Energy is an ubiquitous input in all processes of production and consumption that attest to a civilised, human existence. At the same time, the entire energy cycle, from extraction of primary energy to its transportation, conversion, transmission, distribution and the final use is fraught with numerous problems. Of these, consideration of cost, security of supply, availability of technology, design of regulatory regimes, and environmental impacts—local, regional and global—present a formidable menu of policy challenges.

In particular, for developing societies such as India, a rapid increase in energy use is imperative, if the national development goals and the Millennium Development Goals (MDGs) are to be realised. Appendix I lists India's current Monitorable Development Goals and indicates the principal activities in respect of which increased energy use is essential. The point made is a simple one— realising the national development goals is impossible without a significant increase in energy use. Figure 1 reinforces the point by a cross-country comparison of energy consumption per capita, and levels of human development.

The industrial revolution has been fuelled in the presently industrialised countries by an overwhelming reliance on fossil-fuels. This has led to greatly enhanced concentrations of carbon dioxide (and other greenhouse gases, GHGs) in the atmosphere (from about 280 ppmv in pre-industrial times to 360 ppmv in 2000-Inter Governmental Panel on Climate Change, Second Assessment Report 2002), with the prospect of further acceleration in the rate of increase of concentrations. Manifestations of adverse climate change from this anthropogenic interference are now detectable, and may, in the next several decades, result in unacceptable levels of adverse impacts. These will particularly affect developing countries, which have not contributed to the problem, and magnify their development challenges.

The global climate change regime, contained in the UN Framework Convention on Climate Change (UNFCCC), 1992, which has nearly universal adherence, and the Kyoto Protocol on Climate Change (KP), 1997, with a lesser number of adherents, and various institutions created (or entrusted with specified responsibilities) by these institutions (The Inter-Governmental Panel on Climate Change, IPCC; the Global Environment Facility, GEF; the Clean Development Mechanism, CDM), also visualise various cooperative partnerships, especially between developed countries (Annex I), and developing countries (non-Annex I) (e.g. Art 2.3, 4.1, 4.2, 4.3, 4.5, etc. of the UNFCCFC). Only a few of these have been actually realised so far in any meaningful sense. This paper presents a proposal for a specific, voluntary partnership within the scope of the present climate change regime, to enable participating countries to decarbonise their energy futures, while preserving their respective policy spaces to address their energy needs in the light of their individual circumstances. It is not an alternative to the UNFCCC process, and would not involve any new legally enforceable country-level commitments.

Of a total of 9741.1 million tonnes of oil equivalent (mtoe) of primary energy used globally in 2003 (excluding renewables other than hydropower), the share of oil was 37 per cent, that of coal 26 per cent, and that of natural gas 24 per cent, adding up to nearly 88 per cent of primary energy based on fossil sources (BP Statistical Review of World Energy). The average annual growth rates during 2000–2003 (Oil: 1.0 per cent, Gas: 2.1 per cent, and Coal: 6.43 per cent) significantly exceeded those of Nuclear (0.8 per cent), andHydropower (−1.0 per cent) in the same period. Moving away from such an overwhelming reliance on fossil-fuel-based primary energy may help realise multiple policy objectives, even as it would involve major challenges.

Oil in particular presents a major energy security worry, being concentrated in a few regions, and also having established an effective suppliers cartel. It is a major drain on foreign exchange earnings of developing countries such as India, which are not well-endowed with oil.

Apart from climate change, combustion of fossil-fuels is implicated in most local and regional air pollution issues—respirable particulate matter, sulphur dioxide, nitrogen oxides, carbon monoxide and ground level ozone—seriously impacting human health and ecosystems. The other links in the fossil-fuel energy chain, from exploration, through extraction, transportation, refining, distribution and conversion to secondary sources, such as electricity, also involve significant adverse environmental impacts effecting a wide range of ecological entities and human health. Of the fossil-fuels, oil in particular presents a major energy security worry, being concentrated in a few regions, and also having established an effective suppliers cartel. It is a major drain on foreign exchange earnings of developing countries such as India, which are not well-endowed with oil.

