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The Political Economy of Clean Energy Transitions$

Douglas Arent, Channing Arndt, Mackay Miller, Finn Tarp, and Owen Zinaman

Print publication date: 2017

Print ISBN-13: 9780198802242

Published to Oxford Scholarship Online: May 2017

DOI: 10.1093/oso/9780198802242.001.0001

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Governing Clean Energy Transitions in China and India

Governing Clean Energy Transitions in China and India

Chapter:
(p.231) 12 Governing Clean Energy Transitions in China and India
Source:
The Political Economy of Clean Energy Transitions
Author(s):

Karoliina Isoaho

Alexandra Goritz

Nicolai Schulz

Publisher:
Oxford University Press
DOI:10.1093/oso/9780198802242.003.0012

Abstract and Keywords

China and India will have to radically transform their electric power systems in order to decouple economic growth from unsustainable resource consumption. The development and deployment of renewable energies offers a solution to this challenge. A clean energy transition, however, requires radical changes in the energy system that can only occur if a governing coalition is both willing and able to implement successful RET (renewable energy technology) policies. The authors analyse how this willingness and ability is shaped by the coalition’s power and cohesiveness, societal pressures, and the institutional configuration across levels of governance. In doing so, central drivers are identified and barriers to a clean energy transition in China and India.

Keywords:   economic growth, China, India, unsustainable resource consumption, renewable energies, clean energy transition

12.1 Introduction

China and India face a tremendous dilemma in addressing their developmental goals. Both need to respond to demands in poverty reduction, energy access, and urbanization, while reconsidering their development pathways that have been highly coupled to fossil fuel use. Renewable energy technologies (RETs) offer a solution for this dilemma. Decoupling economic growth from unsustainable resource consumption through the development and deployment of RETs would enable the transition to a clean energy economy, helping to reduce China and India’s greenhouse gas (GHG) emissions while allowing societal and economic development (Altenburg and Pegels 2012). The rapid innovation and fall of prices in the RET sector indicates that a shift to RETs is becoming economically and technologically more feasible (World Energy Council 2013). Yet, broad consensus exists round the view that a full transition to RETs requires radical and ‘deep structural’ changes in the energy system (Geels and Schot 2007). This chapter analyses the key drivers and barriers for the promotion of RETs in the electric power systems of China and India. It does so by looking at how a governing coalition’s ability and willingness to promote RETs is shaped by its power and cohesiveness, societal pressures, as well as a country’s institutional framework, and how these factors vary between sub-national units.1

(p.232) 12.2 Theoretical Underpinnings

A clean energy transition is characterized by a shift from a fossil fuel energy regime to a cleaner one.2 We consider a clean energy transition occurring if the share of renewable energy in the power mix is growing faster than those of other energy sources. The vast majority of transition literature explains the processes of such shifts by analysing socio-technical and techno-economic means through which a transition could occur (Geels and Schot 2007). Recently, however, scholars are increasingly stressing the importance of political economy factors and geography-based analyses (Bridge et al. 2013; Meadowcroft 2011). While being attentive to the geographical context in which transition occurs, we align particularly with the more political economy-oriented literature.

In this study, we argue that a governing coalition’s willingness and ability to implement successful RET policies is a function of three interconnected political economy factors. First and foremost, rulers are interested in staying in power. It is when this interest is seriously threatened by a specific policy problem that governing coalitions will be willing to solve it. Translating this to RET policy, a change towards a clean energy transition would be likely to occur if the governing coalition faces pressure from (potentially) powerful groups in society that are negatively affected by the current energy regime or that profit from promotion of RETs. This being said, relevant societal pressures could also be less RET-specific, for example about providing broad access to electricity. When this can be feasibly addressed using RETs (e.g., because of geographical advantages or technological advances), then they are likely to be promoted as well. Importantly, however, the political survival of the governing coalition will also depend on powerful groups interested in keeping the fossil fuel dominated status quo (Tsebelis 2002; Moe 2010). Only when the societal pressures demanding the departure from the status quo are more threatening than those demanding its preservation—or if these two pressures can be somehow reconciled—are governing coalitions willing to actively promote RETs.

