What's wrong with cheap energy?

By Anil Agarwal
Published: Thursday 15 August 1996

Indians and Americans are, in some ways, very similar. For one thing, neither of them like high energy prices, regardless of the cost to sanity, society and the environment. Even as Indians were agitating against the government's hike in energy prices -- and with pre dictable results, the government partially slashed them -- the two presidential contenders in the us, Bill Clinton and Bob Dole, were slanging with each other over a petrol tax of 4.3 cents per gallon. After damning Dole's demand, Clinton finally did away with the tax.

What's wrong with cheap energy?

Just about everything that one can think of.

It propels in the private motor car; reverses the public transport system; accelerates pollution and urban sprawl; destroys local production systems because they then have to compete with distant production systems which may be better endowed; provides no incentive for being energy-efficient; leaves the regions with these resources with a devastated ecology and non-existent economy ( a la Bihar); depletes foreign exchange reserves; discourages invest ment in renewable energy and, dampens incentive to invest in the railways, while the private road transport sector booms.

Since diesel is subsidised in India, presumably to support poor persons' public transport systems, you can easily guess why automobile manufacturers are scrambling to produce private diesel cars for the rich. And since there will be a shortage of middle distillates -- diesel and kerosene -- government-owned refineries will crack as much of the heavy distillates (bitumen) as they can, to produce more of the middle ones. Result: denser clouds of fumes on the roads. A vicious cycle, indeed. And in the rural areas, cheap energy means careless farmers who deplete groundwater table. Since groundwater should be used as a last resort and always very carefully, every Indian farmer with a tubewell needs to be lammed for what he is doing to our future.

And mind you, very little of this subsidy or low prices benefits the poor. This is an eyewash by crafty politicians. Low energy prices fatten the country's elite -- its rich farmers and its urban upper and middle classes. In rural areas, women continue to search for firewood and cowdung. And the urban poor, who use firewood, pay more per unit of effective energy delivered when compared to users of gas or kerosene.

I am sure that Mr Deve Gowda cut down the hike pursuing some laudable principle, but he did not want to become unpopular amongst India's powerful, urban middle-classes.

Numerous studies have shown that high energy prices have very little impact on the economy -- Germany and Japan have had the highest energy prices for a long time and, until recently, one of the highest growth rates in the industrialised world. But who will tell that to the Indian urban masses who are in love with low energy prices?

The us, too, has been having fun with low energy prices. With oil prices remaining stable over the past decade, despite the global demand growing at two per cent per annum, real prices of oil are today amongst the lowest since the oil crisis of the early '70s. Oil conservation, as a result, has gone overboard. Unlike the period 1973-79, the us government wants to lower petrol prices, not tax it to reduce consumption.

us government data shows that her citizens no longer want small cars; they want mini-trucks. As a result the average private automobile is again becoming a gas guzzler. And the government is not lowering speed limits to cut on oil consumption but increasing them. And, of course, it is one big, powerful nation which is fighting against any strong commitments to reduce greenhouse gases to prevent global warming. "The American way of life cannot be negotiated," George Bush had warned the delegates to the Rio conference. However, the recent bomb blast in an us army base in Saudi Arabia has had one salutary effect. It has again reminded Uncle Sam of the need for oil conservation and of the cost of protecting the American way of life. But to what extent will the message be internalised, is hard to say. Both Washington Post and The New York Times immediately carried articles warning against the us' overt dependence on the volatile Middle East. Dismissing the us government's protestations about the Saudi government being in good shape, columnists pointed out that the government may not be able to do much if Islamic fundamentalists took over. But there is definitely something it can do at home and that is, conserve oil.

This is not to say that the us has not attempted at all to conserve oil. In the 22 years between 1973 and 1995, us oil consumption increased, laudably, from 17.3 million barrels (mb) of oil a day to 17.7 mb. But the country definitely did not do everything it could have done. "We refused to get serious about developing national energy alternatives to cheap oil," wrote one columnist. us oil imports have increased and, especially, its dependence on Saudi oil. In 1973, usa imported 35 per cent of its oil needs, of which 10 per cent came from Saudi Arabia. In 1995, 50 per cent was met through imports -- of which 86 per cent came from the Gulf alone and 15 per cent from Saudi Arabia.

The us is a rich and powerful nation and can probably afford to be careless. But surely, relatively poorer India should learn a few lessons about the need for ecologically and socially correct energy prices and limited dependence on foreign suppliers for such a critical necessity as energy.

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