‘Decarbonisation’ in the Indian context, and more generally in that of developing countries, must be taken to mean lower carbon intensity of the economy in the long-term (Carbon intensity refers to the ratio of primary energy used to the Gross Domestic Product at Purchasing Power Parity). It cannot refer to reduction in the absolute level of GHG emitted while they are still developing countries, nor to reduction in the rate of GDP growth, since neither would permit the raising of levels of living and realisation of national development goals. In respect of industrialised countries it would mean a reduction in both carbon intensities of the economy over time, and a fall in the absolute level of GHG emissions. It need not, however, imply a fall in living standards.

Decarbonisation involves several paths which are complementary and not mutually exclusive. These are principally: enhanced energy efficiency; shift in primary energy use from fossil-fuels to renewables (including hydropower) and nuclear energy; and changes in the production and consumption patterns. Each path presents a diversity of options and challenges.

The generic issues concerning enhanced energy efficiency relate to subsidies on energy use which weaken economic incentives for conservation; high relative up-front costs of the equipment embodying efficient technologies, precluding their adoption by individual users, especially the poor, who cannot afford the up-front costs; regulatory barriers which do not lead to neutrality between generation and conservation; and issues of technology R&D, transfer and diffusion which are of particular salience in developing countries.

Subsidies on energy are still pervasive worldwide and take many forms. When applied to producers, they may distort relative prices of different energy sources leading to shifts in favour of the relatively cheaper (after subsidy) sources, which are frequently fossil-fuel-based.

Subsidies on energy are still pervasive worldwide and take many forms. When applied to producers, they may distort relative prices of different energy sources leading to shifts in favour of the relatively cheaper (after subsidy) sources, which are frequently fossil-fuel-based. They may also distort the aggregated price of the energy mix relative to other inputs, i.e. capital, land, or labour, leading to adoption of technologies which are more energy intensive than would be efficient. When applied to the final consumers they may lead to rejection of available energy efficient appliances or vehicles.

In developing countries, capital flows often need to be rationed to ensure that certain priority sectors, which may have extensive backward and forward linkages, typically infrastructure, are able to grow fast enough.

The higher up-front costs of energy efficient equipment and appliances often result from the non-realisation of scale economies, including the need to recoup R&D costs (and rents) from a small market, due to their slow diffusion. The slow diffusion rates, in turn partly result from the persistence of energy subsidies. In addition, capital market imperfections impede the flow of credit for energy efficient equipment and appliances.

In particular, in developing countries, capital flows often need to be rationed to ensure that certain priority sectors, which may have extensive backward and forward linkages, typically infrastructure, are able to grow fast enough. This may have the effect of reducing capital flows to other sectors, which are thus precluded from investing in energy efficient equipment with higher up-front costs. Another issue concerns the absence of capacities in financial institutions to appraise investment projects, except on the basis of current balance sheets. Since projects for retrofits with energy efficient technologies may, in fact, provide the greatest benefit in firms with weak balance sheets, it is precisely such projects which do not qualify for credit. In addition, it is difficult for the poor, whose occupations are typically in the informal sector, to obtain consumer credit. Given the well-established empirical fact of high private rates of discount among the poor, they too are unable to purchase energy efficient appliances or equipment.

Several mechanisms have been tried out to get around the capital market distortions. For example, Energy Service Companies (ESCOs), may borrow on the strength of their balance sheets and contract with households to undertake energy efficiency measures from such borrowings, and be compensated by the savings in power from the pre-existing baseline.

Traditional regulatory systems for energy utilities are typically biased in favour of generation over conservation. Various innovations, e.g. Integrated Resource Planning (IRP) have with success helped eliminate this source of distortion. In this system a utility invites bids in response to a demand schedule, and indifferently responds to bids for generation and conservation within that schedule.

