Survival imperative

CHALLENGE OF CHEAP POWER

We can compete with China only if we produce cheap goods. Large amount of electricity is consumed in the production of steel, cement and paper. High cost of electricity increases the cost of these goods and that spreads into the whole economy, but we are unable to face competition from Chinese products made with cheap electricity. The cost of commercial electricity in India is about Rs 6 per unit against about half that price in China. The government is trying to increase production and bring down the cost of electricity to meet this global challenge.

The three main sources of electricity are nuclear, thermal and hydro. There are limits to increase in production from all three. The radioactive waste generated by nuclear power plants poses threat of radioactivity. We also become dependent on imports of uranium fuel which hits at our economic sovereignty. Carbon dioxide gas is generated in large quantities from thermal power plants. This is contributing to global warming in a big way. Hydropower dams are preventing flow of sediments to the sea. The sediment-hungry sea is eating our coasts. We cannot, therefore, make unending increases in production of electricity from any of these sources.

But we need to increase production for bringing down the price and facing the global challenge of cheap goods. The government does not collect the price of environmental damage from electricity plants in order to secure this objective. Consider this: the direct cost of producing electricity from a thermal plant is Rs 3 per unit. The cost of re-absorbing carbon dioxide is Rs 2 per unit. The true cost of production is Rs 5 per unit. Yet the plant can happily sell power at Rs 4 per unit and make a healthy profit because the cost of reabsorbing carbon dioxide is surreptitiously passed on to society. The low price of power leads to increase in demand and we extend yet more invitation to environmental problems.

Recall our ancestors of the Indus Valley civilisation. They cut their forests to burn bricks, secured huge economic growth and made the grand cities of Mohenjodaro and Harappa. They made beads and wines and exported them. But they failed to take into account the negative impacts of deforestation. Soon huge amounts of soil flowed into the Indus river, the water level rose and flooded those grand cities. That was the end of that civilisation. We must take a lesson and not ignore the environmental costs of various sources of electricity. We have to find a way that protects our environment and also enables us to compete in the global marketplace.

There are two dimensions of the environment. One is the global dimension. The extensive use of electricity and oil by the developed countries is leading to emission of carbon dioxide and warming our planet. We have no alternative but to bear this. There is only small progress in global talks to cut emissions levels. But we can make efforts to strengthen our national environment so as to better face the global fallout. For example, if we adapt our agriculture to low use of ground water, if we save our rivers and forests, reduce consumption of electricity in air-conditioned malls, impose high taxes on large cars that consume huge amounts of petrol, make smaller satellite cities that require less transportation, we will then be in a stronger position to bear the consequences of global warming.

Environment tax

We need to proactively reduce consumption of electricity and impose taxes on environmental damage perpetrated by electricity plants.

We will have to impose high taxes on industries that cause environment damage. For example, nuclear power stations can be required to buy insurance against leakage of radioactive material. Thermal plants can be required to implement new technologies that reduce carbon emissions. Hydro plants can be tasked to allow 75 per cent of the water to flow freely. Farmers can be asked to plant trees along their farmlands. But this will lead to high domestic price of electricity and we will fall behind in global competition.

The solution to this dilemma is to impose an additional ‘environment tax’ on all imports. Say, the cost of cloth made by a power loom in the country increases from Rs 20 per metre to Rs 25 due to the imposition of the above mentioned environmental taxes. Other countries allow their environment to be destroyed and continue to produce cloth at Rs 20 per meter. Their cloth will enter our markets and our industries will collapse as they are burdened with higher taxes. The solution is to impose an ‘environment import tax’ on imported cloth. A tax equal to the amount of tax imposed on domestic manufacturers for preserving the environment may be imposed on imported cloth. The price of imported cloth in the domestic market will then increase to Rs 25 and our industries will be able to face the competition.

Similarly, we will have to pay an export subsidy to our manufacturers. The price of cloth in the international market will be Rs 20 since many countries are allowing their environment to be destroyed and not charging for environmental damage. The cost of cloth produced by our manufactures will, however, be Rs 25 because they have to pay an environment tax of Rs 5. Our companies will not be able to export their goods. This problem can be solved by providing an export subsidy of Rs 5 per meter equal to the environment tax imposed on domestic manufacturers. The cloth produced in India at Rs 25 per meter will be sold in the global marketplace at Rs 20 and we shall survive while also protecting our environment.

It must be accepted that we will not be able to gain the full economic benefits of globalisation in this approach. Our citizens will have to buy cloth for Rs 25 a meter while those of other countries will buy at Rs 20. The cost of living in India will increase. The domestic production and consumption will be less at Rs 25 per metre in comparison to Rs 20 per meter. I believe we must forego these small gains from globalisation and focus first on saving our civilisation from environmental collapse. We should not put our long term survival at stake for reaping the short term economic gains from globalisation.