Second, how power is distributed within and outside the governing coalition shapes its ability to develop and implement policy effectively (Khan 2011). Generally, once decision-makers in a governing coalition have decided to implement a certain policy, they will be more able to do so the less fragmented the coalition is and the less external opposition it faces. This is because weak and fragmented governing coalitions are more likely to have to (p.233) allow policy (or rent) capture in order to hold together factions within the governing coalition and to coopt other social organizations in society as a survival strategy (Migdal 1988). Thus, while certain distributions of power can strengthen a government’s policy implementation capacity, others can act as a barrier.

Finally, certain institutional setups—such as constitutionally defined structures—are hard to change but strongly shape policy-making and implementation. Whether the central government can push sub-national governments to implement RETs, for example, is highly dependent on how federal ‘rules of the game’ structure the polity (North 1990). Some institutions, however, are easier to change, for example the allocation of budgets and responsibilities to different ministries. Section 12.3 analyses how these factors matter for China and India.

12.3 China

12.3.1 Drivers

China’s energy mix is dominated by fossil fuels. In 2014, coal accounted for 66 per cent of total energy consumption, followed by oil (18 per cent), hydroelectricity (8 per cent), natural gas (6 per cent), and nuclear power (1 per cent). Non-hydropower renewable energy only accounted for 2 per cent of the energy mix (BP 2015).3 Yet, this rather bleak picture is contrasted with recent developments to push renewable energy. For the first time, China’s new renewable power capacity surpassed new fossil and nuclear capacity in 2013, and the same was achieved in the following year (REN21 2015). In 2014, China also emerged as the world leader in clean energy investment with US 83.3 billion invested (FS-UNEP 2015). Strikingly, China’s GHG emissions stagnated for the first time in a decade (IEA 2015a). First results from 2015 estimate that coal consumption fell by 5 per cent (Greenpeace 2014).

12.3.1.1 Shift towards Promoting RET Policy

These developments indicate that the Chinese government has been actively moving towards promoting RETs. A clear shift took place in 2005 with the establishment of the renewable energy law (Chen 2012). It developed pioneering measures ranging from targets in installed capacity to direct financial (p.234) support policies. Since then, China has developed comprehensive renewable energy policies and included RET targets in its Five-Year Plans (FYPs), the government’s key strategic social and economic development initiatives. The twelfth FYP (2011–15) set the objective to reorient China’s economic growth towards sustainability, and also clearly identified new energy (i.e., hydro, nuclear, solar, and wind) as one of the key ‘emerging strategic industries’ to replace old pillar industries such as coal (Wang 2014).

This active promotion of RET policy has translated into concrete achievements. China is estimated to be on track meeting its 2020 RET targets from the twelfth FYP (CAT 2015a). The target of installing 30 GW in wind capacity has already been achieved, with installed capacity amounting to 89–91 GW in 2013 (Schoen 2013). In 2013, China had installed 12 GW of solar photovoltaic (PV) projects, which largely surpassed the official goal for solar power of 1.8 GW by 2020 (FS-UNEP 2015). Chinese authorities have estimated that the total cumulative installed wind capacity reached 145 GW and solar 38 GW by the end of 2015 (Hu 2015).

Of course, RET development has also been incentivized by decreasing costs, demand from the world market—especially in the case of solar PV development—and economic slowdown hitting the fossil-fuel-intensive industry (Spratt et al. 2014). In China, both small and large hydropower projects are the most competitive RETs, followed by biomass, wind power, and solar PV (IRENA 2014). Owing to the abundance of coal and rather low costs required to install conventional power plants, the RET industry still requires some support to compete with fossil fuel technologies (Liebreich 2015).

12.3.1.2 Societal Pressures: Pollution

China’s ambition to promote RET policy can be partly explained by changes in societal pressure and elite priority resulting from increasing concern over air pollution. In 2012 <1 per cent of the 500 largest Chinese cities met the World Health Organization’s air quality standards (Zhang and Crooks 2012). Recent studies estimate that pollution is causing the death of 1.6 million people per year (Rohde and Muller 2015). As a reaction to this environmental degradation, Chinese citizens have been increasingly voicing their complaints in letters to the government and through large-scale protests—something very unusual in China’s repressive context (Tong and Lei 2014).