The obvious advantage of renewables relates to their reliance on natural, local energy flows, which are often very large (and in practical terms, may be inexhaustible); the scope they accordingly present for energy security through reduced reliance on energy imports, and the risks of failure of large, centralised systems; and their significant environmental advantages over fossil-fuels. Nevertheless, they present formidable technological and policy challenges:

First, their reliance on randomly varying natural energy flows (e.g. solar, wind), increases the need for complementary energy storage or hybridisation of various sources. For example, decentralised systems, such as for home lighting, may require significant energy storage back-ups. Grid connected systems, such as wind power, may on the other hand, require relatively large complementary hydropower capacity to match the supply with cyclical demand patterns. This adds to the capital costs of systems which include renewables options. Capital market distortions restrict the adoption of renewables, just as for efficiency options. Second, upfront costs, as well as lifetime costs (at prevalent interest rates) are still high in relation to conventional options. Third, inadequate R&D, including adaptive R&D, investments in key areas. These include, solar photovoltaic systems, biomass-based systems (e.g. hydrolysis of cellulosic materials to ethanol, or gasification—both of which are important for developing countries), and high-density electricity storage. On the other hand, where R&D investments have been high, e.g. wind power (of greater interest to countries at high latitudes which have favourable wind regimes), the lifetime costs are now competitive with conventional options. Fourth, regulatory barriers which frequently lead to the isolation of decentralised renewable systems from the grid. The micro grids are thereby unable to sell their power to utilities when they have a surplus, or draw power from the grid when deficient. This forces them to invest in hybridisation of different options or large storage capacities and increases their costs. Restrictive IPRs regimes, in case of renewables too, stymie adoption and diffusion of mature technologies, particularly in developing countries. This precludes realisation of scale efficiencies and consequent reduction in costs.

Traditional renewable technologies, although well-suited to the specific local primary energy endowments, are generally inefficient in terms of conversion rates to secondary forms, such as electricity. Moreover, they are not necessarily environmentally benign.

In 2002 about 14 per cent of the total global primary energy demand was met by renewables, in which biomass dominated (11 per cent), followed by hydro (2 per cent), and other renewable sources (1 per cent). Much of this, in particular biomass, was in the informal, usually non-monetised sector. Traditional renewable technologies, although well-suited to the specific local primary energy endowments, are generally inefficient in terms of conversion rates to secondary forms, such as electricity. Moreover, they are not necessarily environmentally benign. For example, traditional biomass cookstoves in India lead to very high levels of indoor air pollution leading to respiratory diseases among the exposed population, overwhelmingly women and children. Owing to their low conversion efficiencies they may also entail disproportionate labour time of women and children in collection of the biomass, and enhance the risk of deforestation (if fuelwood-based), or reduce the availability of organic fertiliser (if based on animal wastes). On the other hand, the higher up-front costs of improved cookstoves may be a formidable barrier to their widespread use.

Of the renewable energy options, hydropower has long been part of the mainstream of commercial options. In the past decade, however, environmental concerns have led to a scaling back of hydropower involving storage reservoirs.

Of the renewable energy options, hydropower has long been part of the mainstream of commercial options. In the past decade, however, environmental concerns have led to a scaling back of hydropower involving storage reservoirs. The environmental concerns include: (a) involuntary displacement, in particular of traditional communities, from their ancestral homelands; (b) loss of genetic diversity in-situ; (c) spread of water-borne schistosomiasis (a parasitic, sometimes fatal infection of the blood carried by freshwater snails) in the irrigated areas; (d) GHG (principally methane) emissions from anaerobic decomposition of biomass on flooding of the reservoir, and CO₂ implicit in the steel and concrete dam structure; and (e) risks of flash floods downstream in case of collapse of the dam structure, particularly in case of seismic events.

