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Module 1: Energy and Human Development

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Energy Inequality and Energy Systems

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We have looked at various dimensions of energy, we have talked about energy and environment, energy and development, energy and quality of life, and in the last class we also talked about energy and equality. The last dimension that we need to cover before we go into the subject of energy economics is Energy Security. You must have read in the newspapers, many different issues related to energy security. So, let us try and find out what do we understand by energy security. (Refer Slide Time: 0:58) What is energy security? What are the parameters that affect energy security? What are the options to enhance energy security and we can look at energy security for a country or of a state or a city or a region, normally we always talk about this at a country level or a national level? (Refer Slide Time: 1:23) So, let us define what is energy security? This is a graphic which shows different dimensions of energy security and we will talk about this in part by part. (Refer Slide Time: 1:36) So, when we talk of energy security, the parameters that could, we could look at the security in terms of the induce sectors. That means the different kinds of demands that we have, the national electricity system, we can also look at what is the mix of the national energy use, the domestic or the fuels that we have, we can have imported fuels, we can use hydro, we can look at the nuclear fuel cycle and then we can have globally traded fuels. So, all of these dimensions need to be thought of. (Refer Slide Time: 2:15) When we talk of a definition of energy security, a simple definition is that we would like to see that, we have an uninterrupted provision of the vital energy services. And this is, of course, a priority for every country. So, we would like to make sure that we, whatever energy we need for all our activities, we have access to that and that there is no interruption in that. There are different dimensions of this, this has been classified into three different parameters. One is the robustness, the second is the sovereignty and the third one is the resilience, let us discuss each one. (Refer Slide Time: 2:59) Robustness involves the sufficiency of resources, reliability of the infrastructure and stable and affordable prices. So, in the case of robustness that means, if there are somefluctuations if some changes are there, we should still be able to provide the energy. Sovereignty means that the country has control over energy use. So, we need to have protection from potential threats from external agents. And Resilience means the ability to withstand diverse disruptions. So, in the case of sovereignty, if all of us, if the country is highly dependent on oil imports, and those imports are all coming from a particular region, if there is some problem which happens within that region and our oil supply is affected, then we have a problem in terms of security. So, we have various strategies in which we can try to enhance and increase thesovereignty and the in the case of resilience, recently there have been a large number of different kinds of disruptions, like floods, we have different kinds of you have a tornado you have some extreme event in which the energy infrastructure gets affected. And resilience means that how quickly can we bounce back, do we have a diversity in terms of things. (Refer Slide Time: 4:39) So, in all of this, if you look at this graph, this chart shows us the kind of different possibilities. So, in the case of robustness, we can try to minimize the risks and we can have a diversity in terms of the different kinds of supply, we can also try and see that whether we can manage and have flexibility within the demand, in the case of sovereignty, one of the things that we can do is we can try and axe, we can diversify the supply. So, if we are getting imported oil, we can make sure that we are getting this oil from different regions of the world, we can have long-term contracts, we can also see in this case, we have a situation where ONGC through its wing has been buying different resources and mines in different parts of the world. So, one of the things is you can acquire facilities in different parts of the world. And so, these are some of the kind of specific responses that we have. In the case of resilience, we can try to see we can have redundancy, that means we can have more sources of supply, we can try and see that we can modify some of the demands and so there are a whole host of different things that we can do. If we want to talk about the energy security of any particular country, one of the indicators that we can do is we can understand and see what percentage of our supply comes from outside. So, whether we can have domestic supply and so we can look at the percentage of ours if you look at India, and we look at oil, a significant proportion of our energy use is based on oil and our oil production has more or less stagnated between 30 to 40 million tons per year. Most of the growth which is there in oil is coming from imports. And if you look at the percentage of energy that is imported as a proportion of our total primary energy supply, you plot that over time and I will show you that plot, you will find that our dependence on energy sources outside has been