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Cheap agricultural electricity has bedevilled the Indian power sector for decades, but enhanced agricultural demand-side management won’t solve the problem alone

Virtually everyone with a working knowledge of the Indian power sector will agree that one of the sector’s biggest problems is the very inexpensive (way below average cost) electricity supplied to agriculture. This mostly good-intentioned 1960s-era policy to prop up India’s farmers has had large and largely unintended consequences: discoms tottering on bankruptcy, unreliable electricity for farmers, dramatically increased diesel use in the countryside, and quinquennial state and national government financial interventions to bolster discom finances. All of this against the backdrop of continuing economic and financial turmoil in the agricultural sector.

Well-meaning Indian and international experts have often chimed in with some standard “solutions” to this problem, ranging from “just raise the prices”, to “give away more efficient pumps”, and “load management.” While these solutions have some merit, they have proved either infeasible in India (it’s a very hard vote for a regulator to dramatically raise prices on the rural citizenry without suffering adverse consequences) or too small in their impacts to address the magnitude of the problem.

So, 18 months ago, we began an investigation to imagine a better, more comprehensive solution — one that would result in a rural economy that was no longer a burden on the discoms, that managed its water resources sustainably for the long term, and that saw a reversal in the downward trend in rural livelihoods.

We interviewed key Indian stakeholders and analysed best international practices related to rural electrification, water management, and agricultural practices. Our conclusions and recommendations are contained in our recently released study, Cooperative Governance: Opportunities to Enhance Rural Livelihoods in India.

Our study’s key finding suggests that an alternative rural governance and implementation structure might be the answer.

Our study’s key finding suggests that an alternative rural governance and implementation structure might be the answer. Most past and current agricultural policy schemes have only attempted to address individual aspects of the nexus. We have learned that the interlinked nature of the problems demand interlinked solutions. Experience shows that tackling only one aspect is unlikely to be successful.

Rural institutions — governed by farmers, for farmers — are the most likely to successfully co-manage water and power and sustainably enhance rural livelihoods. Based on our examination of these issues and interviews with stakeholders over the past 12 months, we believe that farmer-producer organisations, water-user associations, and electricity cooperatives can meaningfully enhance rural livelihoods. They will not emerge on their own; they will require government support to reach scale. Without such support, they will certainly fail in improving rural livelihoods across India.

In short, cooperative institutions with sustained support from civil society organisations, along with state and central governments, can enhance rural livelihoods through capacity-building in cooperative management, inclusivity in cooperative governance, and tackling legislative, institutional, and policy barriers. Such a possibility makes them worthy of further attention and research. Interventions we explored above lead to better financial management and revenue realisation making discoms better off from a cash-flow perspective.

For more detail on our rural cooperative governance proposals, download our Cooperative Governance document.

Cooperative Governance: Opportunities to Enhance Rural Livelihoods in India

Rural populations in India continually face great challenges when it comes to earning and maintaining a sustainable living. With up to 70% of rural Indians working in the agricultural sector, those challenges will only become more substantial as climate change creates greater impacts and economic uncertainty causes further distress. Solving these problems will require innovative solutions from a number of areas.

Previous attempts at improving farmers’ livelihoods have generally focused on a singular aspect within the food-water-energy nexus instead of focusing on all aspects as one larger issue. Poor access to agricultural markets, water shortages, and unreliable power are all connected. The problem is not related to the energy sector alone, but is multi-dimensional.

For instance, farmer-owned and operated cooperatives that serve rural India specifically could become the problem-solving institutions that improve access to agricultural markets, create efficient water supply usage, and develop electricity reliability. Prior success in similar organizations in India and internationally suggest these collectives are possible, especially with support from local and central governments to make these efforts viable and sustainable.

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Industrial Energy Efficiency Can Improve Air Quality

Despite the Chinese government’s extensive efforts to improve air quality per the State Council’s “Ten Measures” Action Plan and implementation of regional air quality control measures, air pollution recently worsened in the Jing-Jin-Ji region (Beijing, Tianjin, and Hebei). After months of consecutive improvement last year, air quality progress slowed and then stopped in the fall of last year. For the first two months of 2017, air quality in the Jing-Jin-Ji region severely declined, with PM_2.5 concentrations increasing by 48 percent year-on-year to levels more than ten times the World Health Organization (WHO) standard and well above the 60 μg/m³ goal that Beijing is supposed to achieve by the end of 2017 (see Figure 1, based on available data from the Ministry of Environmental Protection (MEP)).