Most coal reserves and the majority of currently operating plants are located in the north and north-east of China, which is why they also have the most polluted cities (Cornot-Gandolphe 2014). In these provinces, the need to respond to high energy and electricity demands while simultaneously improving air quality is particularly acute. Serving as an indicator of increasing societal pressures, the cities of Beijing, Hebei, Tianjin, Shandong, Chongqing, and Shaanxi have pledged to reduce their coal use by 2017 and have set absolute (p.235) coal consumption targets in order to address air quality issues (Greenpeace 2014). The leadership now acknowledges that, if not adequately addressed, societal pressures regarding emission reduction could have destabilizing effects on the political regime. Yet, regional differences in societal pressures have become clear recently: whilst senior authorities vowed to shut down coal plants in the Inner Mongolia region—the hub of coal production—because of social unrest over pollution (The Japanese Times 2015), they announced to build more power plants in inland provinces that are more underdeveloped.

Concern over pollution is also visible in China’s cleaner growth discourse at international level, most recently in the United States–China Joint Agreement and the Intended Nationally Determined Contributions (INDCs) for the Paris Climate Summit (COP21). As part of the former, China announced new policies to tackle fossil fuel use, such as a cap on coal consumption at 4.2 billion tonnes until 2020, and a nationwide emissions-trading scheme to reduce the price gap between coal and clean energy sources (White House 2015). In the INDCs China added, inter alia, a target to make carbon dioxide (CO2) emissions peak by 2030 or earlier (CAT 2015a). During COP21, China released a national policy recommendation to further reduce coal-fired generation at the same time as Beijing city government issued a red pollution alert, the most serious level as per air quality index, for the first time ever (Phillips 2015). These changes suggest a shifting elite preference from purely high economic growth towards incorporating environmental concerns in the governing coalition’s strategy to stay in power.

12.3.1.3 Increasing Institutional Capacity

Bureaucratic and institutional changes have also been a key driver for China’s RET policy development. In general, the State Council (i.e., the central government) sets the broad directions for policy development, whereas the ministries are responsible for policy drafting and formulation (Chen 2012). However, considerable changes to recentralize energy management at the top level occurred in the early 2000s, in parallel to the period when the problem of air pollution started to get more serious.

The National Leading Group on Climate Change Energy Conservation and Emissions Reduction (NLGACCERCER) was established in 2007 to act as an advisory and coordinating body in energy-related areas where several administrative bodies under the State Council have purview over clean energy policies (Zhang et al. 2013). Moreover, in 2008, the National Development and Reform Commission (NDRC)—the highest rank ministry in charge of China’s macroeconomic and social development—was granted more power in the fields of energy, climate, and carbon reduction policy. In a first step, the National Energy Administration (NEA) was established under the NDRC to (p.236) function as the agency responsible for RET formulation and implementation at the national level. The NLGACCERCER’s climate change department was placed under the NDRC as well, thus assigning the NDRC a central role in climate policy formulation in addition to addressing energy questions.

Finally, the National Energy Commission (NEC) was created in 2012 to further streamline energy policy decision-making. The NEC functions as a ‘super ministry’, and is in charge of drafting the national energy development strategy (Bao and Gordon 2013). Locating clean energy and climate policy within the most influential agencies at the top level can be seen as an attempt to avoid the struggles and buy-ins that often emerge when clean energy policy drafting is dealt with within weaker ministries.

12.3.2 Barriers

Despite these positive policy and institutional developments, the implementation of central policies, especially in the case of energy, remains highly complex. This is, in part, visible in the regulatory, institutional, and political failures that China has faced in RET development.

