for a number of alternative policy options.
These options are designed to reduce the adverse environmental externalities inalternative ways while meeting the given requirements of energy services in the
different sectors of the economy and keeping in view such sector specific issues.
These scenarios were designed to generate the extreme points of feasible solutions ofsupply and use of various energy resources (Planning Commission 2006a).

If there is no other compulsion and no costs of externalities are considered ,the coal based development of the energy sector was found to be the least cost option
for supporting the targeted growth as per the results. However, the concern for
weakening the link between the growth of GDP and the energy use and that between
the energy use and the pollution arising induced the consideration of the options offorcing full development of hydro, maximisation of use of nuclear potential, the useof gas to generate 16% of electrical energy (where natural gas is supplemented bycoal bed methane and in –situ coal gasification ), demand side management to reduce
electricity demand by 15% , the attainment of higher conversion efficiency of thermal
power generation to 38-40% from the pre-existing level of 36% for 500 MWE plants,rise of railways’ share in freight traffic from 32% to 50%, increase of fuel efficiency
of motor vehicles by 50%, and forced utilisation of the renewable potentials to theextent of 3000 MW of wind power, 10,000 MW of solar power, 50,000 MW of
biomass power, 10 Mt of bio-diesel, and 5 mt of ethanol by 2031-32. The extreme
points were generated by certain combinations of these options in policy space andgiven in the report. It is one of the extreme point solution which forces the maximum
use of the nuclear potential, the entire domestic hydro potential of 1,50,000MW andthe use of gas for 16% of gross power generation (i.e., maximum use of the potentialof conventional commercial carbon free and gas resources ) which generated thesolution and provides the basis of energy requirement calculation in the long run as
mainly highlighted in the report. There has also been an extreme point solution which43is based on the consideration of all the policy options together to make a maximum
use of all the potential of clean energy resources in power generation including
renewables and that of the potential of demand side management, including that of thetransport sector. Table 30 provides the comparative solution of the three scenarios ofcoal based development, maximisation of potential conventional clean resources andthe most environmentally clean policy option although for 8% rate of growth (SeeChart 13). However, as neither the full social cost of supply has been considered tointernalise the costs of environmental externalities nor the issues of energy poverty
and energy security have any weight in the formulation of the model and generationof scenarios, as described in the report , they cannot be characterised as the social
welfare maximising solution. However, they all provide good basis for evaluation ofalternative policies for environmental control.

It is important to notice that the dependence of India on coal in 2031-32 willremain 51% in electricity generation and have a share of over 41% in the total
primary energy mix even as per the best environmental scenario among the options ,as indicated in Table 30. The gas resource is to be used only for peaking power evenwhen it is forced as an option. The capacity utilisation of hydro power is found to be
low because of the low availability of water resources. However, the total energy needas per the best option economises the requirement of the total primary energy
resources by 21%, demand for primary commercial energy by 19% and that of coaland oil by 38% and 28% respectively in 2031-32 vis-à-vis the coal dominant option.
The CO2 emission is correspondingly expected to go down by 35% in the terminal
year. The CO2 emission is projected to grow from the current level of 1 billion tonne
per year to 5.5 billion tonne as per the high coal development scenario and 3.9 billion
tonne as per the most environmentally conserving scenario. Even with all theseenergy sector developments, India’s per capita carbon emission would be in the rangeof 2.6 to 3.6 tonnes of CO2 while the same for the US and the World on the averagehas been 20 tonnes and 4.5 tonnes respectively in 2004.

Among the various policy options for environmental sustainability, various
studies have shown that the demand side management for efficiency improvements
are economically the most attractive option (Garg et al 2003a). The fuel switching forthe changes of energy mix pose greater challenges. The hydropower development
44

would require the resolution of problems relating to water rights, resettlement andrehabilitation of the people affected by the project and environmental degradation of
the kind discussed in an earlier section. Similarly nuclear energy maximisation
requiring thorium requires the success of materialisation of import like LWRs as theplutonium recovered from the process can be used in the fast breeder reactor alongwith the plutonium of PHWR reactors using indigenous uranium. This successdepends on the removal of the political constraint of sanction on India by the Nuclear
Suppliers’ Group for the supply of uranium and nuclear power plant. The
competitiveness of gas for justifying 16% share depends again on the price of gas
being less than U$ 2.27 per MMBtu (i.e. equivalent to $ 45 per tonne of competing
imported coal ). The high cost option of the non-conventional renewables would notprovide more than 5.6% of the total primary energy requirement even with the
maximum mobilisation of these resources with an appropriate policy support. This isof course in tune with the worldwide projections of the share. For any gap in meetingany of these challenges posed by resource switching, the shortfall of the consequent
energy supply will have to be met by coal for ensuring the high growth. (Planning
Commission 2006a)

17. Future Projection of the Energy Requirement of the Household sector

So far as the household sector is concerned the Expert Committee of the
Planning Commission projected the requirements of the sectors with fuel-wise breakup – commercial and noncommercial- for the growing household expenditure in the
future upto 2031-32 horizon. It made these projections using the proportion of
spending on the total energy and the individual fuels as obtained from the data of the
NSS 55th round of 1999-2000 (NSSO 2001) and assuming a log normal distribution ofmonthly consumption expenditure for the rural and the urban sector which would beconsistent with the mean household expenditure for 8% and 9% GDP growth rate andthe targets of reduction of poverty and of the rural- urban gap. In view of the
independent target of providing electricity to all by 2009-10, as a part of inclusive
growth, the impact of the Rajeev Gandhi Viduytikaran Yojana (RGGVY) for the
purpose was taken into account in demand assessment for the years beyond 2010, by
using the energy consumption pattern of only those households which hadconnectivity with electric power in the NSSO 55th round sample, for all in therespective income classes. The projection presumes that the released kerosene for45

lighting due to electrification of homes will be used for cooking by the household inorder to climb upwards along the energy ladder. Table 31 shows the projected demandfor energy items by the households assuming the provision of electricity to all by
2009-10.

Table 31 clearly shows a decline in the share of biomass fuel source to decline
from 81.24 % in 2000 to estimated figures of 61.64% in 2011-12, 52.07% in 2021-22
and 47.7% in 2031-32. What is thus important to notice is that the relatively lower
income-earning households will have to depend in a significant way on biomass fortheir energy need in spite of 9% growth and thrust on inclusiveness. This implies thatthe energy poverty cannot be fully removed even over the time horizon 2031-32 andthere will be considerable continued pressure on Indian forests since the absolute
quantity of fuel wood required is projected to increase at the annual rate of 0.8% perannum.

In order to reduce the degradation of forests due to the growth of absolute
requirement of biomass for the households , and to protect the health of women andchildren, special policy initiatives are required for the further improvement of thecooking appliances including chullahs, solar cooker, pressure cooker, etc and biomass
based modern energy development for higher efficiency of fuel use and abatement ofpollution. There is also the requirement of further commercialization and market
development for fuel wood subject to the environmental regulation in order to reducethe collection time. Even on the basis of such optimistic scenario of growth andelectrification, the climbing along the energy ladder for a majority of rural population
would be slow in India. As a result a more proactive policy thrust than the BAU trend
in policies is imperative to ensure that electricity can meet the lighting need and theadverse externalities and user’s cost of biomass fuel are at least further reduced thanwhat the projections of the Expert Committee would imply.
18. Energy Transition and the Role of Decentralised Development of New Energy
Technologies

In this context of removal of energy poverty in rural India, one may also
consider an alternative strategy of decentralised energy development which combines
the attack on income poverty and low quality of life of the rural people with the46

development of energy supply like biogas plants which produce power and slurry for
fertilizers together . Any decentralized development of energy like biogas based
power can in fact empower the local people by providing access to electricity which
can augment the water supply for irrigation as well as for the household, and at thesame time supply organic fertiliser for agriculture ( Reddy et al 1991b for Case
analysis of Pura Village triumphing over the tragedy of commons). Besides, thedecentralized power development can reduce the overall T&D loss and T&D
investment. Such decentralized energy and power development using nonconventional resources is of very high order of significance in the villages –particularly those located in remote areas for removing the energy poverty and theincome poverty at the same time.