Some experts, including the MEP, have attributed declining air quality to increased industrial production, particularly steel, cement, and coke. However, measuring air quality is a complex issue with many variables, so it is difficult to draw precise conclusions about the activities that caused recent air pollution—and about how these activities interact—based on the available data.

We know that industrial activity produces pollution. But global best practices and experiences offer tools for mitigating the effects of industrial production on air quality. Improving the efficiency of steel production and expanding the successful energy and coal savings programs completed under the “Top 10,000” program will save energy while reducing air pollution.

Energy Efficiency: A Proven Air Quality Improvement Measure

The Top 1,000 and Top 10,000 programs completed during the 11th and 12th Five-Year Plans saved significant amounts of energy and coal, and reduced emissions of key pollutants. For example, industrial boiler upgrades avoided an average of 170 tons of NO_X and 410 tons of SO₂ per facility every year, while industrial system optimization avoided an average of 150 tons of NO_X and 350 tons of SO₂. Air quality models can evaluate the degree to which emissions are reduced by energy efficiency measures. Modelling results will allow air quality officials to sort control measures by their efficacy to reduce pollution, and can prioritize which measures to tackle first. Officials can also include these measures in the air quality management plans they are completing and implementing across over 300 Chinese provinces, cities, and counties.

Use Air Quality Plans to Prioritize Energy Efficiency

Despite high-level policies prescribing the use of energy efficiency as an air quality strategy, local air quality plans often lack specific efficiency measures. Institutional barriers prevent air quality and energy officials from working together and sharing information. To help officials overcome these barriers, the Clean Air Alliance of China has created a series of templates, which contain a stepwise process for including industrial energy efficiency projects in air quality management plans and permits.

Link Permits to Energy Efficiency Performance

Another way to address the absence of energy efficiency measures in air quality plan would be to build on the success of the Top 1,000 and Top 10,000 programs and use China’s new permitting system to create a mechanism for linking energy efficiency to air quality. The key elements of the Top 10,000 program for coal and energy savings can be included as specific terms and conditions in operating permits. The permitting system can also require facilities to complete energy efficiency audits as a condition for receiving a construction or operating permit. Audits identify energy savings projects that can be completed on-site, and a permit will require all cost-effective energy savings projects to be completed as part of the criteria to receive a permit. Once the permit is issued, periodic energy audits, say every five years, can be carried out to further improve energy efficiency.

The EU Industrial Emissions Directive offers inspiration. Its holistic approach stipulates that all industrial activity be evaluated on a plant-wide basis. This avoids potential unintended effects, such as an energy efficiency measure that inefficiently increases water usage. While using this integrated approach, the definition of Best Available Techniques (BAT) accommodates industry- and site-specific practices. As compared to the prescriptive American practice that focuses only on air quality and requires the “best” technologies to be installed on each and every emission point, the EU system requires the facility to install BAT for all media: air, water, and waste. A similar, facility-wide approach is useful in China, as industrial practices changes rapidly, and water and land pollution remain significant environmental concerns.

Increase Steel Recycling

More efficient steel production will particularly benefit Jing-Jin-Ji and other areas in the proximity of steel production. Increasing recycling rates improves efficiency, as recycling steel requires only one-third of the energy used to produce steel from iron ore, and also emits much fewer air and water pollutants.

During the 13th five-year-plan period, China aims to double the share of steel produced from scrap compared to the 12th five-year-plan period, while reducing absolute steel output. However, the Chinese steel industry will still need to drastically increase recycling rates to fully utilize the estimated quantities of available scrap. As has been done in several EU countries, officials can encourage steel recycling by promoting sorting, banning landfilling of recyclable materials, or making landfilling the most costly option.

Conclusion

China’s Top 1,000 and Top 10,000 programs demonstrably reduced emissions of key pollutants. Building on these programs to accelerate energy efficiency practices and incorporating efficiency measures into air quality plans will help to ensure that industrial activities also contribute to improved air quality.

A version of this post originally appeared in chinadialogue. This post is also available in Chinese here.