Editorials/Opinions Analysis For UPSC 01 December 2022
Contents
- Road map for gas pricing liberty
- Annual heat waves could kill Indians, says World Bank
Road Map For Gas Pricing Liberty
Context
The government-appointed Kirit Parikh Committee to review the gas pricing formula has submitted its recommendations to the Ministry of Petroleum and Natural Gas (MOP&NG).
Relevance
GS Paper 1: Mineral Resources; GS Paper 3: Indian Economy
Mains Question
If India makes natural gas the “next stop” on its energy journey, it will have a better chance of arriving at the goal of a predominantly clean system. Discuss. (250 Words)
Gas Pricing in India:
- Much of the natural gas produced in India does not command a market-determined price — that is, it is not determined by buyers and sellers in the market based on demand-supply dynamics.
- Rather, a formula is used to determine the price of gasoline every six months.
- According to this formula, the domestic gas price is the weighted average of four global benchmarks:
- Henry Hub in the United States,
- Alberta gas in Canada,
- NBP in the United Kingdom, and
- Russian gas.
- The domestic price is based on the previous year’s prices of these international benchmarks and begins with a quarter’s lag. It is valid for six months. As a result, the price in effect from April 1 to September 30, 2022 is based on benchmark prices from January to December 2021.
This Formula’s Evaluation
- Some interesting features and outcomes can be found in this formula-based pricing.
- For starters, the formula makes no mention of gas imported into India. Gas imported from Asian markets is typically more expensive than many international benchmarks.
- In effect, the price of domestic gas is lower than the price of imported gas.
- Second, the averaging of benchmark prices over the past year, followed by a quarter’s lag, means that domestic gas price movement is frequently out of sync with what’s actually happening on the ground.
Criticism levelled at this Formula:
- Domestic gas prices have risen in recent years, but thanks to the formula, they are still cheaper than imported gas.
- This acts as a disincentive to local producers such as ONGC, Oil India, and Reliance Industries, who frequently find that the price is not worth their time and effort to increase output.
- This eventually leads to increased gas imports at higher prices.
- What India needs to do to have a mature gas market is to review its existing formula.
- The argument is that the formula is based on markets that are either very matured or producers themselves, and is not exactly India-specific.
- India has set a target of increasing the share of natural gas in the energy mix to 15% by 2030, and in order to achieve this, the entire eco-system must be addressed.
India’s growing reliance on imports:
- India is the world’s second-largest gas importer. It sources roughly half of its needs from foreign suppliers, primarily from West Asian producers in Saudi Arabia, Qatar, Oman, and Kuwait.
- Over the years, India’s reliance on imported natural gas has steadily increased and is now approaching 50%.
- Consumption of liquefied petroleum gas (LPG) increased sharply after the Pradhan Mantri Ujjwala Yojana (PMUY) was launched in 2016.
- In September, the government formed a committee led by energy expert Kirit Parikh to review the gas pricing formula for domestically produced gas in order to ensure a fair price even as global gas prices remained high.
The committee’s recommendations have been submitted to the Ministry of Petroleum and Natural Gas (MOP&NG).
- The committee has recommended a price band of $4-6.50/unit for gas from old legacy fields, which account for more than 70% of domestic output.
- A price band will ensure a predictable pricing regime for producers while also protecting consumers by reducing price spikes in CNG and PNG.
- The panel proposed linking the price of gas produced by state-owned firms from fields given to them on a nomination basis to imported crude oil prices rather than benchmarking them to gas rates in the international market.
- The committee has proposed that formula-based gas pricing be phased out and fully market-determined rates be implemented by January 2027.
- It also proposed including natural gas in the GST one-nation-one-tax regime.
- It is possible to accomplish this by combining excise duty levied by the central government and varying rates of VAT levied by state governments.
- To address the state’s concern about revenue loss, the panel recommended establishing a mechanism similar to the compensation cess regime.
- This regime compensated states for any revenue loss incurred as a result of granting states the right to levy VAT and other taxes on goods and services during the first five years of the GST regime’s implementation beginning on July 1, 2017.
Annual Heat Waves Could Kill Indians, Says World Bank
Context
According to a new World Bank report, as temperatures in India continue to rise due to climate change, keeping spaces cool using alternative and innovative energy efficient technologies can open up a $1.6 trillion investment opportunity by 2040.