increasing and this is not a very good situation. So, we need to think in terms of substitutes, we have been looking at the possibility of using biofuels, we are looking at renewables, we are looking at domestic fuels, and this and so, this is the other thing that has been when we talk of energy security globally there is this whole, if you look at oil and oil prices, many of the developing countries have been affected by the fluctuation in oil prices. Until recently, oil prices have only been increasing, in the last decade or so, we have seen drops in the oil prices. (Refer Slide Time: 7:52) So, we saw in the last class the link between Energy and Quality of Life, we talked about the Human Development Indicator. Today we are going to look at the inequality, how to measure inequality and what do we understand, what is energy inequality? (Refer Slide Time: 0:41) So, the two questions that we need to ask are how do we measure inequality? Why is it important? And any society or any development that we have, we would like to see that the benefits of that development go uniformly as far as possible to the entire population. And if you have a society which has more inequality, then, of course, that is not necessarily from a long term that is not necessarily sustainable. (Refer Slide Time: 1:17) So, if you look around us, you will find that in general inequality we talk about inequality in terms of inequality of income. So, for instance, if you see, if you look at this is from an inequality report, you will find that the top 10% of the population, what percentage of the income do they own, and you will find that in India top 10% accounts for about 55% of the total income of the GNP. And similarly, you find Europe is relatively less unequal because the top 10% owns about 37%. (Refer Slide Time: 2:12) So, this gives you one possible way to look at inequality, see how much the top 10% own in terms of the income, we may also look at how the share has been changing over some time. So, if you look at this data, this plot shows you over some time from 1980 onwards, how these numbers are changing, and you will find that in, in most of the cases, the top 10 %, the share of their income has been increasing at a faster rate than the rest of it. So, that means that the rich are getting richer and of course, this means, in many cases that the inequality has sort of increased and you can see in the Indian case if you look at this plot, you can see how this has been going up and then it is sort of plateaued at this point this is the kind of shape. (Refer Slide Time: 2:59) If you look at in this is, again from the inequality report, you find that, if you look at the total inequality and the income growth in terms of the different income groups, you find that the richest have been growing at the fastest rate. And so it means that of course, this is not the sort of surprising, but it is quite striking in terms of the top 1% captured top 1% captured 27 % of the total growth if you look at from 1980 to 2016. So, this is in terms of inequality, if we want to measure this, and we would like to look at inequality in income, we would also like to look at what is the inequality in electricity use or energy use. So, one of the matrices that we can do is we can take the entire population and arrange the population in terms of lowest to highest. So, if we talk in terms of income, we take the lowest x% lowest 1%, then 2%, cumulatively, how much of the population if you take the lowest 10%, how much of the income does the lowest 10% have, and so on. (Refer Slide Time: 4:35) So, we have a plot and that plot is called the Lorenz Curve on the x-axis, go to 0 to 1, or 100 % and on the y-axis also go to 0 to 1. The x-axis shows the percentage, cumulative percentage, the lowest x per cent, lowest per cent, and the y-axis shows the cumulative share, cumulative share of income, energy whatever we are income or if we want to plot energy and so if we make this here. Now if we had a real, if we had equality, complete equality, if we take any point here as x, the minimum x% of, if you take the fraction x, x going from 0 to 1, and we want to know what percentage of the income, if you had complete equality, then the 5, if you take 5 % of the population, it would account for 5 % of the income. If you take 20 %, it would account for 20%. So, the line that we would have would be y is equal to x, this is where you have a complete, it is a 45o line and this is when you have complete equality. On the other hand, if we had a set of different individuals, where everyone ad 0 income and only one individual had all the income, then you would have a curve, which would go something like this, and then go here, in actual practice, we would have something like this and so, this deviation that we have from the 45o line shows us the amount of inequality in the system. (Refer Slide Time: 7:17) And so, this curve that we have is called, this is called the Lorenz Curve and Lorenz Curve if we see, Lx is the proportion of the income earned by the lowest x proportion of the population. So, obviously, by definition L0 will be 0, 0 percentage of the population will have 0 percentage of the income and L1 means 100 per cent of the population will have 100 per cent of the income. And since by definition this is a cumulative increase and the cumulative amount, this will be an increasing function. The extreme case is where Lx is equal to x, this is complete, absolute equality, all earn