These environmental risks are much reduced in the case of run-of-river hydropower. However, there are techniques for significantly abating the risks in the case of storage hydropower, which would also enable the considerably greater benefits of storage hydropower to be realised. All things considered, storage hydropower would remain in the energy mainstream in the foreseeable future.

Decarbonisation through increased energy efficiency and greater reliance on renewables, however, has limits. Considerable capital stock is currently invested in fossil-fuel-based options and associated infrastructure. Contrary to some assertions, such systemic inertia is more significant for the developing countries than for the industrialised ones. This is because the modal age of such capital stock and infrastructure in the former is much lower than in the latter, and accordingly, will be due for replacement further in the future. On the other hand, in the case of developing countries which are growing rapidly, there will be significant additions to the capital stock invested in their energy sectors. If their new investments are to contribute to decarbonisation, the alternative technologies will necessarily have to mature rapidly and prove more cost-effective than the existing fossil-fuel-based options.

Changes in patterns of production, apart from the readily recognised issues of increased efficiency in energy use in production techniques, and reduction in primary natural resources use in the economy, involve the question of enabling secular trends in the shift of economic structures to take effect. These may require the creation of an appropriate infrastructure and easing of trade barriers.

In most industrialised countries, and in some developing countries, such as India, the relative growth rates of the tertiary sectors have consistently exceeded that of primary or secondary sectors. This trend is conducive to decarbonisation of the economy, but needs further policy and infrastructural support.

In most industrialised countries, and in some developing countries, such as India, the relative growth rates of the tertiary (services) sectors have consistently exceeded that of primary (natural resource extraction) or secondary (manufacturing) sectors. This trend is conducive to decarbonisation of the economy, but needs further policy and infrastructural support. For example, it is not necessary to adopt a ‘factory type’ institutional model for the provision of many kinds of services. Accordingly, it is not necessary to construct large premises, or to require the simultaneous presence of the entire workforce, who would need to commute from their homes twice a day at the same time. A large array of services may also be provided at a distance from the consumer.

Facilitation of such shifts would require the provision of infrastructure, legal framework, and regulatory systems for electronic connectivity and commercial transactions. Such facilitation would need to be done both at the national and multilateral levels; the latter through the global trading regime.

Enhanced efficiencies, whether on the supply or demand sides, or increasing the share of non-fossil fuel energy in the global mix will not accomplish decarbonisation without accompanying steps to reduce the carbon intensities of the major energy-dependent goods and services.

Energy is valued not for itself but for its role in enabling production and consumption. Enhanced efficiencies, whether on the supply or demand sides, or increasing the share of non-fossil-fuel energy in the global mix will not accomplish decarbonisation at the economy level, without accompanying steps to reduce the carbon intensities of the major energy dependent goods and services. There are significant differences in this regard between industrialised and developing countries, which are not necessary attributes of poverty.

Figure 3 illustrates the differences in carbon emissions implicated in food production, processing, and distribution upto the table, normalised in calorie terms for India, China, and several OECD countries.

Similarly, Figure 4 illustrates differences between rates of recycling (excluding rates of re-use, which are much higher in developing countries), and carbon emissions from municipal wastes, normalised to unit GDP at Purchasing Power Parity, to separate out any direct effects of income levels for India and a set of OECD countries.

Finally, Figure 5, illustrates differences in CO₂ emissions from passenger transport, normalised to per passenger-km basis:

Changes in consumption patterns must be clearly recognised as a central issue in decarbonising the global economy.

Changes in consumption patterns must be clearly recognised as a central issue in decarbonising the global economy. They are conducive to increased growth, through reduction in energy costs for a given level of service. They would also help realise energy security, besides local and regional environmental benefits, and contribute to fiscal stability and removal of poverty.