One may refer here to the Development Focussed –End Use oriented Service
Directed (DEFENDUS, Reddy et al 1991a) paradigm of energy planning which
focuses on combining the objectives of removing income poverty with that of energy
poverty by appropriate combination of the improvement of demand side efficiency
and the choice of such supply side options, particularly the ones like biogas plant
which can generate important dynamic externalities of an income and employment
generation in the local rural economy through its livestock-biomass-power-waterlinkages. Some policy support may however be required for such decentralised energy
development in order to internalise these dynamic externalities.

19. Energy Security and Macro Economic Feedback of the Energy development

There are a few other concerns relating to energy security and feedback of theenergy sector development on the macro economy that deserve mention here. As
India’s oil reserve accretion has slowed down and the crude oil production has
stagnated, the demand supply gap has already been widening for oil over the last
decade. For high growth at 8%, India will have to import in the range of 315 to 451
million tonnes of oil which would be in the range of 90-93% of oil requirement in
2031-32 as per the Expert Committee Report (Planning Commission 2006a). In viewof the low quality of coal and rigidities in mining capacity expansion for various
environmental and technological difficulties arising from the location and geologicalcomplexity of the resource deposits, there is likely to be an import dependence47

ranging from 11 to 45% of its requirement in 2031-32 for the various policy options
considered for the energy sector development as mentioned.

Will the high dependence on the import of oil affect the economic
sustainability of 8-9% of GDP growth of India in the longrun time frame particularly
in view of the sustained global oil price increase since 2002? It is a fact that the
recent growth of the incremental global energy use in China and India accounts for a
substantial part of (40% to 50%) of incremental global energy use, but their level ofoil use still accounts for only 9-12% of global oil use. The growth of the aggregate oil
use has not been too dramatic in these years because the increased energy use of
China and India has been partly offset by the deceleration in the use of oil in the
traditionally oil dependent industrialised countries (Shalizi 2007). The steadysustained rise in oil prices is explained by the net growth of demand as combined with
the inelasticity of global supply due to the declining spare capacity of the OPEC
production, geopolitical uncertainties associated with the supplies from Iraq, Nigeria,
and Venezuela and the under-investment all along the supply chain including refineryetc. However, it is also to be noted that the recent hike in oil price has not affected thegrowth of either India or China, as the energy sector and the energy cost constitute a
small fraction, although critical, of the aggregate economy and of the value of thegross national output respectively. Since energy is a complementary input with capitaland material, what matters about GDP growth is the elasticity of availability inresponse to demand in the global market rather than the price unless it is a case of
spike of oil price, resulting in a sharp rise in the ratio of energy cost to the value of
output. It is therefore more a challenge of energy security that such high growth of oil
price poses for India. This requires the adoption of appropriate strategies for theenhancement of exploration activities in hydrocarbons within the country and forequity investment in oil abroad through joint venture.

So far as coal is concerned , the failure to improve the efficiency of coal
thermal plants , DSM and carbon free technology may substantially raise the importdependence for coal raising the share of India’s import in the world trade of coal to ashigh as 75%. This may have serious effect on international coal prices (Planning
Commission 2006a).

48

However, the various policy options for environmental sustainability ofIndia’s high growth would not only result in higher total long run energy cost of
growth, but would also require higher investment. The energy policy document
projects a requirement of Rs.60 trillion for the electricity sub-sector, and Rs100-110
trillion for the entire energy sector in 2005 prices over the time horizon upto 2031-32(Planning Commission 2006a). It is however possible to finance such capital
investment over the time horizon with appropriate private –public partnership in asituation of high economic growth which should by itself be able to generatesufficient savings and financial resources. However, this requires that the energy
prices are rationalised and energy market reforms create conditions which provide
adequate incentive for investors to invest in energy conserving and energy supplying
technologies in a competitive environment while at the same time protect the interestof the consumers –particularly the households of this basic necessity.

There still remains one macro level concern regarding the feedback effect of
the growth of energy sector on the macro economy. Of the different policy options for
reducing environmental stress, the cheapest ones in terms of cost and capital intensity
have been found in several studies to be the measures of demand side efficiency inenergy use followed by the supply side efficiency improvement and the up-gradationof electricity transmission and distribution in the order of marginal cost per unit ofenergy capacity saved or conserved and per unit of carbon emission mitigated for thesame GDP growth profile. The introduction of renewable technology or fuelswitching from coal to renewables or to gas obtained from in- situ gasification etc.
would be the highest cost option. The potentials in terms of quantum of mitigation ofemission are also higher for the reduction of carbon or other types of pollution
intensity of energy for the cheaper options (Garg et al 2003a). However, theenvironmental sustainability of high GDP growth may require a range of measures onboth the demand side and the supply side to be combined to take care of the absoluteburden of environmental stress on the concerned ecosystem. This may make the orderof investment requirement large enough to crowd out some investment in othersectors if there is no additional capital inflow from the rest of the world to the Indian
financial market causing a rise in interest rate. Such crowding out of investment may
result in an adverse impact on GDP at least in the medium run transition period oftechnological restructuring of the energy sector due to the rise in the value of the49

marginal capital -output ratio. The macroeconomic feedback effect is thus sensitive tothe share of the high cost options like fuel switching in the total mitigation ofemissions.

There arises the question here whether a developing country like India withhigh substantive burden of poverty should delay the introduction of high costalternatives to fossil fuel technology till the additional technological innovations
through R&D reduce such costs. However, delaying such implementation of newtechnologies would save money now but would end up with a larger energy sector
requiring larger investment for fuel switch in future due to the scale effect of
requirement. The simulations of IMACLIM- R (Shalizi 2007) addressing this issue
give the result that the net benefit /cost ratio would be lower for delayed
implementation of new technologies as the loss of environmental benefits of earlier
implementation is not compensated by the cost economy of delayed implementation
at later period for a growing energy system supporting the high growth trajectory .
This justifies the early adoption of new technologies by the developing economies
like India as the short run losses would be more than compensated in the long-run in a
growing economic system.

20. Energy Pricing and Institutions

The challenge of high growth with environmental sustainability would requireappropriate institutional arrangement so that investible resources of the economy are
rationally allocated for the purpose. The creation of appropriate incentives forinvestment for energy capacity expansion, energy conservation and fuel substitution
for cleaner energy would require both rationalisation of energy prices and institutional
reforms. Although the real price indices for electricity and petroleum products havebeen rising since mid-nineties after the introduction of economic reforms, such risehas been lower than the increase in real global oil prices in terms of India’spurchasing power (See Table 8 and 32 together). India being a net importer of energy,
mainly in the form of oil, this has resulted in inadequate cost recovery in energy
industry. This problem would be pressing for the urgency of price and institutional
reform in the interest of growth of the energy industry to meet the challenge ofinclusive growth and energy poverty removal.
50

20(a). Petroleum Products.