Relevance
GS Paper 1: Important Geophysical phenomena such as earthquakes, Tsunami, Volcanic activity, cyclone etc., geographical features and their location-changes in critical geographical features (including water-bodies and ice-caps) and in flora and fauna and the effects of such changes.
Mains Question
What exactly is a heat wave? Explain its occurrence in India and how long it can last.
Heat Waves
- A heat wave is a period of abnormally high temperatures that exceed the normal maximum temperature.
- Heat waves are common in India from March to June, and in rare cases, they can last until July.
- On average, five to six heat wave events occur each year in the northern parts of the country.
- A heat wave is defined as the maximum temperature of a station reaching 40°C or higher for Plains and 30°C or higher for Hilly regions.
- Heat Wave: Departure from normal is 4.50°C to 6.40°C; Severe Heat Wave: Departure from normal is >6.40° C
- Calculated using the actual maximum temperature Heat Wave: When the actual maximum temperature is 45°C or higher; Severe Heat Wave: When the actual maximum temperature is 47°C or higher.
- Rapid heat gain impairs the body’s ability to regulate temperature.
- It can cause a chain reaction of illnesses such as heat cramps, heat exhaustion, heatstroke, and hyperthermia.
India Cooling Action Plan (ICAP)
- The Ministry of Environment, Forests, and Climate Change launched the India Cooling Action Plan (ICAP) in March 2019.
- It takes a 20-year view and outlines the steps required to provide access to sustainable cooling.
- The Plan aims to: o reduce cooling demand across sectors by 20% to 25% by 2037-38; o reduce refrigerant demand by 25% to 30% by 2037-38; o reduce cooling energy requirements by 25% to 40% by 2037-38; o recognise “cooling and related areas” as a thrust area of research under the National Science and Technology Programme; and o train and certify 100,000 servicing sector technicians by 2022-23, in collaboration with the Skill India Mission.
- The World Bank has published the report “Climate Investment Opportunities in India’s Cooling Sector.”
The vulnerability of India
- Every year beginning in 2030, more than 160 to 200 million people in India could be exposed to a lethal heat wave.
- Due to heat stress-related productivity decline, approximately 34 million Indians will lose their jobs.
- Currently, food loss due to heat during transportation costs close to $13 billion per year.
Opportunity
- By 2037, cooling demand is expected to be eight times higher than it is now.
- This could result in a $1.6 trillion investment opportunity by 2040, as well as significant reductions in greenhouse gas emissions and the creation of 3.7 million jobs.
It is necessary to transition to a more energy-efficient path.
- As the demand for cooling rises, a new air conditioner will be required every 15 seconds.
- It is expected to increase annual greenhouse gas emissions by 435% over the next two decades.
- A more energy-efficient path is required, which could result in a significant reduction in expected CO2 levels.
Suggestions
- The report suggests a timeline to support New Delhi’s India Cooling Action Plan (ICAP) 2019.
- Make climate-responsive cooling techniques the norm in both private and public-sector construction.
- This can help to ensure that rising temperatures do not disproportionately affect those at the bottom of the economic ladder.
- The Pradhan Mantri Awas Yojana (PMAY), India’s affordable housing programme for the poor, can implement such changes on a large scale.
- Enact a district cooling policy that could result in 20-30% less power consumption than the most efficient conventional cooling solutions.
- District cooling technologies use a central plant to generate chilled water, which is then distributed to multiple buildings via underground insulated pipes.
- This decreases the cost of providing cooling to individual buildings.
- Invest in pre-cooling and refrigerated transport to fill gaps in cold chain distribution networks.
- This will reduce rising food and pharmaceutical waste during transportation as temperatures rise.
- It can help reduce food waste by 76% and carbon emissions by 16%.
- Improved servicing, maintenance, and disposal of hydro chlorofluorocarbon-using equipment.
- Over the next two decades, this could result in the creation of two million jobs for trained technicians.
- It reduces refrigerant demand by approximately 31%.
- The report also recommends that the Sendai Framework for Disaster Risk Reduction 2015-30 be implemented effectively, with the state taking the lead.
- The framework aims to significantly reduce disaster risk and losses in lives, livelihoods, and health, as well as in the economic, physical, social, cultural, and environmental assets of individuals, businesses, communities, and countries.