From the foregoing discussion several widely applicable approaches emerge. The detailed strategies and instruments for realising these approaches would depend on specific country situations, including their harmonisation with nationally determined development goals. An indicative, generic list of approaches for adoption by all participating countries is as follows:

• First, the progressive reduction in energy subsidies to enable prices to correspond more closely to true opportunity costs, if a competitive market structure (or outcome approximating that of a competitive market) is to be realised. Of course, the political imperatives that led to the adoption of the subsidies regime in the first place cannot be wished away, particularly in developing countries. Lifeline rates for the poor would need to be in place for some decades, being an essential component of poverty alleviation. Even so, at least the practices with the greatest distortionary effects, such as zero marginal cost pricing, may be phased out and replaced with less distortionary policies.

• Second, the elimination of policy and legal barriers for realisation of competitive, or at least contestable markets for energy supply. These will also include reforms to ensure regulatory indifference between energy supply and conservation options, and grid connectivity of decentralised renewables based systems. Various regulatory models to bring this about have been tried out worldwide and a compendium of good regulatory practices, together with a capacity-building programme for regulators and policymakers, would be necessary and useful. It is necessary to reduce the transaction costs of regulation, which may seriously impede the entry of small-scale energy suppliers in decentralised systems, including those based on local renewable sources.

• Third, the gradual elimination of capital market imperfections which may take diverse forms. These may be addressed through appropriate reforms in capital markets, capacities of financial institutions and innovative institutions such as ESCOs.

• Fourth, the promotion of innovation in and diffusion of renewable energy technologies (RETs), whether stand-alone, or grid connected, irrespective of scale. This will include the removal of any policy and regulatory barriers to low carbon technologies which are necessary for ensuring balance of grids involving renewables.

• Fifth, the adoption of policies for the promotion of infrastructure and legal prerequisites for greater spread of e-commerce services, including across national borders.

• Sixth, the adoption of policies and strategies which bear on sustainable consumption. These may include investments in and promotion of use of mass-transport systems, retrofits of city infrastructure to facilitate bicycling and walking to work and school, improved building codes to reduce energy consumption, and raising awareness of sustainable, healthier food habits.

• Seventh, the adoption of measures to enhance recycling and re-use of various materials, and reduce reliance on packaging materials which are not of biomass origin.

Decarbonisation is not feasible without R&D in and dissemination of new, relevant technologies. R&D will not happen without the innovators reaping reasonable financial rewards for their effort. However, there is little empirical evidence that the rate of innovation suffers if the rewards are not exceptional.

Dissemination will not happen unless the new technologies are cheaper than the old. Perceptions of high transaction costs have reduced enthusiasm for the GEF among developing countries.

Similarly, dissemination will not happen unless the new technologies are cheaper than the old. The present multilateral arrangements to promote dissemination of decarbonisation technologies in developing countries are contained in the Global Environment Facility (GEF) and the Clean Development Mechanism (CDM). The GEF, a public, multilateral fund, provides for dissemination in developing countries (which have ratified the UNFCCC) of an initial pipeline of otherwise technically mature decarbonisation technologies, with a view to proving their performance in the concerned host countries, and removal of policy, legal and regulatory barriers their use. The funding criterion, i.e. Agreed Full Incremental Costs (AFICs) is intended to make the adoptionof the GEF pipeline (but not further dissemination), cost-neutral in relation to the baseline (or conventional) technology that would otherwise have been adopted. Perceptions of high transaction costs have reduced enthusiasm for the GEF among developing countries.

Under the CDM, an investor may invest in a project in a developing country (which has ratified the Kyoto Protocol on Climate Change) which reduces GHG emissions from the baseline, conventional option, and through a multilateral process set up by the Kyoto Protocol, obtain certificates for carbon reductions, which may be transferred on payment to entities in industrialised countries which have GHG abatement targets under the Protocol. Together with two other mechanisms, i.e. Joint Implementation and Emissions Trading (which apply only to countries with GHG abatement targets under the Protocol), a global market for negative carbon is thereby established. The CDM has also been plagued by perceptions of risks since the beginning. These have to do with uncertainties regarding the future demand for carbon credits, which are themselves based on uncertainties regarding the future evolution of the multilateral climate change regime. Perceptions of high transactions costs in undergoing the multilateral process for certification limit interest in this mechanism also.