For the petroleum products, the Government of India has already dismantled
the administered pricing arrangement. The prices of all petroleum products as oftoday are fixed in principle on import-parity basis and therefore driven by the global
market forces excepting for kerosene and LPG. For these two products the subsidies
are also supposed to be phased out over time. While the share of government taxes
and duties in the final price paid by the consumers in India is about 50% in the case of
petrol, and 32% in the case of diesel, the major part of the total subsidy given to theconsumers of kerosene and LPG is being borne by the oil companies in the form ofunder recoveries. This raises an issue of financial sustainability of such uncovered
subsidies, which would constrain the internal resource generation for the expansion of
the oil sector. Given the pattern of energy consumption of the different income classes,
the removal of LPG subsidy has been shown not to affect adversely the people of thelower income classes, while the same for the kerosene would have some adverse
effect on the poor (Gangopadhyay, Ramaswamy and Wadhwa 2004).

20(b). Electricity

While the power sector faces the big challenge of growth of about 8.5% perannum over the eleventh plan, the sector faces serious problem of financial viability
due to the subsidized prices for the agricultural and domestic sector resulting insubstantial overall under-recoveries of costs to the extent of 30-38% by the stateutilities (Sengupta et al 2007). Table 33 shows the sector-wise subsidisation throughprices indicative of the distortion in the Indian energy market. However the electricity
reforms process, which was initiated during the Eighth Plan period, is yet to becomplete to produce satisfactory results. The reforms process consisted of unbundlingthe earlier vertically integrated state utilities, establishing independent regulatory
regimes at the state level as well as at the centre, introducing financial discipline byrestructuring the prices, increased private participation and competition in generationand distribution of power. As power is a subject in the concurrent list of the Indian
constitution for jurisdiction, the progress of pricing and institutional reforms is widely
varying across the states.

51

As there is an absurdly high rate of subsidization of agricultural consumers to
the extent of 89% as per the latest available data, such low prices have mainly resulted
in the wasteful use of ground water, which is a critical and scarce resource in manystates of India and in the wasteful use of chemical fertilizers causing water pollution
as well. The chemical fertilizers are substantively washed away along with run off
water, the latter being treated as free good due to low energy prices. While theaccelerated growth of agriculture would require more of water, fertilizer and electricalenergy on a macro scale, there is substantive scope of economizing their use at micro
scale per unit of gross crapped area for any given crop. Besides, the benefit of energy
and fertilizer subsidies is mostly appropriated by the well-offs of the rural sector who
are already included and not excluded in the development process.

So far as the electricity tariff for the domestic sector is concerned, the problem
can be resolved by charging life line rates for the basic lighting need of the poor
households and the progressive tariffs for consumption levels in excess of the basic
needs (Barnes and Toman 2006). It is a problem of political will in India to enforce
such rationalization in pricing which is needed to resolve the highly solvable problem.

In the context of rationalization of prices , an IEA study (International Energy
Agency 2001) attempted to quantify the size of electricity subsidy in terms of price –cost gap analysis and the potential impact of the removal of such subsidy onelectricity consumption and CO2 emissions. The IEA used a price elasticity ofdemand of -0.75 for all the power consuming sectors and obtained the result that the
total electricity demand and CO2 emission would fall by 40% assuming the constancyof the heat rate of all coal thermal plant even at lower scale of operation. The
rationalisation of prices is thus important not only for attracting investment but also
for immediately reducing the environmental pressure.

21. Summary and Conclusion

The sustainable energy planning for high inclusive growth has thus to address
the following challenges:

52

(a) To meet the substantially growing requirement of end use needs of energy
services of all the producing sectors, by both conserving energy use andsupplying additional energy through creation of new capacity at least cost.
(b) To remove energy poverty of all households by supplying modern clean
energy services within a time horizon.
(c) To combine energy security with environmental sustainability of the economy
in its choice of mix of primary energy resources to mitigate the adverse
macroeconomic impact of the rise of world oil prices of the recent years.
(d) To reduce the local and global externalities due to pollution and environmental
degradation arising from the use of the energy resource in its entire life cycle.
The energy security issue arises essentially from the imbalance of resource flow
between the nature and the economy because of the use of exhaustible energy
resources exceeding the rate of human discovery of more deposits of the same or ofan alternative renewable energy resource, the monopoly control of ownership ofenergy reserves and geopolitics. The problem of environmental pollution arises fromthe waste flow due to the material balance principle and the Entropy Law.
Environmental sustainability of energy use and supply is crucial for taking care of thelocal as well as the global externalities from such pollution arising. The local
externalities have their main impact in the form of adverse health effect, while theregional and the global externalities which are mostly reciprocal in nature have theireffects in the form of destruction of primary productivity of the ecosystem andclimate change. As the health attainment is a crucial determinant of human capability
and as the modern electric lighting service is a crucial facilitator for education andlearning, clean supply of modern energy service is a major factor behind the growthof human capital which is the key driver of high economic growth as well as humandevelopment. Climate change is also of considerable importance for India because of
the factors of uncertainty over its long run economic effects and asset losses due tothe possible sea level rise. It is important to explore the policy linkages between thecontrol of GHG emissions and those of local emissions , as developing countries may
give higher priority to the current equity issues connected with energy use in the formof freedom of the people to breathe clean air, use clean energy and achieve highhealth attainment compared to those issues relating to climate change in future forquite understandable reasons.

53

So far as the methodology of energy planning for the development of futureenergy system and energy policy is concerned, use of both top down and bottom up
approach of modelling has been found useful for getting answers to different sets ofquestions regarding sustainable energy development. The top down models of generalequilibrium are useful to get answers of macro-level questions relating to interdependence between macro-economic growth and energy use , while the bottom up
partial equilibrium model approach is useful for the analysis of the choice of device or
technology of energy use of the various sectors including energy appliances, fuel etc.
and of the choice of fuel mix and technology of energy supply. Energy planning andpolicies are often based on the comparison of results of various scenarios simulatedby different assumptions of policy initiatives giving alternative environmental impacts.

In most of such studies, the environmental effect modules are soft linked, theimpacts are assessed often partly or mostly in physical units and partly in monetised
unit to the extent possible. As the reliable estimation of fully integrated social costinternalising the monetised values of all kinds of pollution externalities is difficult, it
is advisable to use the hybrid results of physical and monetary values of impact as abasis of sustainable energy planning and policy.

The use of least cost optimisation (mostly linear programming) model forenergy use and energy supply provided simulation results for different future energyenvironment scenarios for India as carried out by various scholars, international
agencies like the World Bank, and the Planning Commission of the Government ofIndia. As per the results the official studies of the Planning Commission for a highannual GDP growth rate of 8 to 9% India would require its consumption of the
primary commercial energy resources to grow at the annual rate of 6-6.4% with animplicit GDP elasticity in the range of 0.7 to 0.75, the elasticity declining with higher
growth. This has presumed the maximum use of potential of hydro, nuclear and gas
resources. However, coal remains the cheapest option for the long run requirement ofgrowth of energy by augmenting energy capacity in the supply side without any suchpolicy forcing of fuel option. There is a CO2 mitigation potential of 35% in 2031-32
of vis-à-vis coal dominated least cost option by the combination of efficiency

54

improvement on demand side and supply side and by change in fuel mix and energy
supply technologies.

Several studies have the convergent finding that for reducing the energy
requirement and mitigation of CO2 , demand side management is the cheapest option
in India , followed by supply side efficiency improvement in coal thermal plants ,strengthening T& D system to reduce losses and lastly changing fuel mix by non
conventional technologies of new renewables and /or in –situ coal gasification orliquefaction in the order of marginal cost. India has in fact already achieved
substantive reduction in energy intensity of GDP over time particularly after the
introduction of economic reform in 1991. The reduction in carbon intensity of energy
has also taken place at macro level but of much smaller order. The higher cost of
reduction of carbon intensity of energy than the energy intensity of GDP rationalises
the relative extent of variation.