12.3.2.1 Insufficient Grid Capacity

A major barrier for power generation from RET is the insufficient grid infrastructure, which is not able to absorb a large share of their power capacity (IRENA-GWEC 2013). The NDRC has aimed to prioritize renewable energy over coal by proposing green power dispatches and pilot trading platforms that allow energy generators and big end-users to negotiate prices (Chu 2015; White House 2015). To better integrate RETs in the current system, and help take power from distant western regions to major cities in the east, many smart grid lines are also under construction in line with the 12t FYP goal of developing an ultra-high-voltage power transmission (UVH) grid across the country (Mathews and Tan 2015). In 2015, however, an estimated 15 per cent of wind and 9 per cent of solar output were still curtailed due to grid constraints. As a result, Chinese regulators suspended the approval of new wind projects in 2016 in the most wind resource-intensive regions (Song and Hong 2016). Hence, much of the RET energy that should be replacing fossil fuel power is still going to waste in the current system.

12.3.2.2 Vested Interests

Political and institutional barriers also help explain why moving towards high penetration of RET in the energy power system has not been advancing as fast as it could have. One of the key political barriers is that China’s energy strategy (p.237) is still in many ways guided by the requirements of agencies that promote conventional energy: actors with strong vested interests in the power sector have significant political influence at the top levels of the CPC (Communist Party of China). Although it is difficult to accurately analyse the internal composition of the CPC owing to its secrecy, there is strong evidence that these actors have built powerful factions within the party (Xiaofei 2013).

The power sector is particularly prone to political corruption (Moses 2014). A case in point is Li Peng, former Chinese premier from 1988 to 1998, and his family, who are considered figureheads of the oil and coal factions of the CPC (Hornby 2014). Li Peng ran China’s energy monopoly throughout the 1990s, staffing the top management positions with his relatives, running what Bezlova (2002) calls a ‘family fiefdom’. While the monopoly was broken up into five power generation firms, Li’s children, Li Xiaopeng and Li Xaolin, became the heads of two of them. In 2012, Li Xiaopeng was then promoted to governor of the coal-rich Shanxi region (Hornby 2014). Liu Zhenya, president of China’s largest power SOE (state-owned enterprise) State Grid Corporation, is another example of the overlap of vested interest in the electric power sector and political power in the CPC. Liu, who has been openly opposing the central government’s plans to break up the firm he heads (Zhu and Lague 2012), is also an alternate member of CPC’s central committee, one of China’s top ruling bodies.

This formal and informal amalgamation of political and business power implies that strong incumbent SOEs have the means to challenge and influence the top authorities in cases where their interests conflict (Bergsager and Korppoo 2013). Today, the large power generation companies and two grid companies are major players in conventional and renewable energy power generation (Dai 2015). The government’s ability to make SOEs responsible for RET growth has been one of the main enabling factors for the impressive development. Yet, the power of SOEs has also blocked ‘potentially system-disruptive’ developments: the grid companies have successfully resisted the State Council’s mandates to make the transmission system more favourable for RETs (Moe 2015). Although President Xi Jinping has directly targeted and weakened the vested interest groups that oppose energy reforms by launching anti-corruption campaigns in the power sector (Hornby 2014), we argue that the vested interest of certain SOEs and political elites, as well as their associated fear of losing power remain an important political barrier for RET transition in China.

12.3.2.3 Administrative Hierarchy

The institutional reforms brought about many new central level agencies with purview and interest over energy questions. These bodies—including within the NDRC—are often competing for authorship (Zhang et al. 2013). At the local level, in turn, implementation has become more decentralized as of 2014 (Zhao 2014). As a result, responsibilities during RET implementation are not (p.238) always clearly allocated, increasing the risk of both interest bargaining and issues in accountability (Kostka 2014). Local SOEs have a reputation of getting away with violating environmental standards as local governments have limited capacities to enforce compliance, and international oversight is not permitted (Curtin 2015). This is particularly difficult in areas where the companies are major contributors to the local economic development. Nonetheless, as the top officials of local SOEs are evaluated in the cadre system, provincial leaders have more control over them than over managers of private sector firms (Harrison and Kostka 2014). This is important when considering that the largely private-owned small and medium enterprise sector is concentrated in very energy-intensive economic sectors.