the same and absolute inequality is where Lx is equal to 0, for 0 less than equal to x less than 1 and that one individual earns the all the income. (Refer Slide Time: 8:13) So, in between this is what you will have the curve, and this is how the curve would look. So, in this what we have is we define a coefficient called the Gini coefficient. (Refer Slide Time: 8:21) GINI COEFFICIENT= A A+B 0≤G ≤1 And the Gini coefficient is defined as, the ratio of these areas, the area A divided by A plus B. So, as you can see, this Gini coefficient will be between 0 and 1 with 0 representing absolute equality. And 1 representing absolute inequality, anything in between the lower the Gini coefficient, the more equal is the society. And so let us look at some of these numbers, how do we compute this? (Refer Slide Time: 9:15) GINI COEFFICIENT= A A+B 0≤G ≤1G=2∫( x−L( x)) dx If we use we can approximate it if they are points, and we use the trapezoidal rule, you can also show very easily that this is equal to if you have points Xi and Yi, we can write this as the area in this form. And so, given a set of data, you can calculate what is the Gini coefficient. (Refer Slide Time: 10:17) Now, just to show you some of the Lorenz curves, and you can see that the kind of different cumulative proportion of the, you can see that these are different if you compare this curve with this, you will find that this one shows more inequality as compared to this, this will have a higher value of the Gini coefficient. (Refer Slide Time: 10:47) We have plots and you can, if you just Google you will find maps which will show you different kinds of Gini coefficient for different countries. And so of course, some regions have relatively more equality. For instance, if you look at Europe and if you look at the Scandinavian countries, and then there are other regions which are relatively more in unequal. (Refer Slide Time: 11:12) So, just to give you an example, if you take this data this is from a paper for the US electricity, US household electricity consumption and this gives you the cumulative proportion of the population and the cumulative proportion of the electricity consumption, one can take this plot, one can take this and plot it and draw the Lorenz curve and you can also from this get the Gini coefficient for this. (Refer Slide Time: 11:41) If you look at for the world, this was done in the global energy assessment, and you can see that the final energy and the electricity use you can see that there it is a fairly significant inequality. So, for instance, if you look at from this side, if you look at the poorest 10 %, if you look at the richest 10 %, you will find that the richest 10 % consume more than 40 % of the world's electricity and the final energy while if you look at the poorest 50%, you will find that the poorest 50% consume less than 10% of the total cumulative energy. So, when we talk in terms of the overall energy scenario, there is a very significant inequality and distribution in terms of the access to energy in terms of the electricity and as we develop these inequalities, the plan is to try and reduce these inequalities. (Refer Slide Time: 13:02) So, for instance, now, this is from a paper by Jacobsen in Energy Policy, and you can see that the electricity, cumulative electricity consumption, residential electricityconsumption, you will find that relatively if you see Norway as Gini Coefficient of 0.19, much more equal, then when you see Kenya, large proportions do not have access to electricity, Gini coefficient is 0.87, and it is only this which is, and similar kinds of things you can see. (Refer Slide Time: 13:36) We had developed similar kinds of using the data from the NSSO, we try to develop Lorenz curves for India and you can see that over some time, the inequality in terms of electricity use has been declining. And this has been due to our efforts in terms of providing access and providing electricity and often providing subsidized electricity for low-income users. And you will see that in the case of urban, it is even better in terms of the Lorenz curves and so this shows you how we can map the inequality in terms of the Lorenz curves and from this, we can then calculate what is the Gini coefficient. (Refer Slide Time: 14:25) And there are papers where the overall inequality in the carbon has been also mapped and this is called the Carbon Gini. In doing this in this paper in Teng et al, they have taken not just in a particular year, but they have taken the cumulative share of the historical emissions. And you can see very clearly that the emission trajectory is such that it is the richest 10, 15% which has been contributing for a significant proportion of the cumulative CO2 emissions, of course, please remember in all of these calculations, we take every country as an average, there is inequality within the country. But these inequalities, when we talk in terms of an overall problem, in terms of Co2 emission reduction, and we are trying to get the entire world to come to some agreement, these are the issues which come in when we look at how to get an agreement, how to reduce the CO2 emissions and to have. And so that is why we have gone in for instead of having a mandatory sort of an emission, every country has come up with a voluntary declaration of what they can do and that is how we have made an agreement in Paris and we are moving forward with that. (Refer Slide Time: 16:01) These are again different kinds of