While the investment requirement for the maximum reduction of pollution
using the various options is considerable, it would be affordable with appropriate
private – public partnership and additionally by an inflow of foreign savings in casethe energy sector development tends to crowd out investment without such flow. As
the rate of return in energy development with renewables and non-hydrocarbons
would be lower, their enforcement through policy support may crowd out otherrelatively profitable investments resulting in net GDP loss.

However, with rise in the savings rate , high receipt of foreign remittance, andincreased earning from export of IT services, India’s savings-investment account andthe Rest of the World Account in the national accounting have improved, enhancing
her affordability of investment for sustainable energy development. Besides, suchstrengthening of the macroeconomic fundamentals of India has imparted to India
much greater resilience to oil price rise and volatility. It has also been observed insome of the studies that delaying investment in high cost renewables to replace fossil
fuel may worsen long run benefit cost ratio. The improving macro-economic driversof growth should in fact enable India to be more pro-active and take role of leadershipin exploiting the potential of non-conventional renewables.

55

Coming to sectoral issues, the infrastructural sectors of electricity andtransport are the ones deserving maximum attention. While electricity istransformation of one form of energy into another for final end use, transport makes
only use of energy for providing the service of mobility. Electric plant is the one of
the largest single point source of emission and urban transport is the single largest
source of urban pollution in India. The former admits choice of fuel and technology
for the conversion of primary energy into final electrical energy while the transport
admits a range of modal choice of device of transport implying different rates ofemission for the use of petroleum fuels. The energy intensive industries of India,
particularly the industrial boilers are also one of the major areas offering opportunities
of energy conservation. Transport and Industry in India provide major opportunities
of improvement of demand side efficiency, while the electricity sub- sector provides
the major scope for improving supply side efficiency.

The removal of energy poverty requires the provision to electrical power to all
and replace the traditional biomass fuel by hydrocarbons (particularly LPG ) for
cooking. In spite of the enforcement of the programme of electrification of all homes
to provide the lifeline requirement of electrical energy to all by 2010-2011, the Indian
households will have to depend on traditional biomass fuel for 47.7% of the total
household energy requirement. It becomes important therefore to innovate devices
and cooking appliances and invest in R&D and technology development for bio-gas
for wide scale implementation. The latter can provide a decentralised model ofsustainable development of rural energy using livestock-energy-agriculture nexus inclean modern forms of both gas for cooking and small scale power generation for the
local consumption of electricity. Since some of the other non-conventional renewableenergy resources would also be suitable for decentralised development of energy at
smaller scale, they may play an important role in the removal of energy poverty and inensuring the regional inclusiveness of development.

In order to attract adequate investment for such energy sector development,
the existence of a proper institutional framework to provide adequate incentives forinvestment should be in place and energy prices need to be rationalised for the
optimum allocation of resources for the development of the energy sector of India.
The pricing reforms and institutional restructuring are yet to be complete to yield any
56

impressive result. The pricing of energy is more a matter of politics than economics inIndia. The demand for additional financial resources for making the energy
development environmentally sustainable requires serious commitment of India’s
political economy to make the energy industry financially viable and at the same timeto ensure the access of all households to clean modern energy service by appropriate
affordable price–subsidy arrangement.

India is now poised for a sustained high growth as its macroeconomic basic
conditions fulfil the necessary conditions for such growth. She can derive ademographic dividend from the growing share of population in the working age groupin the coming decades since such working population with appropriate education andskill development would contribute to the formation of the most important asset ofhuman capital for the explosion of India’s productivity and growth.

Clean energy is a fundamental requirement for driving the growth as well as
human capital formation as it directly contributes to the higher educational and healthattainment of households. Pollution from unclean commercial energy is a cause ofserious inequity in Indian society. The rich mostly benefit from the clean output ofelectricity though generated often in an unclean manner, while the poor suffer morefrom the emissions of power plants as they are more vulnerable to diseases than therich. The real challenge is how to produce modern commercial energy services withlittle pollution and making them affordable for all.

57

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61

Abbreviations for all the Tables and Charts that follow.
TPES: Total Primary Energy Supplies
CMBRN: Combustible Renewal and Wastes
TPCES: Total Primary Commercial Energy Supplies
FNLEN: Final Energy
ELG: Electrical Energy Generation (Gross)
FNLELC: Final Electrical Energy
PENEL: Primary Energy for Electricity
CO2MT: Carbon Dioxide Mill.tonne
CONV.-LS: Conversion Loss % of Primary energy input
Aux-Loss: Auxiliary Loss as % share in Gross Generation
TLS-%ENG: Total Losses as % share of Primary Energy Input
Mtoe: Million tonnes of oil equivalent

62

Tables

Table 1: Comparative Energy Use and CO2 Emission
Population(million-2005)
GDP per capita(2000 US$ PPP)
Primary Energy Use percapita(t.o.e ) in 2004
Share of Biomass Wastes(%) 2004
Electric Power
Consumption per capita 2004 (KWH)
CO2 Emission per capita(tonne) 2003
Share of CO2 emission in
World Total (%) 2003

India

China

Japan

USA

World

1094.61304.5

127.8

296.4

6437.7

3072

6012

27817

37267

8477

0.531

1.241

4.173

7.92

1.793

37.4

13.7

1.17

3.04

10.26

457

1585

8072

13351

2606

1.196

3.216

9.641

19.904

4.3

4.76

15.5

4.6

21.64

100

217

211

Energy Intensity of GDP(kg 2000 ppp$) 2004
183
229
155
Source: World Bank, World Development Indicators Data Base, 2007.

Table 2: Major Economy-Energy Indicators of India
GDPYear- Population
const.priceCalendar(mill)-RsBill)Real Global
Trade
Real Pr.
oil priceas % Engy Index
Index (1993
GDP (1993 base)
base)

TPES
CO2MT
(mtoe)

1971
550.752985.218.36
64.86
21.88 157.00 204.20
1980
675.253944.19
15.74
95.24
172.17 243.04 347.20
1985
751.005085.1213.20
101.97135.42 292.28 488.16
1990
834.756837.36
15.71
91.67
106.55 359.13 677.71
1995
923.508841.80
23.21
97.81
90.23 430.05 907.28
2000 1014.50 11860.36
28.36
125.78152.62 501.89 1158.74
2005 1100.62 16457.96
44.72
158.73235.82 537.31 1355.68
Source: IEA: Energy Balances of Non-OECD Countries Different Volumes; CSO 2006; CSO 2004;
GOI, 2007.

63

Table 3: Some Socio-economic Indicators of India
Net National income per capita(Rs. At 1993-94 prices)
Consumption Poverty Head Count Ratio
Literacy (age 7+)
Male
FemaleEnrolment Ratio Elementary School(6-14 years of age)
Infant Mortality Rate(per 1000 live births) 2003
Source: Planning Commission, 2006b.