12.3.2.4 Central vs Local Level

Local authorities are responsible for policy implementation, and they also have considerable autonomy regarding the economic development of their areas and rights over land use (Qi and Wu 2013). This autonomy and preference over economic development risks outweighing central RET policy within local jurisdictions (Dai 2015). In 2015, state agencies granted more power to local authorities through the power sector reform initiatives: all new coal power plants and RET projects can now officially be approved by provincial governments. Contrary to the objective of this state measure, there is evidence that local officials have taken advantage of their new powers to boost economic development. In the Shanxi and Inner Mongolia provinces, for example, many coal-fired power plants that were previously discarded by top authorities because of their environmental impact have now been re-opened by local leaders (Lingyu 2016). Furthermore, the CPC has sought to give environmental issues more weight in the local cadre evaluation as a result of increasing societal pressures. Yet, these efforts have met with resistance from local level leaders (Kostka 2014). Given that the average term length is between three to four years, local leaders tend to adopt short-term policy solutions that contradict central level initiatives and may not be sustainably viable in the long term (Kostka 2014). Hence, to achieve stronger RET policy enforcement, central authorities have to more effectively address imbalances within its institutional structures.

12.4 India

12.4.1 Drivers

In India, numerous mechanisms are in place to support RET development and deployment, such as grants to develop technologies, tax incentives, and (p.239) generation-based incentives (Hogg and O’Regan 2010). Wind has been receiving support since the early 1980s, and support for solar took off since 2008. As of November 2015, India had a total installed capacity of grid-interconnected power of 38.3 GW from renewable energy sources, with wind and solar accounting for 24.8 GW and 4.7 GW respectively (MNRE 2016).

12.4.1.1 Ambition

The Indian government wants to command a total renewable energy generation capacity of 175 GW by 2022: 100 GW from solar power, 60 GW from wind power, 10 GW from SHP, and 5 GW from biomass-based power projects (GoI 2015). The costs are immense, with only the solar goal expected to cost between US$100–113 billion (Ghosh 2015). Although India is one of the largest investors in renewable energy, with US$7.4 billion in 2014 (FS-UNEP 2015), this is far from what is needed. At RE-invest, the investors’ conference for renewable energy held in February 2015, the Modi-led government secured pledges from national and international companies to deploy 266 GW of renewable energy in the next five years, and financial institutions committed to finance RE projects amounting to 78 GW (Bhaskar 2015; Ghosh 2015). At COP21, Prime Minister Narendra Modi launched the International Solar Alliance where 120 states committed to promote solar energy and mobilize >US$1 trillion of investments by 2030 to install 1 TW of solar power (Ananthakrishnan 2015). With India expected to be the second largest solar market by 2030 (IEA 2015b), this alliance is a crucial step towards this goal.

Importantly, India’s ambitions with regard to RET promotion have reached a new level with the election of Modi as prime minister in 2014. Although the former prime pinister, Manmohan Singh, had launched the solar mission with a goal of installing 20 GW by 2020, Modi has increased this target fivefold. He is also encouraging foreign investment especially in the solar sector, and wants to attract US$100 billion to the sector until 2022 (Parkes 2015). He has already secured a US$1 billion deal with the US Export–Import Bank to facilitate shipping equipment from the United States (ibid.), and a US$2.25 billion deal with the German government for solar and other RETs (Reuters 2015).

12.4.1.2 Pollution, Energy Access, and Regional Variation

Unlike in China, protests against air pollution are rare in India. Although 13 of the 20 most polluted cities worldwide are located in India (Chauhan 2015), environmental standards seem to be perceived as barriers to economic growth and job creation. For example, despite living in one of the world’s most polluted cities, the population of Vapi (Gujarat) protested against higher environmental standards (Barry and Bagri 2014). This is mainly explained by the city’s dependence on its large and highly-polluting pharmaceutical and (p.240) chemical industries. Although extreme, the example of Vapi appears representative of the priorities of large parts of the Indian population. Thus, in contrast to China, health issues related to environmental degradation (although existing) do not seem to be a central concern for the majority of society, or, at least, clearly less important than economic needs.

Governing Clean Energy Transitions in China and India

Figure 12.1 Installed solar power capacity and state governing parties in India.

Source: Authors’ depictions, based on data from MNRE (2016b). Names of state governing parties are in parentheses.