countries on that Carbon Gini, and this gives you some kind of. (Refer Slide Time: 16:08) So, these are some of the references where you can find more details, what we have done today is we have looked at the metrics for measuring equality or inequality, we talked about the Lorenz curve, and we also looked at the Gini coefficient, in the tutorial we will give you some examples of equations and how you can make some calculations so that you can calculate the Gini coefficient in terms of income in terms of energy. And this is something which we can use when we talk in terms of different development strategies and decide on what kind of energy requirements are required to remove the inequalities. We have looked at various dimensions of energy, we have talked about energy and environment, energy and development, energy and quality of life, and in the last class we also talked about energy and equality. The last dimension that we need to cover before we go into the subject of energy economics is Energy Security. You must have read in the newspapers, many different issues related to energy security. So, let us try and find out what do we understand by energy security. (Refer Slide Time: 0:58) What is energy security? What are the parameters that affect energy security? What are the options to enhance energy security and we can look at energy security from a country or a state or a city or a region, normally we always talk about this at a country level or a national level? (Refer Slide Time: 1:23) So, let us define what is energy security? This is a graphic which shows different dimensions of energy security and we will talk about this in part by part. (Refer Slide Time: 1:36) So, when we talk of energy security, the parameters that could, we could look at the security in terms of the induce sectors. That means the different kinds of demands that we have, the national electricity system, we can also look at what is the mix of the national energy use, the domestic or the fuels that we have, we can have imported fuels, we can use hydro, we can look at the nuclear fuel cycle and then we can have globally traded fuels. So, all of these dimensions need to be thought of. (Refer Slide Time: 2:15) When we talk of a definition of energy security, a simple definition is that we would liketo see that, we have an uninterrupted provision of the vital energy services. And this is, of course, a priority for every country. So, we would like to make sure that we, whatever energy we need for all our activities, we have access to that and that there is no interruption in that. There are different dimensions of this, this has been classified into three different parameters. One is the robustness, the second is the sovereignty and the third one is the resilience, let us discuss each one. (Refer Slide Time: 2:59) Robustness involves the sufficiency of resources, reliability of the infrastructure and stable and affordable prices. So, in the case of robustness that means, if there are somefluctuations if some changes are there, we should still be able to provide the energy. Sovereignty means that the country has control over energy use. So, we need to have protection from potential threats from external agents. And Resilience means the ability to withstand diverse disruptions. So, in the case of sovereignty, if all of us, if the country is highly dependent on oil imports, and thoseimports are all coming from a particular region if there is some problem which happens within that region and our oil supply is affected, then we have a problem in terms of security. So, we have various strategies in which we can try to enhance and increase thesovereignty and the in the case of resilience, recently there have been a large number of different kinds of disruptions, like floods, we have different kinds of you have a tornado you have some extreme event in which the energy infrastructure gets affected. And resilience means that how quickly can we bounce back, do we have diversity interms of things. (Refer Slide Time: 4:39) So, in all of this, if you look at this graph, this chart shows us the kind of different possibilities. So, in the case of robustness, we can try to minimize the risks and we can have a diversity in terms of the different kinds of supply, we can also try and see that whether we can manage and have flexibility within the demand, in the case of sovereignty, one of the things that we can do is we can try and axe, we can diversify the supply. So, if we are getting imported oil, we can make sure that we are getting this oil from different regions of the world, we can have long-term contracts, we can also see in this case, we have a situation where ONGC through its wing has been buying different resources and mines in different parts of the world. So, one of the things is you can acquire facilities in different parts of the world. And so, these are some of the kind of specific responses that we have. In the case of resilience, we can try to see we can have redundancy, that means we can have more sources of supply, we can try and see that we can modify some of the demands and so there are a whole host of different things that we can do. If we want to talk about the energy security of any particular country, one of the indicators that we can do is we can understand and see what percentage of our supply comes from outside. So, whether we can have domestic supply and so we can look at the percentage of ours, if you look at India, and we look at