Around 1990

Recent YearBest State
Recent Year

Worst Sate
Recent Year

7321

11799

16679

3557

36.0

27.8

5.2

46.5

64.1
39.3

75.3
53.7

94.2
87.7

59.7
33.1

55.3

71.1

103.1

55.8

80

60

11

83

Table 4: Growth Rates and GDP-elasticities of Energy Use in India.
GrowthGDPRateelasticity
1971-1990
4.4
GDP at Factor Cost
1991-2005
6.0
1971-1990
2.2
Real Price of Energy
1991-2005
4.0
1971-1990
6.1
Real Price of Global Crude Oil
1991-2005
5.1
1971-1990
6.5
1.47
CO2
1991-2005
4.4
0.75
1971-1990
4.1
0.86
Total Primary Energy
1991-2005
2.8
0.52
1971-1990
5.7
1.28
Total Primary Commercial Energy
1991-2005
4.8
0.79
1971-1990
4.7
1.09
Final Energy
1991-2005
3.4
0.56
1971-1990
7.8
1.77
Gross Generation of Electricity
1991-2005
5.7
0.98
1971-1990
7.5
1.71
Final Use of Electricity
1991-2005
4.5
0.75
Source: Author’s own estimation using IEA Data on Energy balances of Non-OECD countries,
different volumes.
Variable

PeriodTable 5: Fossil Fuel Reserves of India as on 2005
(Unit: Million tonnes of Oil equivalent)
Resources
ProvedExtracted Coal
13489
Extractable Lignite
1220
Oil
786*
Natural Gas
1101*
Coal Bed Methane765* indicates Balance of recoverable Reserves
Source: Planning Commission, 2006a.

Production(2004-05)

Net Imports(2004-05)

157
9
34
29

16
87
3(LNG)

ProvedReserve to
Production
86
136
23
38

64

Table 6: Renewable Energy Resources of India(Unit: mtoe per year)
Resources
1 Hydro Power Capacity (in MW)
2 Biomass(a) Fuelwood(b) Biogas*
3 Bio-Fuels @(a) Biodiesel(b) Ethanol
4 Solar @(a) Photovoltaic(b) Thermal
5 Wind Energy
6 Small Hydro-power
Based on the assumption of Community Plants.
@ Based on assumptions regarding land availability (for details see the source)
Source: Planning Commission, 2006a.

Present
32

Potential
1,50,000

140
0.1

620
15

<1

20
10

<1
<1

1200
1200
10
5

Table 7: Potential Availability of Nuclear Energy of India
Resource Base

Metal resource(tonnes)
1 Uranium Metal
61,000(a) In PWHR(b) in Breeder
2 Thorium Metal
2,25,000In Breeder
Source: Planning Commission, 2006a.

Electricity Energy(GWe-Yr)

Electricity Capacity
(MWe)

330
42,20010,000
5,00,000

1,50,000

Very large

Table 8: Energy Import of India and Global Oil Price Movement.
Year

Share in Net import in
Share of Oil in total
Global Oil Price
Real Global Oil
Total Primary
net import of energy
Index Price Index for India
Commercial Energy(%)
1993=100
1993=100
Supplies (%)
1971
24.32
100.0
3.24
21.88
1980
24.85
98.6
56.11
172.17
1985
12.07
100.0
66.34
135.42
1990
17.24
86.6
78.38
106.55
1995
22.10
84.1
107.97
90.23
2000
30.43
84.5
246.82152.62
2005
32.07
75.22
461.34235.82
Source: Estimated by the author on the basis of the crude oil price data from the source of British
Petroleum and the Energy balances of Non OECD countries of the International Energy Agency, forthe different years, published by OECD.

65

Table 9: Adjustment of Savings Rate for Energy Related resource Depletion andEnvironmental Degradation(Unit: % of Gross National Income)Damage due
Year
Gross
Consumption ofEnergyCo2
to Particulate
SavingFixed Capital Depletion
DamageEmission
Rate
1971
15.71
6.79
0.74
0.54
1990
22.27
9.75
3.31
1.05
0.82
1995
26.90
10.36
2.68
1.41
0.91
2000
26.01
9.71
2.22
1.51
0.81
2003
29.99
9.11
2.62
1.34
0.80
2005
32.23
9.19
4.83
1.30
0.74
Source: World Bank; World Development Indicators Data Base 2007.

ForestDepletion
8.93
1.35
1.33
0.88
0.76
0.57

Total energy
relatedDepreciation
6.53
6.32
5.41
5.59
7.44

Table 10: Primary Energy Supply and Electricity
FNLELCYearTPES
CMBRN
TPCES
FNLEN
ELG- Twh
Twh
Calendar(mtoe)(mtoe)(mtoe)(mtoe)
1971
157.00
95.78
61.22
47.84
66.38
51.74
1975
208.52132.21
76.36
56.56
85.93
65.58
1980
243.04148.13
94.91
63.61
119.2689.53
1985
292.28162.33129.9587.59
188.48138.14
1990
359.13175.82183.31118.99289.44211.741995
430.05
188.65241.40146.92417.62309.192000
501.89201.58300.31
171.14562.19368.72
2005
537.31
158.12379.19199.05699.04477.91
Source: IEA : Energy Balances of Non-OECD Countries, Different Volumes.

Table 11: Primary Commercial Resources Supplies and Resource Mix
Unit %
YearCalendar

TPCES(mtoe)

Coal

Oil

N.Gas

Nuclear
Energy

Hydro

1971
61.22
58.05
36.57
0.93
0.51
3.94
1975
76.36
62.65
31.40
1.24
0.77
3.97
1980
94.91
54.97
35.87
1.25
0.82
4.21
1985
129.95
58.66
33.94
3.16
0.86
3.48
1990
183.31
57.86
32.04
5.36
0.87
3.36
1995
241.40
57.45
30.73
6.74
0.86
2.58
2000
300.31
54.96
38.08
7.30
1.47
2.13
2005
379.19
54.85
33.91
7.61
1.19
2.27
Source: IEA : Energy Balances of Non-OECD Countries, Different Volumes.

NonConv.
Energy
0.00
0.00
0.00
0.00
0.00
0.02
0.05
0.14

66

Table 12: Final Energy Supply and Shares of Fuels
Unit %
FNLEN
Coal
Oil
Gas
Electricity(mtoe)
1971
47.84
51.67
38.44
0.59
9.30
1975
56.56
52.88
36.17
0.97
9.97
1980
63.61
48.94
43.66
1.07
12.11
1985
87.59
40.66
43.77
2.71
13.56
1990
118.99
34.71
45.25
4.74
15.30
1995
146.92
25.70
50.48
5.72
18.10
2000
171.14
18.91
56.90
5.66
18.53
2005
199.05
18.96
53.38
7.01
20.65
Source: IEA : Energy Balances of Non-OECD Countries, Different Volumes.
Year

Table 13: Gross Electricity Generation and Fuel based Generation Mix
Unit: % share
Year
ELG- Twh
Coal
Oil
Gas
Nuclear
Hydro
1971
66.38
49.09
6.32
0.57
1.79
42.22
1975
85.93
49.16
8.42
0.60
3.06
38.77
1980
119.26
51.54
6.39
0.52
2.52
39.04
1985
188.48
61.92
6.35
1.18
2.72
27.83
1990
289.44
66.20
3.47
3.44
2.12
24.76
1995
417.62
75.31
1.47
3.82
1.91
17.38
2000
562.19
70.69
4.86
7.65
3.01
13.25
2005
699.04
68.66
4.47
8.94
2.48
14.31
Source: IEA: Energy Balances of Non-OECD Countries, Different Volumes.

Table 14: Electrical Energy Balances of India
AuxT&DPENEL- CONV.TLS- FNLELCLossLossyear
mtoe
LS %
mtoe
%Gen
%BB %ENG
1971
18.66
69.40
5.69
16.36
76.15
4.45
1975
24.25
69.53
23.66
0.02
76.74
5.64
1980
33.32
69.22
24.89
0.03
76.89
7.70
1985
50.97
68.20
23.96
2.75
76.69
11.88
1990
70.10
64.49
7.79
19.05
74.02
18.21
1995
108.74
66.97
7.42
18.54
75.55
26.59
2000
152.76
68.35
7.06
27.35
79.24
31.71
2005
191.28
68.57
6.87
24.76
78.51
41.10
Source: IEA: Energy Balances of Non-OECD Countries, Different Volumes.