Neither mechanism actively seeks to promote R&D in decarbonisation technologies actually of interest to developing countries. A clear institutional and financial need thus exists in R&D in such technologies.

Since the question of intellectual property rights over R&D outcomes is critical to innovation and dissemination of decarbonisation technologies, it is useful to recall the conceptual basis of Patents, it being the principal Intellectual Property Rights (IPRs), of interest in the present context. Patents represent a social contract, embodied in law, whereby the innovator is accorded a partial monopoly over his innovation as reward for his effort, in exchange for disclosure of the content of the patent to the general public to enable further innovation by others. The extent of the monopoly right is limited by its duration, the spatial extent of the protection and the ‘breadth’ of protection, representing the extent to which derivatives of the patented entity are also protected.

These restrictions on patent rights (time, space, breadth) are based on considerations of attaining a societally optimal outcome, determined by the relevant political processes. A political verdict may determine that net societal gains would increase if any one or more of these limitations were relaxed, leading to greater dissemination, but also reduced financial reward for the innovator. The converse may also be the case.

The history of patent regimes certainly reveals that such adjustments have been the norm. In the Uruguay Round of the GATT/WTO regime, for example, the duration of patent protection was extended. In the 2002 amendments to Trade Related Intellectual Property Rights (TRIPS), on the other hand, the spatial extent of patent protection for certain categories of critical pharmaceuticals was reduced.

If existing patent regimes are a barrier to rapid uptake of new technologies, primarily by making them costlier than existing higher carbon options, they need to be amended in a new global social contract.

Decarbonisation represents a global challenge, which must be met by all countries under the principle of ‘common but differentiated responsibilities and respective capabilities’. If existing patent regimes are a barrier to rapid uptake of new technologies, primarily by making them costlier than existing higher carbon options, they need to be amended in a new global social contract.

What may be the principal elements of the new arrangement? There is no question but that sufficient (not usurious) rewards must be available to the innovator. On the other hand, the decarbonisation technologies must be made available to those countries unable to afford the higher upfront or lifetime costs of the new technologies. This may call for the following measures:

• One, the redefinition of spatial extent of legal protection by patents of relevant, specifically identified technologies required for the decarbonisation effort, to exclude protection in developing countries.

• Two, the public (multilateral) funding of R&D (including adaptive R&D), or purchase of existing technologies required for decarbonisation measures, and making them available without payment of license fees to developing countries.

These two measures are not mutually exclusive, and in either case, license fees may be received by the patent holder through the full exercise of patent rights in industrialised countries.

The first option would need a multilateral agreement on the TRIPS, paralleling the agreement on pharmaceuticals. However, the second would not need new legal arrangements, but the creation of a publicly funded R&D venture capital fund. Such a fund may be able to cover its costs (including management and costs of capital) through licensing fees for use in industrialised countries.

It is proposed that the partner countries may jointly promote a new multilateral fund, the Global Technology Venture Capital Fund, (the ‘Fund’).

Accordingly, it is proposed that the partner countries may jointly promote a new multilateral fund, the Global Technology Venture Capital Fund, (the ‘Fund’) under the following arrangements:

• All countries would be entitled to contribute equity to the Fund. The relative equity levels of the industrialised and developing countries would have to reflect more equal power sharing in the decisions of the Fund than is the case with the existing multilateral development banks (MDBs).

• The equity of the Fund should be at a sufficient level to fund a pipeline of 30–50 key R&D projects in the initial years.

• The Fund would be entitled to raise money from global capital markets for financing its operations.

• The Fund would finance R&D in decarbonisation technologies in which all countries, but principally the developing countries have significant interest. Such R&D may be carried out on reimbursement of costs and/or sharing of the resulting IPRs between the Fund and the participating R&D institutions.