Providing broad and stable access to electricity to its fast-growing population is, however, a key priority to both India and China (Ghosh and Ganesan 2015). Understanding regional variation of political and geographical circumstances in India is crucial to explain the growth in RETs in the last years. Installed solar power capacity is largely concentrated in the north-west of the Indian sub-continent, particularly in the three states of Gujarat, Rajasthan, and Madhya Pradesh, being home to 60 per cent of the country’s solar capacity (Figure 12.1). Part of the reason is geographical. While the north-west of India has particularly high solar radiation, eastern states are less rich (p.241) in this regard, yet have considerable coal deposits. Thus, while energy demand can be met more easily with solar energy in the north-west, coal still tends to have the upper-hand in most remaining states in regards to economic feasibility.

This ‘geographical feasibility’ is often accompanied by a ‘political feasibility’. To clarify this, it is important to understand India’s federal division of responsibilities with regard to energy policy. Whereas the federal level is partly responsible for policy-making, the state level is responsible for both policy-making and implementation. Together with the general independence of Indian states, this implies that politics at the state level are particularly important with regard to policy implementation. Figure 12.1 shows that the states with large installed solar capacities are dominated by the Hindu nationalist Bharatiya Janata Party (BJP) and its coalition governments, the National Democratic Alliance (NDA). As we argued in Section 12.2, the cohesiveness and power of a governing coalition are key determinants of its capacity to implement policy. While we certainly do not claim that the BJP is a cohesive and powerful party in all of the states it governs (similarly to the INC—Indian National Congress), there is strong evidence that this was the case for the north-western states, and particularly in Gujarat, where the current Indian prime minister, Narendra Modi, was chief minister for 12 years. Roy (2013) describes how Modi managed to create a strong support base cutting across class and caste—usually the political cleavages in India. The characteristics of Modi’s government are similar to authoritarian regimes of East Asia: cohesive, basically without alternative and strong opposition, fostering strong state–business relationships, and high governance and policy implementation capacities (Roy 2013). Basically, Modi transformed Gujarat into an economic and solar powerhouse, where national, international, and specifically solar businesses invested heavily. In 2014, Gujarat was home to 40 per cent of India’s solar capacity (Pearson and Chakraborty 2014) and additionally became the nation’s third largest wind energy producer in 2015 (Parkes 2015). To a large part, this massive expansion of RETs was the reason that the Modi government successfully provided stable energy access for all its citizens. Thus, the case of Gujarat underpins the interplay of conducive geographic and political factors. The combination of high solar and political capacity made RETs a feasible tool to address the key social demand of energy access.

This regional success is closely related to India’s recent massive push for solar power on a national level. When Modi became prime minister in 2014, Gujarat’s success story strengthened his and voters’ confidence that this is replicable on a national level. Additionally, Modi can use the international finance and national RET programmes to support RET expansion in BJP-ruled states with high solar potential, thereby consolidating his party’s power, and simultaneously contributing positively to international climate negotiations.

(p.242) Finally, decreasing costs of implementation are another factor influencing Modi’s renewable energy ambition. Prices for solar and wind have been falling drastically over recent years. The costs for onshore wind are nearly at grid-parity and solar is catching up rapidly in India (Liebreich 2015). Moreover, ambitious policy announcements increase the confidence of global players in the sector, which leads to further a price decrease.

12.4.2 Barriers

While future energy scenarios for India predict that renewable and nuclear energy will play a more important role, fossil fuels are expected to remain the main energy sources with an estimate of 56 per cent in power generation capacity for 2030 (CAT 2015b). In the current Indian power mix, renewable energies represent only 13 per cent, whereas fossil fuels still have a share of 70 per cent (MoP 2015). Coal has a particular importance. It is the most used and cheapest energy source in the country and accordingly accounts for over 60 per cent of the power mix. Importantly, former and current governments have pushed the expansion of coal. The annual production shall be increased from a current level of 600 million metric tonnes to 1.5 billion metric tonnes in 2020 (EIA 2015), which translates into opening a new mine every month (Rose 2015). Different projections for India suggest that coal use is set to increase between two and a half and three times compared with current levels (Dubash et al. 2015).