67

Table 15: Distribution of Primary Fossil Fuels between Direct Final Use and Use in
the Energy Industry in India
Unit:% Share of a Sectoral Use
Others in Energy
Sector, including
losses
1971
71.6
0.29
Coal
1990
42.9
53.4
3.7
2005
18.1
74.8
7.1
1971
81.6
6.9
11.5
Oil
1990
87.8
5.0
7.2
2005
82.6
6.4
11.0
1971
50.9
46.3
2.8
Natural Gas
1990
61.1
30.2
8.7
2005
48.4
44.4
7.2
Source: Author’s own estimation using IEA Data on Energy balances of Non-OECD Countries,
Different Volumes.
Fossil Fuel

PeriodDirect Final
Use

Electricity
Generation

Table 16: Fuel Composition in Power Industry in India
Unit: % in total energy input.
1971
1990
2005
Coal
55.3
81.2
81.3
Oil
8.3
4.2
4.3
Natural Gas
1.4
4.3
6.7
Hydro/Nuclear Non-Conventional
35.0
10.4
7.1
EnergyCombustible Renewables & Wastes
0.6
Source: Author’s own estimation using IEA Data on Energy balances of Non-OECD Countries,
Different Volumes.

68

Table 17: Fuelwise Sectoral Distribution of Final Commercial Energy Use in India.
Unit: % Sectoral share
Year

Fuels

Industry

Transport

Agriculture

Commercial& Public
Services
0.8
9.1

Residential
Households

Coal
61.7
31.3
7.0
Oil
24.5
37.4
4.3
21.6
Natural Gas
94.5
5.5
1971
Electricity
70.0
3.2
9.8
8.0
Total Final
48.7
30.9
2.5
1.2
12.6
Energy
Coal
93.0
5.5
1.5
Oil
22.9
45.1
0.4
3.1
23.8
Natural Gas
98.1
1.2
0.7
1990
Electricity
52.0
2.2
22.0
10.1
13.7
Total Final
57.3
21.6
3.5
2.8
12.8
Energy
Coal
78.1
14.6
7.3
Oil
17.9
33.3
5.6
0.4
19.7
Natural Gas
36.6
4.7
0.9
4.5
2005
Electricity
43.9
2.2
20.0
12.2
21.6
Total Final
52.10
18.5
7.2
5.5
16.7
EnergyNote: The shortfall of the row sum from 100 is to be imputed to Non-energy use of energy resources or
use by other sectors.
Source: Author’s own estimation using IEA: Energy Balances of Non-OECD Countries, Different
Volumes.
.

Table 18: Sector-wise Fuel Composition of Final Commercial Energy Use in India.
Unit: % share of a fuel.
Year

Fuels

Industry

Transport

Agriculture

Commercial& Public
Services
27.8
72.2

Residential
Households

Total
Final Use

Coal
66.5
53.3
29.4
Oil
19.3
45.8
63.6
64.8
Natural Gas
1.2
1.3
1971
Electricity
13.1
0.9
35.1
5.8
Total Final
100
100
100
100
100
Energy
Coal
61.1
9.6
4.3
Oil
17.0
88.9
4.7
47.2
79.6
Natural Gas
8.5
1.7
0.3
1990
Electricity
13.3
1.5
93.6
52.8
15.8
Total Final
100
100
100
100
100
Energy
Coal
41.1
49.5
8.3
Oil
26.6
95.8
41.5
63.0
Natural Gas
7.1
1.8
0.9
1.9
2005
Electricity
25.2
2.4
57.6
50.4
26.8
Total Final
100
100
100
100
100
EnergySource: Author’s own estimation using IEA: Energy Balances of Non-OECD Countries, Different
Volumes.

19.0
53.4
7.0
20.7
100

69

Table 19: Sectoral Distribution of Total Direct and Indirect Use of Primary Energy(including Traditional Fuel) in 2005, India.
Unit: % share.

Item
Share of indirect use
through power of the total
direct & indirect sectoraluse of primary energy
Sectoral share of total
direct & indirect primaryenergy use

Industry

Transport

Agriculture

Commercial& Public
Services

Residential
Households

NonEnergy
Use

50.9

10.4

86.3

66.2

21.9

-

30.7

7.5

8.3

6.6

35.2

11.7

Source: Author’s own estimation using IEA: Energy Balances of Non-OECD Countries, Different
Volumes.

Table 20: Decomposition Analysis of Growth of Primary Energy Intensity of GDP in
India.
Unit: % change over the period
Total Structural Technological
PeriodResidual
EffectEffectEffect1971-1990
20.2
16.4
3.5
-0.1
1990-2005
-28.8
0.6
-29.0
-0.3
Source: Author’s own estimation using the Conventional Divisia Method and IEA data on Energybalances of Non-OECD countries, different volumes.

Table 21: Decomposition Analysis of Growth of Final Energy & Fuel-wise Intensity
of GDP in India.
Unit: % change over the period
Total
Structural Technological
Residual
EffectEffectEffectEffect1971-1990
11.57
18.52
-5.87
negligible
Final Energy
1990-2005-32.57
4.83-35.10-0.89
1971-1990
64.88
11.12
49.67
-0.86
Electricity
1990-2005-12.77
-5.64
-7.54
-0.03
1971-1990-17.1520.68-35.93
7.14
Coal
1990-2005-67.62
2.72-79.21
51.67
1971-1990
30.59
14.41
7.95
2.36
Oil
1990-2005
-31.5
17.78
-34.78-4.75
Source: Author’s own estimation using the Conventional Divisia Method and IEA data on Energybalances of Non-OECD countries, different volumes.

Fuel

Period70

Table 22: Share of final compositional effect in the total change in Carbon Intensity ofEnergy in India
Unit: % increase over the period
PeriodSectorTotal Effect Compositional Effect1971-1990
Aggregate Economy
11.38
-0.26
1990-2005
Aggregate Economy
-1.05
-1.34
1971-1990
Electricity
58.68
40.07
1990-2005
Electricity
5.00
1.52
Source: Author’s own estimation using the Conventional Divisia Method and IEA data on Energybalances of Non-OECD countries, different volumes.

Table 23: Distribution of households per 1000 by primary source of energy used forcooking for each major State.
Rural
India
61st Round(July 2004-June 2005)

State
Povertyratio
Andhra Pradesh
Assam
Bihar
Chhattisgarh
GujaratHaryanaJharkhand
Karnataka
KeralaMadhya Pradesh
Maharashtra
OrissaPunjabRajasthan
Tamil Nadu
Uttar PradeshWest Bengal
All India
Source: NSSO 2007

11.2
22.3
42.1
40.8
19.1
13.6
46.3
20.8
13.2
36.9
29.6
46.8
9.1
18.7
22.8
33.4
28.6
28.3

No cooking
arrangement

Firewood
and chips

Dung cake

LPG

Others including
coke & coal

36
2
13
43
9
10
17
19
5
17
15
4
0
29
3
9
13

803
924
498
923
734
564
828
897
791
907
749
797
314
941
809
667
733
750

1
0
334
24
8
192
10
0
38
3
58
333
3
265
36
91

144
69
17
15
105
191
14
65
182
38
149
29
242
51
134
48
43
86

16
7
149
25
110
44
138
21
8
12
82
101
107
5
28
17
179
60

71

Table 24: Distribution of households per 1000 by primary source of energy used forcooking for each major State.
Urban
India
61st Round(July 2004-June 2005)

