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Global Energy Policies and Practices Index, Shri R V Shahi, Former Secretary, Ministry of Power

The World Energy Council has launched a number of studies on various energy issues, with the objective that dissemination of these Study Reports would enable better awareness about the situations prevailing in different countries and also adaptation of benchmarked practices to improve the situations in various countries. One such study is on the issue of Energy Policies and Practices in different countries. The Study Group has already identified a number of factors which should go into evaluating the relevant parameters in energy, and related segments. In the Energy Policy statement of the World Energy Council, three important parameters viz. Accessibility, Availability and Acceptability (three A's) had been identified as important aspects of energy relevant to all nations and to different regions.

The WEC India Member Committee organised a Workshop on 22nd May, 2009 at Delhi to deliberate upon the issues concerning the Study on Assessment of Energy Practices. The idea is to evolve an Energy Policies and Practices Index. A good amount of work has already been done and a number of factors have been identified. The methodology adopted includes a macro level analysis of overall capability of a country to formulate and implement the Policies, and a micro level analysis of most effective and specific energy policy and practices within a country. The macro assessments would include factors such as Institutions and Regulatory Framework, Economy and Markets, Infrastructure and Security, Social Capacity and Equity and Environment and Climate. The approach also includes comparison of country clusters. This is based on the fact that resources and development in different countries are of different nature and, therefore, comparison would be difficult. However, it is also true that many countries have similar problems. Therefore, country clusters would include comparison among the countries within a cluster. Under each of the major factors, a number of elements have been identified. Accordingly, there are almost 50 parameters which have been captured. Under the category of Institutions, the elements identified include Rule of Law, Protection of Property Rights, Regulatory Quality, Private Institutions, Internet Users and Level of Corruption. Under the category Goods and Factor Markets, the elements captured include goods markets, financial markets, labour markets and ease of business. The main factor economy covers GDP growth rate, inflation rate, long term interest rate, per capita GDP, industry share of GDP, innovation including R&D expenditure as a proportion of GDP, energy R&D in relation to GDP and per capita patents. Energy markets cover energy sector size in relation to GDP, per capita energy consumption. Investments in energy as compared to total investment, quality of infrastructure, reliability of gas networks, reliability of electricity networks, are the important parameters which have been captured under Infrastructure. The parameter of energy security covers diversity of supply, energy intensity, strategic oil stocks, extent of import in relation to consumption and renewables in relation to total energy. All these factors constitute what have been identified as economic parameters. Under the broad head of social capacity and equity, education, health and safety and equity are the sub-heads and they cover enrolment percentages for Secondary Education, number of Engineers and Scientists, per capita expenditure on health, life expectancy, infant mortality, percentage of population having access to modern energy and expenditure on energy in relation to household income. Another important parameter viz. environment includes environmental factors and climate change. These cover air pollution, water quality, water stress, bio diversity, per capita CO2 emission, CO2 emission per unit of GDP, emission intensity of power sector, emission intensity of transport sector.

Thus, at the stage of formulating the draft approach paper on the subject, extensive work has been done by the Study Team and the efforts need to be complimented. During the Workshop Dr. Kirit Parikh, Member, Energy, Planning Commission and myself made a number of observations on the methodology, the factors that have been chosen and the weightages to be assigned that would make a difference in computation of the Energy Policies and Practices Index. These observations are outlined below :

  • Even though a cluster concept has been envisaged to reflect the present situations in relation to energy in different countries, it is unlikely that inter-country comparison, even beyond cluster, will not be made on the basis of the Energy Policies and Practices Index (EPPI). It is, therefore, important that maximum amount of objectivity is introduced both while selecting the factors and more importantly while assigning weightages to them.

  • In respect of Human Development Index, there is considerable amount of criticism on both these aspects viz. the factors and weightages. As a result, the index does not truly reflect the correct position and fulfil the objectives for which this index was conceived.

  • Problems in relation to indices on transparency and, therefore, ranking of countries in respect of corruption have also been highlighted in different forums emphasising that greater degree of objectivity is required in determining these indices for different countries.

  • In respect of R&D expenditure as a percentage of GDP or per capita as envisaged for EPPI, the index will not represent the correct picture. Instead capital expenditure on R&D, Policy on taxation, and incentives on R&D could represent the intent and strength of Policies better.

  • Climate change is an important issue. CO2 emissions per unit of GDP, however, might give a misleading result. Similarly, on environmental factors it is important to recognise that local environmental concerns are far more important than global environmental concerns. For a large number of developing and under developed countries, CO2 emission is not of great concern. Their energy consumption level is so low that the whole issue of equity, inclusive growth, standards of living and quality of life, have to be addressed in a more urgent manner than giving priority to issues like CO2 emissions.

  • There are also intra-countries issues on major environmental problems. For example, in India wherever we have large areas of coal reserves, a number of power stations based on coal come up, leading to excessive CO2 emissions and other environmental problems. As compared to these places the environmental problems in Metros are of different nature. Any attempt to develop the weightages and, therefore, the index may face huge challenges to smoothen out and moderate these intra-country differences on environmental issues.

