Energy-environment policy and technology selection: modeling and analysis for India

Abstract

Energy is a critical input to economic growth. The Indian energy sector is already under strain due to shortages in commercial energy supply, low reserves of oil and gas. high oil imports, unsustainable use of biomass in rural areas and fast growing demand. There is a need for the technology mix in energy supply and end-use sectors to evolve in such a way that the utilization of energy and financial resources is optimized in the long nm. The process of energy generation, conversion and use has several environmental impacts including carbon emission, which has manifested in global climate change. The energy sector has a pivotal role in carbon mitigation effort as it is the predominant source of anthropogenic carbon emission. Technology mix of energy supply and end-use sectors is the key determinant of energy sector carbon emission. in this context, along with some specific issues of current interest including penetration of renewable technologies and different patterns of infrastructure development like the transport sector, this research examines the long-term energy-environment policy of India. The broad objective is: to model the dynamics of technology selection in the energy sector and its impact on greenhouse emissions, under future scenarios, for evaluating policies to influence the future energy-environment trajectories. Energy-environment models follow either the economic paradigm (Top-down) or the engineering paradigm (Bottom-up). Top-down models analyze aggregate behavior of economic agents based on prices and substitution elasticity’s. On the other hand, the bottom-up models examine technology options in the energy supply and endues sectors in terms of costs, fuel inputs and emission characteristics. Having originated in the developed countries, the existing models do not address developing country realities like the prominent use of biomass and localized and decentralized consumption of resources. The national level energy technology evaluation studies for India have used single period models and have not addressed the issue of environment adequately. This research uses the bottom-up approach with technology investments and capacity utilization as the endogenous variables. The constraints include end-use demands and primary energy reserves, which are specified exogenously. The problem has been formulated as a linear program to minimize the discounted system cost over the planning horizon. The model has a planning horizon up to the year 2035 which is consistent with several international studies for comparative analysis, and long enough for significant technology and resource transitions to materialize. Logistic curve has been used for long term trend projections. Step-wise linear zed performance characteristics and costs of technologies and energy resources have been used to represent the variations due to factors like location, interest rates, labor prices, management practices, and scale economies. The developing country dynamics have been represented by including the observed trends in those end-use energy choices which are more driven by developmental considerations. The scenarios analyzed include carbon mitigation. subsidy to renewable technologies and an energy efficient transport infrastructure scenario.

Dantzig‘s two-stage stochastic programming approach has been used to examine the immediate implications of long-term uncertainties in macroeconomic growth and carbon mitigation. Step-wise linear zed end-use demand functions have been used to incorporate the price elasticity of demands in analyzing the carbon mitigation strategies. Some of the significant findings are: l) In the dynamics-as—usual scenario, aggregate commercial energy supply increases four fold over the period 1995 - 2035. Annual supply of coal grows three times and natural gas constitutes fifteen percent of the commercial energy supply in the year 2035. The energy sector carbon emission grows three and half times over the same period. 2) The global stabilization carbon tax trajectory leads to a thirty percent reduction in annual carbon emission by the year 2035. Bulk of the reduction results from substitution of coal with natural gas in electricity generation and industry sectors. The annual emission in year 2035 is thrice that in the year 1995. 3) Moderate subsidies can cause early penetration of renewable technologies. Carbon tax has a delayed effect as the tax levels, in the global tax trajectory, will be sufficiently high only in the later periods. Subsidy to renewable is less than the monetary value of carbon emission saved by renewable even under the reference carbon tax. 4) Analysis of electricity generation sector shows that the marginal cost of electricity supply during peak period is eight times the off-peak period marginal cost. In later years, as a reserve capacity builds up, the peak period marginal cost decreases to twice that of the off-peak period. 5) Analysis incorporating the future uncertainties suggests that it is optimal to have a larger proportion of gas based technologies for electricity generation even with a small probability of carbon mitigation measures being realized in future. 6) Analysis using price sensitive end-use demands shows that demand reduction contributes four percent in overall carbon emission reduction, under the stabilization carbon tax trajectory, by the year 2035. This study contributes to the energy—environment modeling methodology in terms of incorporating the developing country dynamics and several non-linear parameters in a bottom-up linear formulation. The analysis of various policy options like subsidies, taxes and alternate infrastructure development will be useful for the Indian energy planners in allocating energy and financial resources. The findings will also be useful for India in global carbon mitigation negotiations.