Introduction
The pilot report on the effects that Cap and Share (C&S) might have if introduced in a BRICSA country as part of a global climate settlement was prepared for <a href="http://www.feasta.org/documents/energy/Cap_and_Share_South_Africa.pdf">South Africa</a> by Jeremy Wakeford. This report for India follows Wakeford's model.
Conditions in India are unique, as indeed they are in every country. Some elements of the pilot study, especially the impact on trade, have been shortened, whilst the section on the impact on households is given more prominence.
The introduction of Cap and Share would mean that Indian households received a direct payment for their share of each year's global emission rights. Such payments might double the country's GDP.
Summary and Conclusions
This study sought to identify the initial impact that a global Cap and Share scheme might have on India, based on a set of limiting assumptions. In particular, it attempts to quantify the immediate impact – i.e. before behavioural responses – on energy prices, the macro economy, household expenditure and income, industries and the competitiveness of renewable energy sources. The main findings are summarised as follows.• India’s per capita emissions are less than one quarter the world average. Emissions are dominated by those from coal, and have been on a rising trend since independence.
• Putting a price on CO2 emissions would have a major impact on the price of electricity, and on biomass, the two most important sources of energy in India. The impact on the prices of transport energy in India may be less, but will nonetheless be felt in the same way that oil prices rises in the last year had to be dealt with through burden sharing. Higher energy prices would also feed through into higher producer and consumer prices given that energy is embodied in the production process for many goods, and many goods and services have a transport cost component.
• Because of India’s low per capita emissions, the net impact of C&S, taking into account the total cost of emission permits after adjusting for the balance of emissions embodied in trade as well as national income from PAPs, is a substantial, positive percentage of GDP.
• At the household level, C&S would effect a substantial degree of income redistribution within India given the existing extent of inequality in energy consumption and income. In particular, the richest income decile is a marginal net loser from C&S while the bottom nine deciles are net winners. In proportional terms, C&S has a progressive impact on inequality.
• The energy transformation industries, especially coal-powered electricity would be hard hit in terms of their pricing. Government of India would have to change its current electricity pricing policy, and pass on price hikes to consumers or industry for C&S to have the required neutralising effect on price rises.
• Overall C&S may give Government of India a chance to re-look at India’s energy pricing policy for the period between say 2012 and 2040 when C&S is in place, when households have up to seventy times more income over all compared to their total income today depending on the price of CO2.
• Other energy-intensive industries, such as mining and metal production, have similar energy-intensities to their direct competitors in other countries, but could lose out to less energy-intensive competitors where those exist. Over time there is likely to be a relative decline in long-distance international trade.
• Renewable sources of energy become much more cost competitive than coal-fired electricity even at moderate CO2 price levels. This exploratory study has hopefully demonstrated that more extensive research and analysis into the potential impacts of C&S is worth undertaking. For instance, more complex economic modelling could be applied to estimate some of the dynamic responses of industrial sectors and households to higher energy prices.