India is at the cusp of a massive energy transformation. As part of its commitments at the COP26, India has set a target of a 50% share of renewable energy (RE) in its energy mix by 2030. In 2020, having already reduced emissions intensity of GDP by 20%, as compared to 2005 levels, India also has committed to reduce the carbon intensity of its economy by 45%. The Government of India (GoI) is bolstering efforts toward 500 GW of non-fossil fuel energy capacity by the end of this decade. The International Energy Agency (IEA) has projected that in the Sustainable Development Scenario, India would achieve net-zero by the mid-2060s. The country is undertaking massive efforts for decarbonization across all sectors such as electrification of transportation, supporting the graduation of households to clean cooking, and gradually reducing the growth of installed thermal power capacities. Very recently, the Ministry of Power laid down the trajectory for the replacement of 30 GW thermal energy capacity with renewable energy by 2025-2026. These bold actions are no doubt going to impact jobs and sectors that currently exist or benefit due to the demand for fossil fuels and from fossil fuel based industries.
The annual Energy Balancefor India, published by the GoI, comprises 5 out of 8 components from the Total Primary Energy Supply (TPES),as non-renewable energy sources. Similarly, in the “Energy Commodity Balance”, all 13 commodities are either completely produced using fossil-fuel sources or majorly generated using fossil fuel sources(for producing electricity). These commodities have a major source of revenue (including revenue from tax and exports) for the GoI. These commodities also feed infrastructure, agriculture, and bolster the economic growth of the country for the present and future. For example, bitumen is used to build road networks and naphtha is used in the fertilizer industry, coal is used in heavy industries. Moreover, 60% of India’s power generation is currently thermal power using coal as a source of energy. As India has already set a goal of becoming net-zero by 2070, a drastic change in its existing primary energy supply sources is inevitable. Therefore, there will be a causal effect on India’s commodity balance too, as we will see massively expanding demand forelectricity from coal unless there issufficient production of bio-fuel and renewable energy based electricity. Currently, there isn’t any sufficient work available which discusses India’s net-zero goals in terms of its likely implications on the “Energy Commodity Balance” and the resultant losses and co-benefits that are currently or can be linked to it. To inform the policymakers about net-zero choices and goals for India, it is vital to create knowledge that enables the country to make an informed decision by evaluating projections for both “Energy balance” and “Energy Commodity Balance” in order to reach a net zero goal by 2070.
Further, a back of the envelope calculation highlights certain important directions which have to be considered. A transition towards a net-zero carbon economy by 2070 means a reduction in the usage of coal, lignite, naphtha, kerosene, fuel oil, lubricants, bitumen, petrol/motor spirits, other petroleum products along with diesel. This article presents key policy directions by considering an only transition in one fossil fuel use – viz. diesel as an illustration. For instance, if India has to graduate to a low carbon economy, sectoral diesel consumptions have to reduce. From the energy commodity balance of the Indian Economy of 2019 – 20 (based on the provisional data), it emerges that sectors categorized as “other sectors” comprises 89% of the energy balance in terms of the demand for diesel (which includes HSD+LDO). The remaining demand is emanating from the transport sector (7.28%) and industry sector (3.68%). The other sectors where the energy demand is coming from are – iron and steel, chemical and petroleum, non-ferrous metals, machinery, mining and quarrying, construction, textile and leather, and other non-specified sectors. Clean energy transition for the Indian economy would entail a reduction of fossil fuel demand in these sectors as well. The crucial question is, for instance, if the country reduces the demand for diesel in these sectors, can it be done either through taxation or through a reduction in the diesel subsidies.
A general equilibrium model using the inflow and outflow of economic activities and services across the sectors of the economy highlights that for a 20% reduction in diesel subsidies, there is a reduction of demand for goods and services by 5.26% within the sectors which are using diesel. Such a drop in demand is likely to also translate to a drop in employment across the economy by more than 5% if immediate reskilling and reallocation of labor through various programmes and schemes are not rolled out. Additionally, one can also see that in a post-COVID-19 green recovery path, the country can create newer jobs as efforts to transition to non-fossil fuel sources are intensified. Hence, while the reduction of fossil fuel subsidies in certain sectors can have a ripple effect on the economy in the path of transition, within the same sectors, new job opportunities are also likely to arise. The final effect and impact on the welfare of the economy will depend on how intermediate transition policies and institutional mechanisms are drawn with social safety nets to absorb any transition shocks to the economy in the path of the net-zero. Hence, existing social safety net policies shall play a pivotal role during this time and in future.
De-carbonization and energy transition imply a switch to alternative energy usage through technology upgradation and the infusion of newer and more efficient low-carbon technologies and fuels. It may also constitute a faster shift to better energy demand management interventions across all sectors that are likely to be impacted. In the process of such a switchover, if the industries are intensive with new technology and physical capital complemented by high end newly skilled professionals it can mean job losses by displacing low skilled labour with physical capital and high skilled labour. Such a transition, which inherently includes certain job losses, is likely to trigger the informalization of labour forces. The Code on Social Security, 2020 which already exists has to also include in future the informal workers who might lose jobs or can be informalised in the race for a net-zero economy by 2070. Hence it is an imperative to protect them through alternative compensatory, reskilling, and rehabilitation measures.
Moreover, the data of any worker who moves out of the organized sector and becomes a part of the unorganized sector due to the transition process towards net-zero by 2070 has to be integrated with the E-Shram Portal with UAN (Universal Account Number). Additionally, in such a case, one milestone to strengthen social protection will also be to create interoperability of UAN with EPFO. Through provision for such an intervention, workers who might lose jobs and get directed to the informal sector due to the net-zero transition process shall be able to draw Employees’ Provident Fund Organization (EPFO) social security coverage. The portal has to create a registration density and effectiveness of the social security coverage for this new informal workforce while many new jobs will get created through a transition towards a net-zero economy in India by 2070. A key challenge will be to ensure that sufficient livelihood opportunities are available to those who are already part of the informal sector, which involves the use of fossil fuels and/or sales/service of tools and machines that use fossil fuels, such as the job of a diesel car mechanic at last-mile locations and are not part of any social security net. Equally affected might be those who are engaged in jobs of non-permanent nature at MSMEs that are into manufacturing and supply of spares and parts of such tools and machines. The mere fact that a major part of the labour force in the informal sectors are likely to be currently out of any social security net brings to the fore the need for a holistic vision and strategy for just, people centric transition in both formal and informal sectors.
It is evident that clean energy transition also intrinsically means job transitions for several million individuals. In the democratic space of India, the social welfare and equity implications of such a transition process have to be well thought out in advance and balanced with effective policy, governance and institutional measures in mind. This is particularly critical as India is a federal, sovereign, and democratic country with labour being a state subject. The transition to a net-zero economy by 2070 cannot be seen in isolation from the intertwined political economy of state-level macroeconomic reforms and its implications on the welfare of various social classes in the country within a defined political economy cycle of the country.
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