Vested interests in coal have arguably played a crucial role in this. An illustrative example of the crony capitalism surrounding coal in India is the so-called ‘Coalgate’ scandal. The former Singh government is accused of having allocated coal blocks inefficiently and under market value and having used a subjective and opaque system instead of competitive bidding (The Hindu 2015). According to estimations, this scandal has cost the country US$31 billion (Mathiesen 2014). Moreover, coal-related interest groups are particularly powerful politically in the coal-rich regions in India’s eastern states.

However, India introduced a coal tax for imported and national coal in 2010, which was doubled in March 2015 to US$3.2. The revenues from the tax are going into the National Clean Energy Fund, which had generated an estimated US$2.7 billion by the end of the 2014/15 fiscal year. Whether the money, however, is spent towards its actual goal—RET research and innovation—is questioned (Ghosh 2015). Critics argue that the fund is used to balance the books of several ministries (Krithika and Mahajan 2014). This contributes to the already difficult RET finance environment in India (Chaudhary et al. 2014), which makes RET projects more expensive than in other countries. Subsequently, we look at further factors explaining this adherence to coal and other barriers to RET expansion in India.

(p.243) 12.4.2.1 Discoms

One of the greatest barriers to energy transition in India are state-government-owned electricity distribution companies, the so-called discoms. Of 29, 21 are deeply indebted, with over US$2.5 billion of debt in 2014 (Pearson and Chakraborty 2014). This has great implications for renewable energies. First, discoms are unable to meet their renewable purchase obligations (Krithika and Mahajan 2014). They prefer to feed in coal-generated power to the grid, as this has been considerably cheaper in the past. Feeding in RETs, they fear, will further increase their debt. Second, RET investors avoid investing in states with highly indebted discoms, as they fear that their generated electricity will not be bought and that discoms might default on them. Third, the discoms are too indebted to invest in major grid improvements, which not only lead to more losses and more debt, but also make the RET-generated power less viable. All this creates a highly adverse environment for RET promotion.

Theft, a badly implemented subsidy scheme for the rural and poor, and technical losses are main reasons for this immense indebtedness. In India, 20 per cent of electricity is ‘lost’ during transmission and distribution, double the world average (Aniti 2015). Electricity theft, that is ‘non-technical’ losses amounts to US$16.2 billion per year (Northeast Group 2015). Well-off farmers who do not fear prosecution apparently account for most of the thievery.4 Interestingly, theft seems to increase before elections (Golden and Min 2012). Thus, in many Indian states, governing coalitions appear so vulnerable, they need to allow thievery of electricity, especially during elections. Mismanaged subsidies are a related reason for indebted discoms. Originally, these subsidies were introduced exclusively for farmers (Antholis 2014). However, many non-farmers, businessmen, and wealthier citizens free-ride on this subsidized power, as in many states the government appears to allow this practice or to be incapable of stopping it. The only way discoms seem to be able to reduce the speed of increasing debt is to cut power regularly.

Modi-governed Gujarat is one of the rare exceptions in this regard. It provides its citizens with 24-hour access to electricity (Pearson and Chakraborty 2014). Electricity for agriculture was split from the rest, and farmers received subsidized tariffs only for a few hours per day. Other paying customers received uninterrupted supply at normal rates. Officials checked who merits subsidized power. Similar strategies in other states were met with extreme and violent responses (Katakey and Singh 2014). Consequently, only Gujarat’s (and Punjab’s) discoms received A+ ratings from the Ministry of Power for their performance in 2013–14 (The Economic Times 2015). (p.244) In contrast to other state governments, Modi’s governing coalition was strong enough to execute such undertakings, which were extremely unpopular in the short term but very effective in the long term.

12.4.2.2 Land Rights

Another enormous barrier for the fast deployment of RETs is land acquisition (Ghosh 2015). Land in India is very scarce but essential for large-scale solar projects and wind farms. The process of land acquisition for private companies, however, is expensive (four times the market price in rural areas) and extremely complicated (70–80 per cent of the affected families have to agree and social impact assessments have to be conducted). Thus, a normal process would last 58 months (Kazmin 2015). This is largely the legacy of a law introduced in 2013 by the Congress party, in order to strengthen the rights of land owners. Before 2013, land owners felt mistreated by the state, because it could expropriate them and sell it to businesses, if they would use the land for ‘public good’. As part of his drive to attract more investment, Modi tried to change this law and enable authorities to take land without social impact assessments and without farmers’ consent, although buyers would have had to pay above the market price as before. His proposal met strong resistance from the Congress and other parties with big agrarian constituencies. As these parties still hold the majority in the Indian upper house, the Rajya Sabha, they were able to repel Modi’s land reform. This not only is perceived by many as the biggest failure of the current Modi government but also illustrates how difficult it is to pass laws in the Indian polity (Kazmin 2015).