• The IPRs may be licensed on commercial terms by the Fund and other owners for use in the industrialised countries. So long as the Fund covers its costs from revenues in industrialised countries, it, and the co-owners, would license the IPRs free of cost for use in the developing countries.

• In order to reduce overhead costs, the Fund may be located in a suitable existing multilateral development organisation.

Several current policies of the industrialised countries, apart from issues of technology transfer, deter decarbonisation initiatives in the developing countries. These need to be addressed urgently.

First, attempts by some industrialised countries (or Parties) to further limit the scope of the CDM, beyond the agreed decisions of the Conference of Parties at Marrakesh, through their representatives on the CDM Executive Board and by unilateral actions, must cease forthwith/reversed. A partial list is as follows:

• Refraining from purchase of carbon credits from certain options, e.g. hydropower, nuclear, carbon sinks. These are major decarbonisation options in themselves, and their presence in a grid enables the introduction of various renewables based on energy storage options.

• Imposing requirements of evaluation of financial additionality in CDM projects as part of the multilateral process of certification of projects. This is explicitly the task of the designated regulator in the host country (only). A particular decarbonisation option may not be taken up in a given country due to various perceptions of risk, legal and regulatory barriers, etc., and not only because it is less financially attractive than the baseline option.

Second, it is necessary to recognise that in any event, coal-based and hydropower options will remain a key part of the total energy mix in the developing countries for several decades to come. However, their local and regional environmental impacts, and the needs of resettlement of persons involuntarily displaced need to be addressed. So long as due diligence is accomplished in these aspects, objections to their funding by multilateral financial institutions must be dropped. When a sufficient range of decarbonisation options, including clean coal technologies, are technologically and commercially mature, they would in any event displace conventional coal technologies by using vehicles such as the CDM.

Third, enhance funding for multilateral and bilateral programmes for dissemination of decarbonisation technologies, including through mechanisms such as the GEF, and regular operations of the MDBs, so long as they are consistent with the national strategies of the concerned borrowing countries. It would also be necessary to identify and eliminate the sources of long lead times and high transaction costs involved in the GEF and the CDM.

India's total primary energy consumption in 2001–02 was 440 mtoe; i.e. about 4.6 per cent of the global total, even as India had nearly 17 per cent of the world population, representing about one-forth of the global average per capita use, and just 4.5 per cent of the US per capita use.

The Planning Commission estimates that commercial energy demand will grow at 4.5 per cent per annum till 2020, if the economy grows at 8 per cent annually over the same period.

India's total primary energy consumption in 2001–02 was 440 mtoe; i.e. about 4.6 per cent of the global total, even as India had nearly 17 per cent of the world population, representing about one-forth of the global average per capita use, and just 4.5 per cent of the US per capita use. Of this total, 33 per cent was traditional biomass (excluding animal and human based energy), which is essentially GHGs free, 65 per cent was fossils based, while nuclear and hydropower (also largely GHGs free) accounted for 1 per cent each to the total. 56 per cent of all households had no electricity. Over 70 per cent of all households used biomass for cooking. The Planning Commission estimates that commercial energy demand will grow at 4.5 per cent per annum till 2020, if the economy grows at 8 per cent annually over the same period. The energy intensity of GDP growth has fallen sharply in the past three decades, and currently it is just 50 per cent of what it was in the 1970s.

This broad picture indicates an energy scenario that is more ‘GHGs benign’ than the mode of industrialised countries, whether now, or in the earlier phases of their industrialisation. Nevertheless, over several decades, India has pursued an energy path which, while it addresses its policy imperatives, is conducive to significant decarbonisation of the economy. The policy imperatives on which energy strategies are based include, first, increase in energy supplies to support the national development goals; second, energy security through reliance on domestic energy endowments (fossils, nuclear, hydro, other renewables); third, minimising environmental risks of the energy chain; fourth, demand side measures aimed at reducing aggregate energy intensity, as well as specific energy forms such as petroleum. Finally, the question of access to, and affordability of energy by the poor and in rural areas is a dominant consideration.

