Tuesday, May 29, 2012
Deregulation of oil is considered one strategy in the quiver of climate and energy diversification efforts. When the Government of India (GOI) deregulated most petroleum commodities in June 2010, it seemed to be headed in the right direction in strengthening its energy security and emissions reduction goals (even though the GOI presented the move as a strategy to stem losses for oil companies). Nearly two years since the deregulation, India is witnessing one of the sharpest increases in fuel prices--a whopping 11%. The result has been long lines for fuel, fuel unavailability in some places , and the rumblings of discontent in the coalition government. For people on the streets, it is simply a question of affordability.
Interestingly, though, the fuel price has not been driven by the deregulation. It is reportedly driven by a significant fall in the value of the Indian rupee against the U.S. dollar. The Minister for Finance, Pranab Mukherjee, has reportedly announced that the government cannot interfere with a deregulated commodity. Needless to say, opposition parties have announced a strike on May 31. The problem may get resolved temporarily; the government may infuse some relief. It may not.
The experience, however, can provide valuable insights into the challenges of adopting meaningful energy law and policy. If the government is able to sustain its deregulation policy, then the fuel prices will not go down. In such a scenario, energy diversification may receive a boost. In the best case scenario, we are looking at increased solar, wind, and other renewable energy sources. Let us not forget, however, that the government continues to subsidize petroleum products for domestic use. Hence, renewable energy may not receive a tremendous impetus, unless these sources are used as subsititues to fuel in question (petrol or gas for vehicles). If they are to receive a boost, the GOI needs to promote electrical vehicles. We are looking at vehicles that have a price tag of about US $20,000 here in the United States. For most Indians that would be unaffordable. Perhaps electric two wheelers will cost less. Even if electric vehicles were affordable, the question is whether they can all be fed by renewable energy power or whether they will require that nuclear power plant, after all.
Alternatively, people may simply stop relying on private vehicles and instead turn to public transportation. If the GOI can raise to the challenge of creating a viable public transportation system, this short term price problem may yield dividends in the long run. At the same time, this would mean a much smaller market for automobile companies. If the huge discounts offered by car companies is any indication, it is unlikely that they will leave the field for public transportation without a fight. After all, we are still talking about a major economic player.
The other scenario is that the government will intervene and stabilize or even reduce petrol prices. In such a case, the impetus for changing behavior is compromised. It will send a signal that only small incremental changes to petroleum price is possible, especially absent any global increases in oil prices. Then, goals for reducing emissions and for energy diversification have to be scaled back.
What can these lessons tell us? Despite rich legal dialogue on the matter, the question of energy comes down to question of changing behavior. People cannot be simply "nudged" to adapt to changing realities beyond a point. What future then do efforts to reduce emissions and diversify energy stand? Even if people do wean away from petroleum, can we all sustain on renewable energy alone or will we simply have to accept the a "nuclear" reality. What India's fuel price crisis can demonstrate is that carbon intensity alone is not an issue. The energy intensive model adopted by governments calls for serious introspection. Particularly, what will be true cost of energy and who will pay it. I am going to shut down my computer and disconnect the power cord, while I go back to ponder how the age old institution of law can respond to ever-increasing energy reliance. As an aside, Apple may have overtaken ExxonMobil as the most valuable company. But, it ain't worth its weight in Apps if it cannot be charged.