Lydia Powell and Akhilesh Sati, Observer Research Foundation
In the last one year a number of news items, reports and studies have highlighted India’s take off in energy consumption in general and petroleum consumption in particular. The latest is the oil market report from the International Energy Agency (IEA) for May 2016 that labels India as the ‘star performer’ in petroleum consumption. According to the report, oil demand in the first quarter of 2016 was 400,000 b/d higher year on year representing nearly 30% of global increase. ‘India will take over from China as the main growth market for oil’ declares the report.
News items like this often gives rise to the false idea that Indians are the new oil gluttons on the block. This news is a delight to investment banks and other financial outfits whose life is dedicated to looking for growth in consumption of something in every corner of the world. They celebrate the coming of age of the Indian consumer. The growth in the number of cars that the Indian consumer buys and the petroleum he consumes makes India an attractive destination for the speculative capital under their control.
But the same news invokes horror among climate change activists. They denounce the insatiable appetite for petroleum from Indian motorists as a nightmare. According to them, if something is not done about the increase in petroleum consumption by over one billion people, the world’s collective effort to combat climate change will amount to nothing. They have already put a lot of money where their mouth is. Climate activists and rich countries that see increase in petroleum consumption by developing countries as a threat to their national interest now fund a well-equipped cottage industry of research bodies and activist groups dedicated to the cause of keeping Indians away from fossil fuels. They say that they are interested in correcting market distortions so as to make the Indian energy sector more efficient. Their guns are thus trained on the state subsidies that supposedly fuels petroleum (and other fossil fuel) consumption in India.
Both narratives are over-simplified exaggerations.
According to BP’s outlook for 2035, India’s energy demand will grow at 4.2% per year, faster than all major economies in the World. Increase in coal consumption in India estimated at over 600 million tonnes (MT) by 2035 will be the fastest in the world according to BP. Energy in transport is expected to grow by 5.1% a year from 2014 to 2035 with oil dominating taking 93% of market share by 2035.
According to the IEA energy use in transportation in India was the fastest growing of all end use segments in energy since 2000 with growth of about 6.8% per year. 90% of this increase came from road transport says the report. According to IEA projections for 2040 growth in demand for transport is expected to outpace growth in demand for energy from all other segments. Not surprisingly this growth in demand is expected to be dominated by road transport with transport fuel demand touching 5.6 million b/d by 2040.
A closer look at the numbers provides a different picture. According to the IEA energy use in transport in India at 1.5 million b/d in 2013 accounted for only 14% of final energy consumption which is much lower that the share of energy use in transportation in many other countries. The use of energy per person for transportation at less than half a barrel a year is one sixth of world average. At the time of independence road transport carried only 15% of India’s passenger movement and 14% of freight movement. Today road transport accounts for 85% of passenger movement and 66% of fright movement. Passenger cars take a small share of passenger transport as most people in India use two wheelers or public transport for daily trips. According to recent study on informal public transport systems (such as mini vans and shared motorised rickshaws), only 65 cities have public transport provided by the government in a country where 350 million live in over 7900 cities and towns. In all other cities and towns in which the majority of the population does not own a car people depend on walking, cycling and informal modes of public transport for mobility. According to the study, informal modes of transport are relatively cheap, safe and clean.
Source: Statistics by Ministry of Road Transport & Highways, available at data.gov.in
Passenger vehicle ownership at less than 20 per 1000 inhabitants is far lower than world average. Passenger cars play an insignificant role in India’s overall transport partly because of the use of public transport and partly because of the use of two and three wheelers. As per government data, the share of two wheelers in total vehicle vehicles in India stood at about 72% in 2012 compared to 8.8% in 1951. The share of other passenger light duty vehicles (PLDV) such as cars and jeeps declined steeply from about 52% in 1951 to about 14% in 2012 and the share of buses declined from 11% in 1951 to 1% in 2012. The number of commercial vehicles decreased from roughly 27% in 1951 to about 5% in 2012. The only other vehicle segment (apart from two wheelers) whose share increased from about 1% 1951 to 8% in 2012 was that of miscellaneous vehicles including three wheelers, tractors, trailers etc.
The compound annual growth rate (CAGR) of two wheelers has consistently remained above 10% on average since 1951 but it is it slowing down after a peak CAGR of 20.7% in 1961-71 followed by a CAGR of 18.4% in 1981-91 (refer chart above). In 2002-12 it was just over 10%. On the other hand the CAGR of other PLDVs has demonstrated a steady increasing trend growing from 6.9% in 1951-61 to just over 11% in 2002-12. The fact that the growth rate of other PLDVs is now higher than that of two wheelers is behind the optimism of India taking off. But even by 2040 two wheelers will dominate the share of personal vehicles in India (Please refer to Data Insight at page no. 6).
Two issues may be highlighted in the context of India’s take off. There is definitely a take-off but it is a quantitative take off and not a qualitative one. A country that has less than 100 motor bikes per 1000 population is not the same as a country that has 500 cars for 1000 population even if the overall oil consumption of the two countries is the same. Second the enthusiasm of activists and research groups to curb India’s petroleum consumption is misplaced. Any reduction in petroleum consumption achieved by the efforts of these activist groups through efficiency gains is worth less to India on a per person basis than it may be to a country such as the United States. According to IEA’s World Energy Outlook for 2013, avoided import bills from energy efficiency in oil use (primarily transport) is less than $10 per person in India compared to over $250 per person in USA and $60 per person in China on account of the high levels of vehicle ownership in USA. The return in terms of avoided petroleum consumption per person for a given unit of effort by activist groups will be much greater in the United States than it is in India. The economic and social gain of a poor Indian taking off in a motor bike (albeit an inefficient one) to deliver milk to a consumer may be greater than the environmental harm that supposedly causes. The problem is that according to the new scheme endorsed by the great and the good, the guilt of owning three SUVs in the USA can be assuaged by preventing a poor Indian (or African) from getting an extra litre of petroleum for his rickety motorbike.
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