How green is our 'Green Energy'

There is a growing body of evidence that "green" fuels are not always green. Studies at Berkley and Academy of Sciences have conclusively shown that GHG reductions through use of doped gasoline using corn based ethanol will be less than 0.2% in 2017 when ethanol production is expected to peak in the US.

However, total lifecycle emission of five major pollutants (CO, Volatile Organic Compounds, PM10, Sox and Nox) are higher with corn based E85 compared to gasoline. Further, E85 produces much higher concentration of ground level Ozone, which is a serious health hazard. In India there are studies to show that sugarcane-based ethanol has an overall negative energy balance when all energy inputs are considered.

India is home to 17% of the world population and has the world's largest concentration of the poor. Some 70% of Indians depend on agriculture for their livelihood and about half of them are depend on rain-fed irrigation. Their food and water security concerns exceed energy security concerns. Proponents of bio-energy exaggerate claims of availability of waste and marginal land, availability of plant varieties and germ plasms that need no water, energy yields and viability. Rigourous research to back these claims is, however, absent.

Production and consumption of bio-energy in a localized and decentralized manner - consistent with current patterns is indeed sustainable.

However, it is far from clear what adaptive measures are needed for large-scale commercialisation of these fuels so as to make commercial energy plantations sustainable.

Data on overall energy balances and the potential impact on global and local eco-systems, socio-economic settings and local lifestyles, livelihoods of indigenous people, migration, land-holdings, food security, water security etc. need to be established and authenticated. Considerable research is also required to establish viable germ plasms and genotypes for bio-energy.

Another element that is typically overlooked is that Regulatory Institutions and/or practices for large-scale commercialisation of bio-energy are simply non-existent. These would need to be developed in order to build adequate checks and balances to protect millions of rural uneducated and dis-empowered households and help them adapt to the potential impacts of any large-scale commercialisation of bio-energy.

Subsidies make green energy greener

Government reports including some from the Planning Commission claim that a Rs 5/kg price for the seed, a 30% yield of oil and a price of around Rs 21/litre would yield a 15% ROI on bio diesel investments. Intriguingly, the same reports also recommend huge input subsidies even though the consumer actually pays about Rs 32 for diesel in urban areas and much more where the bio diesel might be produced.

Similarly, after paying a Minimum Support Price for sugarcane and instituting a procurement price for sugar, the Agriculture Ministry argues that domestic ethanol, a by product of sugar industry, should also be protected against international competition.

At the same time government does not shy away from supporting sugarcane plantations in water scarce districts of Tamilnadu, Karnataka and Maharashtra or from taxing industrial ethanol.

In 2006, the US Government directly subsidized corn-based ethanol to the extent of $3.4 Billion. The consumers are reported to have paid $3.6 billion extra for the energy they received from 4.9 billion gallons of ethanol.

Soybean and rapeseed farmers in Europe have benefited similarly. The entire World has suffered the consequences of these subsidies by way of lower availability and consequent higher prices for grain and pulses. India can ill afford such input subsidies and must seek economically more efficient incentives for green fuels.

The enabling policy environment

I would reiterate the most important conclusions of the integrated energy policy namely that for India it is not a choice of which energy option she must pursue; instead the decision for India is which other energy option can she tap to ensure energy security and lifeline energy for all. In this context, as already pointed out, bio-energy will remain critical to India's energy mix.

The industry must offer these five principles to the government as guidelines for developing an enabling bio-energy policy environment.

First and foremost, industry must insist that bio-energy be pursued as a domestically available energy and chemical feedstock option. This objective must not be diluted by a desire to meet other legitimate objectives such as raising rural incomes, raising rural employment, creating another cash crop based on MSP, promoting renewables and lowering emissions. If the market succeeds in delivering the primary objective, all other stated objectives will be automatically met in a competitive set up.

Second, industry must request that government allows markets to operate and not distort markets by mandating blending, restricting rights to direct marketing of certain bio-fuels such as bio-diesel, imposing ad-hoc and differential taxes and duties, and restricting import or movement of bio fuels in any way. Any taxes that are imposed should be on the outputs rather than inputs.

Taxing outputs selectively or giving duty rebates based on the actual end use of imported or domestic inputs can address fears that the suggested regime would be misused. This would make competitively priced bio-diesel immediately available and ensure stable, competitive & long-term supply of ethanol for desired end uses that maximise value addition.

Third, industry must voluntarily eschew input subsidies of any form and thereby avoid falling in this vicious circle. Industry should, instead, request that all approved R&D outlays be allowed as a deduction from taxes due and that this fiscal incentive be made tradable. The government should be requested to take a liberal view of expenses that could be approved as R&D outlays for developing a local bio-energy market.

Four, industry must require that when used as an energy or chemical source, all bio fuels or bio chemicals be exempt from taxes that are imposed on fossil fuels or fossil based chemicals for the same end use. Such an output based fiscal incentive will make bio fuels and bio chemicals financially attractive and will also be economically more efficient than any input based subsidy regime.

Lastly, the government must set up a transparent regulatory regime governing identification classification and allocation of waste and marginal lands, addressing socio economic issues, landholdings, migration and livelihood concerns, allowing work on energy plantations to be covered by the National Rural Employment Guarantee Scheme, establishing the role of PRI institutions and ensuring support of State Governments to the above policy framework.

I am sure that industry can add to the above five principals. But I am not sure if everyone in the industry would embrace such a forward looking, market based solution. And were I to be proven wrong on that count by the Industry, I am certainly unsure that the Government would be willing to forgo the temptation of arbitraging opportunities that result from (i) imposing multiple objectives of different Ministries on bio energy; (ii) providing input based subsidies; & (iii) using National Boards to directly intervene in markets.

This article originally published at:  http://www.servian.hu/index.php?article=4936&langID=1&v=134260