  • Since this exercise aims at evaluating Energy Policies and Practices, it is important to recognise that Policies and Practices, which need to be formulated and implemented, cannot be divorced from the context of the country. Inter-country evaluation of Policies and Practices would be severely constrained if we tried to evaluate the Policies of one country and compare them with those of others in an absolute fashion. The needs for and nature of Policies would considerably differ from country to country. For example, there are countries in which more than 80% of population do not have access to commercial energy. For such countries the Policies will have to be prioritised to meet these basic requirements. Such a Policy, on the other hand, may not be relevant for highly developed and industrialized countries where this is not an issue at all. If we need to compare, in an objective manner, the performance of different countries, the first step that would be required would be to identify the energy needs and energy problems of each country and the type of Policies that they need to evolve which will render the required deliverables to effectively and adequately address these problems. It is only then that the performance evaluation of a country on Policy formulation and implementation could be made with reference to what they ought to be doing and what they are doing. Any evaluation of any parameter without defining the context will be erroneous.

  • This approach will, therefore, lead to a major structural change in identifying the factors and then finding out the performance with reference to these factors and then assigning the evaluations on the basis of weightages which might have been decided.

  • Relative weightages would obviously be a controversial issue. At the same time we also must recognise that unless utmost objectivity is introduced, different sets of weightages could lead to different types of ranking which would also mean that we might get a distorted picture if weightages are not assigned in a proper manner.

  • Another aspect in respect of evaluation of Policy and Actions is also in relation to the pace of improvements, and the outcomes that are secured in a given time frame. We may evaluate the outcome as such and assign the points as deserved. Another set of evaluation should capture how fast and how effectively the Policies have been put in place and how fast the outcomes are being delivered in a time frame of three to five years or so. Underdeveloped and developing countries have the needs to accelerate the pace of actions and therefore the deliverables. Same may not be the case with the countries whose needs have more or less been met.

  • In the last few years, the global warming issues and climate change concerns have become, and rightly so, most important challenges. Overall weightages for factors concerning these must reflect be strength of these requirements both in terms of Policy formulation and commitments for implementation. CO2 emissions in terms of tonnage (absolute value) do not reflect the Policy intentions. The recent Report of the World Energy Council "Energy Policy Scenarios 2050" brought out this parameter, that is tonnes CO2, in a very predominant manner highlighting the positions of different countries in this regard. I wrote a critical Article on this document suggesting that there are countries which are small and there are countries which have large areas and populations. Any attempt to compare the countries on the basis of tonnes of CO2 emissions would be only misleading. In the WEC atleast, which is an organisation of professionals, leaving aside the political and diplomatic considerations of different countries, we must unanimously agree and use per capita CO2 emissions only as the true reflector of the state of affairs in so far as this parameter is concerned.

  • The seriousness and commitments with which different countries have responded in terms of policy initiatives, concrete actions and outcomes in respect of the assurances under the Kyoto Protocol must get considerable weightages in overall evaluation. We all know that global performance with reference to Kyoto Protocol has been far from being satisfactory.

  • Different countries, in the last ten years, have been prescribing, through regulations, the proportion of renewable energy in the overall energy generation that they should be targeting. This is an important Policy direction aimed at a balanced energy strategy, energy security, and above all an effective answer to climate change problems. Percentage of Renewable Energy as compared to the total energy could constitute another important parameter to be assigned considerable weightages in the overall evaluation. Here again, the evaluation should cover two aspects, (a) the present level of achievement, and (b) the pace of progress in last five to ten years. While talking of the Renewable Energy, I consider it important to mention that there have been considerable discussions on treatment of hydroelectric projects as renewable. I recall that India Member Committee raised this issue very strongly during 2002-04 that all hydro projects irrespective of sizes and nature, whether run-of-the-river or storage, must be recognised as renewable. Problems of rehabilitation and resettlement are indeed challenging, they must be properly addressed, we must ensure satisfactory rehabilitation and resettlement of affected families and the areas, but this should not stand in the way of accepting that all hydro projects are renewable. Very gratifyingly, the World Energy Council, for the first time, in its Annual Energy Statement of 2005 recognised this and made suitable mention about this.

  • Developing countries and developed countries suffer the syndrome of a paradox of shortage of energy and at the same time its inefficient consumption. Those who have sufficient energy, also try to conserve and use it efficiently but, unfortunately those who suffer substantial insufficiency, waste and consume most inefficiently. The Energy Policy Index needs to capture the policies and practices on the Demand Side Management (DSM) so that the energy efficiency initiatives are properly recognised and valued. This is not only a good answer to address the problems of energy shortages but indeed it is a substantial solution to climate change concerns as well. Therefore, various elements of Demand Side Management and energy efficiency measures must be given appropriate weightages in evaluation. To focus on extravagant consumption of energy, Energy Intensity with reference to GDP could be a reliable parameter to be duly valued in the EPPI.

  • In energy sector, it has now been seen that, every thing cannot be left to the market. In a situation of extreme shortages, markets do not take care of, in a balanced way, interests of all the stakeholders. Independent Regulation, with its gradually diluting role as market matures, seems to be a better answer to the prevailing problems of energy sector, at least in most of the developing economies. Even in developed economies, developments of last 2-3 years clearly indicate that total reliance on market may not fetch the desired outcome, in fact, it could prove counter productive. EPPI needs to capture, with appropriate weightages, the policies and practices in this regard.

The initiative of the World Energy Council aimed at formulating Energy Policies and Practices Index is indeed laudable. The Study Team, in its draft approach paper has already captured a large number of issues which are all relevant. Some of the suggestions made in this paper need to be kept in view, particularly the exercise of identifying Policy issues in the context of the prevailing energy situations in different countries will require a very careful approach. Equally important, but challenging, would be the exercise of assigning relative weightages to different parameters. Acceptability, across the world, of the EPPI will largely depend on how skilfully the relevant factors have been identified and, more importantly, allotted appropriate weightages.