The policy imperatives imply major roles for increasing energy efficiency and promotion of renewables. Some of the policy, legal, and regulatory measures which have been put in place in this respect include:

• The Electricity Act, 2003, which provides the framework for competitive and more efficient power markets.

• The Energy Conservation Act, 2002, under which a Bureau of Energy Efficiency has been set up to promote energy efficiency in the industrial, commercial, agriculture, transport, residential, and government sectors.

• The Petroleum Conservation and Research Association, which has been set up to promote conservation and increased efficiencies in hydrocarbon use.

• The National Environment Policy (currently under finalisation), addresses diverse aspects of sustainable development conducive to increased energy efficiency and promotion of renewables. This includes industrial pollution, vehicular emissions, conservation of forests (and increase in area under forests and tree cover), wildlife, and biodiversity; management of solid waste; ensuring air and water quality; abatement of indoor air pollution; reversing land degradation and ensuring soil conservation.

Several programmatic initiatives which support increased energy efficiency and use of renewables, besides switching to less carbon-intensive fuels include:

• Enhancing standards of transportation fuels in a defined time frame.

• Mandating use of Compressed Natural Gas (CNG) for public transport in specified metropolitan areas in a defined time frame.

• Raising the share of mass transport options still further through investments in railways, metro rail in Delhi and Bangalore (other cities to follow, depending upon resource availability).

• Promotion of biofuels, in particular biodiesel and blending gasoline with ethanol.

• Increasing forest and tree cover to 25 per cent of the land area by 2007, and 33 per cent by 2012.

• Providing electricity to all by 2012, primarily through reliance on decentralised power options based on local resources.

• Ensuring cleaner fuels for power generation and raising the thermal efficiencies of power plants.

• Specific national programmes on coal washing, in-situ coal gasification, IGCC, coal-bed and mine-mouth methane extraction, and hydrogen energy.

• A major thrust on renewable energy, under which so far 3.26 million biogas plants, 34.3 million improved wood stoves, 350,000 solar lanterns, 177,000 solar home lighting systems, 41,400 solar street lighting systems, and 4,200 solar pump sets have been installed.

• Additionally, 3,000 MW of wind power; small and micro hydro plants of 1,600 MW; and 600 MW of biomass based power have been established.

• Finally, a national hydropower initiative has targeted setting up of an additional 50,000 MW of hydropower by 2012, of which 50 per cent would be from ‘run-of-river’ (ROR) projects without large reservoir capacities.

The contribution of all these measures—policy, legal, regulatory, and programmatic—to further decarbonisation of India's economy should be obvious. A MARKAL is a well-known bottom-up engineering economy linear optimising model which provides the most economic cost solution to meeting a given vector of final energy demands, given an economy's endowments, input-output matrix across sectors, matrix of technology choices, and various exogenously specified policy constraints. It is a prescriptive, rather than a predictive model, and accordingly it enables identification of the ‘optimal’ outcomes that are possible, rather than indicating that they will actually be reached. A MARKAL modelling exercise over India's growth till 2031 reveals more formally that even a subset of these measures (specified in various modelling scenarios) would permit significant decarbonisation of the economy. Interestingly, the modelling exercise shows that differences in assumed GDP growth in themselves do not impact CO₂ emissions significantly.

So long as they are sustainably harvested (essentially, that the aggregate stock of living biomass at a given time of the year does not decrease over the years), fuels of biomass origin are essentially carbon-neutral over the growing cycle (relatively small amounts of net GHGs emissions may result from biomass use through products of incomplete combustion (PICs) and escape of methane from anaerobic fermentation). Traditional biomass still accounts for 33 per cent of India's total primary energy consumption. The main sources are crop residues, animal wastes and fuelwood. The major use of this resource is in traditional cookstoves.