12.5 Discussion and Conclusion

A successful transition to RET-based energy systems requires radical changes in the current energy regimes. Although governments play a key role in pushing such change, their ability and willingness to do so depends particularly on a range of political economy factors, which also interplay with geographical and technological ones. Our goal was to analyse how these factors drive and impede clean energy transition with RETs in China and India.

In China, societal pressures due to increasing air pollution has been one key factor pushing the CPC to close coal plants and turn to environment-friendly power production in order to secure its political survival. This has been accompanied by an increasing institutional and political capacity for clean energy policy-making at the central level. Nevertheless, the state appears to be constrained by powerful political vested interest in the power sector on the one (p.245) hand and imbalances within institutional structures on the other. Importantly, there are arrangements where provincial level actors or incumbent SOEs have the capacity to override top-level incentives when interests conflict, which has often been problematic for RET development.

In contrast to China, environment-related societal pressures have not been the key driver for RET promotion in India. Rather, a number of Indian states—above all Modi-governed Gujarat—profited from a combination of beneficial geographic and political circumstances, which allowed them to address their populations’ growing demand for electricity through the promotion of RETs. The recent upswing in support of RETs at the national level is closely associated with the fact that leaders of the RET-feasible states are also leading the national government. Yet, severe barriers for a clean energy transition pertain. India plans to increase coal production massively, which can be seen as a symptom of the vested interests in the sector. Moreover, Indian discoms are in very bad shape financially because they are often used as a political tool to strengthen the governing coalition’s political survival. Finally, the problems of land acquisition in India present a major barrier for renewable energy projects, which often need large tracts of land.

Our analysis generates three broad implications. First, it helps unveil how politics and the balance of power between contending interest groups drives or hinders system change. We saw that vested interests in incumbent electric power systems can inhibit the promotion and deployment of RETs in electricity. Second, the comparison shows that the drivers of change can be significantly different in distinct contexts. In both countries, changes in the overarching macro-structures were key to driving RET promotion. These dynamics, however, were very different. In China, unrest from increasing levels of pollution has effectively coerced the governing coalition to promote a cleaner electric power system. In India, however, we found that it has been much less a change in attitudes or beliefs but rather in financial and political feasibility that has allowed or incentivized certain state governing coalitions to promote RETs as engines for energy access. Third, in China principal–agent problems between the central and provincial levels are a key barrier to change, whereas in India the causal drivers and barriers to RET promotion can be found largely at the sub-national state level. It is thus key to observe how politics depends on and interplays with regional contexts.

Concluding, this study highlights two key areas for further research. First, we see the need for more in-depth analyses of the dynamics surrounding energy transition in sub-national entities. Second, it would be interesting to further investigate why massive pollution in India has not created the same societal pressures (in the form of protests) as in China. Specifically, whether this is mainly a reflection of lower economic development levels or rather of more complex political economy factors.

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Notes:

(1) For an extensive version of the chapter including detailed overviews of national RET governance structures and policy, see Isoaho, Goritz, and Schulz (2016).

(2) Energy efficiency, nuclear, and carbon capture and storage (CCS) technologies play a significant part in the debates around clean energy transition, but we perceive RETs as more radical. We define RETs as ‘modern technologies based on solar, wind, biomass, geothermal, and small hydropower’ but focus primarily on solar and wind energy (Martinot et al. 2002: 310).

(3) China counts large- and medium-scale hydropower projects (i.e., dams with an individual capacity of >50MW) as renewable energy. We do not consider these as renewable energy because of their negative effects on sustainability.

(4) Personal communication with Detlef Sprinz (25 January 2016).