State
Poverty ratio
Andhra Pradesh
Assam
Bihar
Chhattisgarh
GujaratHaryanaJharkhand
Karnataka
KeralaMadhya Pradesh
Maharashtra
OrissaPunjabRajasthan
Tamil Nadu
Uttar PradeshWest Bengal
All India
Source: NSSO 2007

28.0
3.3
34.6
41.2
13.0
15.1
20.2
32.6
20.2
42.1
32.2
44.3
7.1
32.9
22.2
30.6
14.8
25.7

No cooking
arrangement

Firewood
and chips

Kerosene

LPG

Others including
coke & coal

55
64
21
26
39
15
71
88
70
13
58
64
38
29
72
18
59
49

300
272
189
375
144
142
123
237
484
381
138
372
80
386
219
263
125
217

70
47
27
30
138
69
13
136
8
32
159
65
132
43
175
45
112
102

566
606
539
495
623
729
427
529
437
545
633
358
703
513
533
561
461
571

6
12
224
74
56
46
366
10
2
28
11
141
47
29
1
112
242
61

Table 25: Distribution of households per 1000 by primary source of energy used forlighting for each major State.
Rural India
State

Andhra Pradesh
Assam
Bihar
Chhattisgarh
GujaratHaryanaJharkhand
Karnataka
KeralaMadhya Pradesh
Maharashtra
OrissaPunjabRajasthan
Tamil Nadu
Uttar PradeshWest Bengal
All India
Source: NSSO 2007

Poverty
ratio
11.2
22.3
42.1
40.8
19.1
13.6
46.3
20.8
13.2
36.9
29.6
46.8
9.1
18.7
22.8
33.4
28.6
28.3

61st Round(July 2004-June 2005)
keroseneelectricity
157
840
695
303
894
101
366
619
196
802
91
897
736
260
137
862
201
794
300
692
234
762
681
315
20
955
519
472
153
846
749
240
654
342
444
549

others
3
2
5
15
2
12
4
1
5
8
4
4
25
9
1
11
4
7

72

Table 26: Distribution of households per 1000 by primary source of energy used forlighting for each major State.
Urban India
State

Andhra Pradesh
Assam
Bihar
Chhattisgarh
GujaratHaryanaJharkhand
Karnataka
KeralaMadhya Pradesh
Maharashtra
OrissaPunjabRajasthan
Tamil Nadu
Uttar PradeshWest Bengal
All India
Source: NSSO 2007

Poverty
ratio
28.0
3.3
34.6
41.2
13.0
15.1
20.2
32.6
20.2
42.1
32.2
44.3
7.1
32.9
22.2
30.6
14.8
25.7

61st Round(July 2004-June 2005)
keroseneelectricity
48
949
137
862
259
738
67
932
27
958
33
955
127
871
41
959
65
930
34
964
39
957
186
813
2
978
103
895
54
946
142
844
125
873
71
923

others
3
1
3
1
15
12
2
0
5
2
4
1
20
2
0
14
2
6

Table 27: Projected Primary Commercial Energy Requirement for Maximum HydroNuclear Potential Use and for GDP Growth Rate of 9% in India by the Expert
Committee for Integrated Energy Policy.
Year

Total PrimaryCommercial
Energy (mtoe)

2005
379.192011-12546
2021-221011
2031-32
1858
Compound Annual
6.4
Growth Rate (%) of Total
Use of Fuels
GDP elasticity of fuel use
0.71
Rate of Growth of Energy-2.6
Intensity of GDP(%)
Per Capita Consumption1266
of Commercial Energy in2032 (kgoe)
Source: Planning Commission 2006a.

% share of
Coal

Oil

Natural
Gas

Hydro

54.9
51.8
51.5
50.4

34.0
34.1
30.8
29.5

7.6
8.8
11.0
12.9

2.3
2.2
2.3
1.9

Nuclear &NonConventional
1.2
3.1
4.4
5.3

6.3

5.6

8.0

5.9

11.2

0.7

0.62

0.88

0.65

1.24

-2.7

-3.4

-1.0

-3.1

2.2

638

373

163

24

67

73

Table 28: Projected Total Primary Energy Requirement with GDP Growth Rate of 9%
in India.
Year

Total Primary Energy(mtoe)
550
715
1192
2043

Share of PrimaryCommercial Energy (%)
72.2
76.4
84.8
90.9

Share of NonCommercial Energy (%)
27.8
23.6
15.2
9.1

5.4

6.37

0.76

2006-072011-122021-222031-32
Compound Annual
Growth Rate of Fuel
Consumption (%)
Source: Planning Commission 2006a.

Table 29: Projected Share of Requirement of Energy Resources for Maximum Use of
Hydro-Nuclear Potential and GDP Growth Rate of 9% in India.
Electricity
Generation at
Year
Fossil Fuels
Bus-bar
(TWh)
2005
699
82.0
2006-07724
81.5
2011-121091
80.4
2021-222280
79.8
2031-324493
82.2
Source: Planning Commission 2006a.

Shares in Generation of
Hydro

Nuclear

Other
Renewables

14.31
12.00
12.70
11.80
8.90

2.48
5.40
5.90
7.50
8.30

0.88
1.10
1.00
0.79
0.53

Table 30: Energy Resource Mix for 8% GDP Growth in 2031-32, India.
Items

Coal
Dominant
Case

Total Energy1702
requirement (mtoe)
Shares of(a) Coal
54.1(b) Crude Oil
25.7(c.) Natural Gas
5.5(d) Hydro
0.7(e) Nuclear
4.0(f) Renewables
0.1(g) Non-Commercial
9.8
Source: Planning Commission 2006a.

Max. Use ofPotential of Hydro,
Nuclear & Gas

Simultaneous Use of all
Optima for Sustainable
Energy Development

1652

1351

45.5
26.4
10.7
1.9
5.3
0.1
10.1

41.1
22.8
9.8
2.2
6.4
5.6
12.0

74

Table 31: Projected Demand for Fuels by the Households for 9% GDP Growth Ratein India (mtoe)
Fuel Wood
Dungcake& Chips
2000
79.62
29.61
2011
88.00
31.16
2021
97.67
30.28
2031
102.41
28.78
Source: Planning Commission 2006a.

Year

Kerosene

LPG

Electricity

Total

10.07
13.16
13.71
13.59

6.42
27.36
44.72
53.05

8.43
33.63
59.35
76.95

134.45193.31245.73274.78

Table 32: Real Prices of Fuels in India.
YearReal Pr.
RealCalendarEngy
Pr.Coal Real Pr.El
1981
104.761
79.35688.227
1985
101.970
96.25992.238
1990
91.67094.20789.246
1995
97.81191.499109.826
2000
125.778101.105125.7092005
158.726
124.713140.996
Source: CSO 2004; CSO 2006; GOI, 2007.

Real
Pr.Petro132.045118.406
97.00789.563128.969
188.246

Kerosene
181.18165.13130.4083.57
141.06182.83LPG
128.51113.72
86.83
94.59
147.10174.40

Table 33: Average Tariff, Cost and Subsidy of Electrical Energy in India
Unit: Rs./KWh
Items & Sectors
1996-1997
1999-2000*
2000-2001 **1. Average Tariffs(a) Residential Household
1.05
1.50
1.83
(b) Agriculture
0.21
0.25
0.35
(c.) Industry
2.76
3.50
3.67
(d) Overall
1.65
2.26
2. Average Cost of Supply
2.15
3.27
3. Rate of Subsidy (%)†(a) Household
51.0
57.9
44.0
(b) Agriculture
90.0
93.0
89.0
(c.) Overall (%)
24.0
38.0
31.0
Notes:† Subsidy is to be taken as the under-recovery of cost of supply for 1996-97 and 2000-01. For 19992000 the estimates are taken from IEA 2002.
* For 1999-2000 the estimates are taken from IEA 2002.
** The data are as per Revised Budgetary Estimates of the Electricity Board.
Source: Planning Commission, 2002; IEA 2002.

