Economic Policy News & Views January 2010
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CLIMATE CHANGE ...
Copenhagen climate summit collapses
The global summit to tackle climate change collapsed in this Danish capital as host Denmark insisted on pushing its own "political declaration", ignoring the pleas of the poor nations.
With the failure at Copenhagen, it is time to vacate the barricades and examine the moral and strategic underpinnings of India's stance.
In a nutshell, the climate change problem stems from a stock of pollutants (``carbon'') in the earth's atmosphere that is expected to change climatic patterns, with geographically uneven implications. Ongoing emissions exacerbate the problem by augmenting the extant stock. Historical contributions to the stock have been highly asymmetrical, with a small subset of humanity being the principal culprits. The contributors to ongoing emissions include the old villains but also feature some polluters-come-lately. Thus, there are two related, yet distinct, problems that admit quite different treatments.
The stock problem is one of apportioning a noxious cake, which is a fait accompli produced by a few cooks. The obvious remedy for righting past wrongs is reparations, say as cash and technology transfers. The extent and nature of reparations is a matter of negotiations. The flow problem is about prospective emissions and there are well-understood ways to incentivize the future behavior modification of all nations. The incentive mechanisms range from quantitative caps to fiscal transfer mechanisms negotiated by the nations.
It is important to disentangle the stock and flow problems because this distinction offers an axis along which an inter-generational bargain between the past and future may be fashioned: future large emitters such as India and China sign-up to a global regulations regime on future emission flows in exchange for significant reparations from past emitters in the form of wealth and technology transfers.
Power ministry floats Cabinet note to push open access
The power ministry has floated a Cabinet note to resolve a contentious issue in implementing open access that allows large users to choose their electricity supplier.
One of the most disappointing aspects of the power sector reform has been the lack of tangible progress on competition and open access to wires in the sector. This is an area that significant responsibility may be placed on state electricity regulators, who should have been more proactive in “encouraging” introduction of open access and third party sales to break the monopoly of the state-owned utilities.
Although, several SERCs have notified open access regulations besides fixing surcharge, transmission and wheeling charges, it has hardly helped consumers to come forward to avail of the open access facility. There may be compelling reasons such as cross subsidy surcharge, transmission charges etc. that disincentivize the consumers to go in for open access. Applications seeking open access for over 25,700 MW have been submitted but actual implementation has, however, been as low as 7,400 MW, and that too largely for captive power.
The magnitude of wheeling charges and cross subsidy surcharges has de facto made open access unviable. Hopefully, the Cabinet can take on the power ministry, which has been reluctant in creating a competitive market for electricity, and suggest penalties for not mandating open access.
Companies cede power-trading licences
The government’s plan to encourage trading of power has received a severe jolt with some companies surrendering their trading licence to power sector regulator Central Electricity Regulatory Commission (CERC).
Even though pronouncements have been made and a CERC staff paper in 2006 recognised trading both for meeting short term fluctuations in demand and for resource optimization trading at present is feebly meeting the former objective and the design of the market microstructure has paid little attention to resource optimization. Section 66 of
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