oil, a significant the proportion of our energy use is based on oil and our oil production has more or lessstagnated between 30 to 40 million tons per year. Most of the growth which is there in oil is coming from imports. And if you look at the percentage of energy that is imported as a proportion of our total primary energy supply, you plot that over time and I will show you that plot, you will find that our dependence on energy sources outside has been increasing and this is not a very good situation. So, we need to think in terms of substitutes, we have been looking at the possibility of using biofuels, we are looking at renewables, we are looking at domestic fuels, and this and so, this is the other thing that has been when we talk of energy security globally there is this whole, if you look at oil and oil prices, many of the developing countries have been affected by the fluctuation in oil prices. Until recently, oil prices have only been increasing, in the last decade or so, we have seen drops in the oil prices. (Refer Slide Time: 7:52) Now, if you look at this plot, this plot shows the trend in oil prices with time and you can see there is no, there are no very clear cut patterns, but if you look at all of these arrows, which are there, these arrows all relate to actual political events. (Refer Slide Time: 8:14) And those events have an implication, there is some particular blockage, there are wars and these have always had an impact in terms of oil prices, sudden spurts in the prices result in adverse impacts to economies which are dependent on imports. So, when we think in terms of any strategy for energy security, we need to make sure that our country is sort of immune to some of these and this is the these are the kind of things that we look at this. (Refer Slide Time: 8:51) On a shorter time frame, on a longer time frame, if you see these are the kind of oil price variations which are there and you can see oil price variation. Many of them get linked to political events, and you can see that this automatically has an impact on the economy. (Refer Slide Time: 9:05) And you can look at some of these trends in more detail, I leave that to you, but basically what you will find is that when we think in terms of this, we talked about these three pillars the robustness, the sovereignty and the resilience. And in looking at this, you can see what kind of supply do we have, what proportion, a large proportion of the fuel, oil and gas is globally traded and this obviously will contribute to the problems of security for many of the other countries, for many of these countries, in the case of nuclear also in many cases, we are dependent on imports for the nuclear fuel. And in the case of hydro also there may be issues in terms of water availability and renewables, of course, the variability of renewables. So when we think in terms of in a regional context when you look at a context where there are a disruption and the resilience, we have to see what proportion of our energy supply is coming from near the region, because in case the centralized infrastructure is cut off, how do we provide that? So, these are some dimensions that we can analyze when we think in terms of looking at different aspects of the energy system. (Refer Slide Time: 10:39) I talked to you earlier about this import share and you can see that over the last from the 1990’s onward if you look at the percentage share of imports in our overall energy supply, you can see that this is sort of monotonically increasing and this is not a very nice trend. This is something that we need to see how do we get substitutes for oil and we are recently we have been also importing some proportion of coal. One of the things that we may also see that even in the case of one of the strategies that we have adopted is where we have gone for renewables, but even in the case of renewables when we look at the kind of solar photovoltaics that we are, we are installing, a significant proportion almost 90 per cent of this cells and modules that we are installing are coming from imports and this also can have Implications in terms of energy security. (Refer Slide Time: 11:37) We are in an interconnected world, and if you see this is showing you sort of is the this shows the trade in oil and oil production and you can see very clearly the magnitude of these arrows shows the volumes and you can see that almost all the oil is coming from The Middle East. And you find that the, of course, there are geopolitical issues related to this because of this, this is a region which is under in turmoil often when there are problems, this affects the availability of oil, it affects the prices, and it affects the economies in many parts of the world. So, as we plan our energy systems for the future, we would like to shelter from these kinds of impacts and we would like to see a what are the kind of options that we could not do. So, we have looked at the dimension of energy security, and we said that every country would like to have a strategy where you would like to have a robust, sovereign and resilient energy infrastructure so that we can provide an uninterrupted supply of energy for the nation's development. So, with this, we cover all the different dimensions and the linkages between energy and the rest of the economy. In the next class, we will start by talking about energy economics and looking at how we can assess different projects in terms of the economic viewpoint. Thank you.