75

Charts

Chart1:
Energy Flow ChartOIL REFINERYCRUDE OILPETRO PRODUCTSOIL FOR
POWER

NATURAL GASGAS FORPOWER

GAS FOR DIRECT USE

COAL

TRANSPORTCOAL FOR DIRECT USE

COAL FORPOWER

LIGNITEELECTRICITYFINAL ENERGY USING SECTORSTHE NATURAL ENVIRONMENTELECTRICITY
GENERATIONURANIUM
HYDRO

INDUSTRYAGRICULTURE

LARGE DAMMICRO HYDEL

WIND
SOLAR

BOIMASSSOLAR ENERGYFOR POWER
BIO-MASSFOR GAS
BIO-MASS
FOR LIQUIDSPRIMARY
ENERGYSOLAR THERMAL

BIO-GAS PLANT

COMMERCIAL &PUBLIC SERVICESBIOGAS FOR FINAL USE

BIOMASS FOR DIRECT USE
BIO-LIQUIDSPLANT

BIODIESEL FOR FINALUSE

EXTRACTION, CONVERSION & TRANSPORTATION OF ENERGY

HOUSEHOLDSFINAL USE

ENERGY FLOW

Source: Author

76

Chart 2:
Total Primary Energy Supply
600

500

Non Fossil Fuel
Commercial

400
Non-Com m ercial
Energy300

200
Fossil Fuel
Com m ercial

100

1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005

0

Non-Commercial Energy

Non Fossil Fuel Commercial

Fossil Fuel Commercial

Source: Based on IEA Data on Energy balances of Non-OECD countries, different volumes.

Chart 3:400

Total Primary Commercial Energy Supply
350
300
250

Non Fossil Fuel
Commercial

Oil & Gas

200
150
Coal

100
50

1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005

0

Non Fossil Fuel Commercial

Oil & Gas

Coal

Source: Based on IEA Data on Energy balances of Non-OECD countries, different volumes.

77

Chart 4:
250

Final Commercial Energy Supplied
200
Elctricity

150
Gas

Oil

100

50
Coal
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005

0

Electricity

Gas

Oil

Coal

Source: Based on IEA Data on Energy balances of Non-OECD countries, different volumes.

Chart 5:
Supplies of Total Primary and Final Commercial Energy and CO2 Emissions.
1600

400
T PCES

350

1400
1200

300

1000
800

200
FNLEN

150

600

100

400

50

200

0

0
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005

mtoe

250

CO2 emissions (mt)

CO2MT

T PCES

FNLEN

CO2MT

Source: Based on IEA Data on Energy balances of Non-OECD countries, different volumes.

78

Chart 6:
Total Energy Input, Losses and Final Use of Electricity.
250

200

Conversion loss

Aux. and T&D loss

Final Use of Electricity

MTOE

150
Conve rsion loss

100
Aux. and T&D
loss
50
Final Use of
Electricity
2005

2003

2001

1999

1997

1995

1993

1991

1989

1987

1985

1983

1981

1979

1977

1975

1973

1971

0

Source: Based on IEA Data on Energy balances of Non-OECD countries, different volumes.

Chart 7:
Sectoral Distribution of Final Commercial Energy Use.
Unit: % Sectoral share
Residential
Households
20%

Commercial &Public Services
7%

Industry
42%

Agriculture
9%
T ransport
22%

Source: Based on IEA Data on Energy balances of Non-OECD countries, different volumes.

79

Chart 8:
Sectoral Distribution of Total Direct and Indirect Primary Energy (including
Traditional Fuels) in 2005
Non-Energy
Use
12%

Industry
31%

Transport
8%
Agriculture
8%
Commercial& Public
Services
7%

Residential
Households
34%

Source: Based on Author’s own estimation as derived from IEA Data on Energy balances of NonOECD countries, different volumes.

Chart 9:
Share of Income Spent on Different Fuels in Rural India for Different Income Classes,
1996 (Unit: %)
8
7

2.1

6

1.5

1. 0
0 .5

0 .5

1.4

1.3
0.3

%

5

1.4

1.7
1.6

0.3
4
2.2
3

0.3

2.0

3

1.4

0 .3

0.4

1.1

0.7

1.4

1.5

2

0.9
0.5

0.4

0.9

1.0

1

0.5
0.3
0.3
1.6

0.5
0.4
0.3

0.5
0.3

1.8
1.2

0.5
0.4
1.3

0.3
0.3

0.4
0.5

1.1
0.5
0.3

1.6

0.4
1.3

0.9

0
< Rs.575

Rs.575-791 Rs.792-957

Wood
Kerosene-Ration

Rs.9581165

Rs.11661415

Charcoal
Kerosene-Mkt

Rs.14161740

Rs.17412349

Straw
LPG

0.8

Rs.23503249

0.5

Rs.3250Rs.5000+
4999
Rs. per family per year

Dung
Electricity

Source: World Bank 2002; Barnes and Toman, 2006.

80

% share in Total Primary Commercial
EnergyChart 10:
Projected Primary Commercial Energy Requirement for Maximum Hydro-Nuclear
Potential Use and for GDP Growth Rate of 9%
60

54.9

51.8

51.5

50.4

50
40

34.1

34

30.8

29.5

30
20
7.6
2.3 1.2

10

12.9

11

8.8

5.3

4.4
2.3

2.2 3.1

1.9

0
2005
Coal

2011-12

Oil

2021-222031-32

Years
Hydro
Nuclear & Non-Conventional

Natural Gas

Source: Based on Planning Commission, 2006a.

Chart 11:
Projected Total Primary Energy Requirement with GDP Growth Rate of 9%.
2500
9%

2000
1500
15%

91%

1000
24%

500

85%

28%
72%

76%

0
2006-072011-12

Share of Primary Commercial Energy

2021-222031-32

Share of Non-Commercial Energy

Source: Based on Planning Commission, 2006a.

81

Chart 12:
Projected Share (%) of Energy Resources in Electricity Generation for Maximum Useof Hydro-Nuclear Potential and GDP Growth Rate of 9%.
90

82

80.4

82.2

79.8

80
70
60
50
40
30
20

14.31

10

12.7
2.48

11.8
5.9

0.88

8.9

7.5

1

8.3

0.79

0.53

0
2005

2011-12
Fossil Fuels

2021-22

Hydro

Nuclear2031-32

Other Renewables

Source: Based on Planning Commission, 2006a.

Chart 13:
Energy Resource Mix for 8% GDP Growth in 2031-32 for different Policy Scenarios.
60

54.1

50

45.5
41.1

40
26.4

25.7

30

22.8

20
9.8
5.5

10

0.7

10.7

10.1

4

1.9

0.1

12

9.8

5.3

2.2

0.1

6.4 5.6

0
Coal Dominant Case

Coal

Crude OilNatural Gas

Max. Use of Potential of Hydro,
Nuclear & Gas

Hydro

Nuclear

Simultaneous Use of all Options for
Sustainable Energy Development

Renewables

Non-Commercial

Source: Based on Planning Commission, 2006a.

82