Energy Economics and Policy Navigating the Global Energy Market

 

This book explores the economics of energy and policy by examining recent trends in global energy markets and the social cost of war-related emissions, with a focus on the twin energy crises of recent years.

It contributes to discussions on the economics of global climate change, the social cost of carbon, carbon tax, emissions trading systems (ETS), the energy crisis during the pandemic, the Russia-Ukraine war, and the geopolitics of oil, tariffs, and trade wars—all grounded in micro and macroeconomic foundations.

As global demand rises, so does production, resulting in increased public bads and externalities. The book sheds light on externalities, the public goods problem, and emission accounting, using illustrative examples and calculations to deepen understanding of global energy supply and demand, commodity trends, energy pricing, OPEC behavior, crude oil export and import analysis, energy production patterns, and carbon footprint. It argues that traditional approaches to energy economics should be recontextualized beyond free-market philosophies.

This book will appeal to students, researchers, and scholars engaged in debates on current developments. It covers carbon accounting—a vital tool in estimating an organization’s emissions—with illustrations of Scope 1, 2, and 3 emissions, Net Zero targets, energy finance, and recent innovations.

The Rural to Urban Transition in Developing Countries Urbanisation and Peri-Urban Land Markets

 

Increasing urbanisation and industrial development are occurring at the expense of shrinking forest cover and agricultural land in South Asia. Various land uses compete with each other, reducing forests and farmlands. This book addresses urbanisation and peri-urban land markets, with a special focus on Bangalore, one of the fastest growing cities in South Asia.

It contributes to historic perspectives on the spatial transformation of peri-urban locales, as well as providing much-needed empirical evidence. The book discusses issues related to the context of peri-urban land use, land transactions, demand supply relationships and land prices in the peri-urban land market. The steep rise in land prices of the periphery, rapid changes in land use patterns, active land transactions, growth of the real estate market and the challenge to implement efficient land use regulations are explored with the help of field evidence. Insights and challenges to land administration addressed in this book are common to other metropolitan cities, and the key message is that a separate peri-urban land policy is required for the major metropolitan cities of India and other developing countries. The book contributes to the understanding of how these spatial markets function in order to work towards an improved implementation of land policy in the context of dynamic rural-urban periphery.

As such, it will appeal to researchers, scholars and students of regional, urban and agricultural economics, economic geography, urban and regional planning and environmental science. It will also be of great interest to city planners and policy makers, action-based think tanks focused on urban governance.

Pandemic - Happiness Conundrum

         

           What does happiness mean to us when   the  ferocity  of covid wave  hit the lives  of the people ?  Not a single day passes without hearing the loss of a person we know. What does happiness matter to a migrant worker who lost his job and income? an average middle-class family who lost their bread winner ? a poorer household without  three square meals a day?? Happiness is squandered when  Covid  withered huge psychological and emotional turmoil in the minds of people in all walks of life. SARS-CoV-2 has its origin in China and rapidly spread to countries across Europe where  there is high human development and better institutions to combat the menace. However, further spread to developing countries was beyond the control of  its institutions. Developing world is known for  less human development and it plunged into crisis  like never before, economically and psychologically.

This  human tragedy unfolds  the fact  that, as the death toll rise, only   human life is important, nothing else!  Although the economic policy makers are focused on wellbeing of the people, the  current state of the country negatively impacts  people’s happiness. Economists always correlate individual happiness with income Cantril (1965) .  Richard Easterlin (1974) explained the  paradoxical situation of Income and happiness. Philosophers like Aristotle  says  happiness is a virtue, and it is the noblest thing in the world. Thus, economists and philosopher’s enquire happiness in the lives  of the people.   

How economics inspires happiness? What makes people happy in life  is a crucial question in   happiness  research. It   relates  subject matter of  Economics with  life, or one  may call it ‘Economics of  life’ deviating from the neoclassical or mainstream economics. The works by Amartya Sen, Martha Nussbaum, Richard  Easterlin, Tibor Scitovsky etc are leading to  an enquiry into the nature of wellbeing of people than an enquiry of nature and scope of creation of wealth.  Prof. Amartya Sen tried to look at the wellbeing and happiness of the people from a development perspective.

The debatable questions in happiness research  start from the premises of  ‘are you happy’, what are the determinants of happiness. The determinants of happiness include  (1) Personality and demographic factors such as age, gender, attainment of education, political and religious factors, size of household, marital status and  health of the individuals. (2) Micro- and macroeconomic factors  such  as  income,  unemployment  and  inflation. (3)  Institutions. Institutions are responsible for the wellbeing and happiness of the people.

 

Effect of  Institutions on  Happiness

 

Empirical studies based on World Value Surveys(WVS) shows the relation  between  overall happiness and  institutions, Veenhoven (1993) and  Diener et al., (1995). It is bit  difficult to isolate the effect of  institutions on reported individual well-being and happiness because the countries differ  significantly in a great variety of aspects. In poor countries, the probability of recording the highest category of happiness increases with GDP per capita, and  not with the institutions. Easterlin (1995) observes  that in developed countries average happiness does not increase  with  the spike  in per capita GDP over time. On contrary, the developing world has not attained significant change in the institutional quality over the last decades, but they tried to advance  economically  to some extent.  Poorer countries like Malawi still fighting with malaria and smallpox, then it is not surprising to watch that the average happiness in these countries have not changed much over time. As a general rule, people living in  developed countries  with a  high  level of  human development with better institutions  tend to be happier. 

 

But, in the scenario of a pandemic, the happiness definition changes. How much income a typical individual would need  to achieve a level of happiness to compensate the loss in wellbeing resulted due to pandemic?  Happiness is related to good institutions and wellbeing of the people and good institutions can make people happy.  It is not about so much of wealth creation, but  public happiness is important.

Can Government Policy bring Happiness ?

Happiness is  considered  as a determinant of economic outcomes: it enhances  productivity, labour market performance and national output Bryson et al. (2016) and Piekalkiewicz (2017). Advocates of happiness economics assert that maximising happiness is  the art of  policymaking.  In order to ensure well-being and happiness, institutions  play a crucial role and there is a link between institutions and individual behaviour. Common man is happy when they meet basic need, away from infections and diseases and assured  vaccine - a universal public good. Like vaccine, happiness  is also a public good. We can’t be happy without  spreading  happiness in the lives of people.

A part of this article is   carried in the Christ University, Dehi NCR college magazine 2021

 

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Book Review on Mission Economy- A moon shoot guide to changing Capitalism (ISBN 9780241419731) by Marianna Mazzucato

 

At the time of a public health catastrophe, the economic analysis and moral logic of  many pointed out  the  current system failure in India. It is in this backdrop that I introduce, Mission Economy A moon shoot guide to changing capitalism -  a mission of the state at the time of  crisis beautifully laid down by Prof. Mariana Mazzucato, who already  portrayed  role of state by debunking myths of  Public vs Private sector in her previous works.

The worst health crisis that India is facing today is a result of  massive state failure and the entire nation is paying a heavy price. The author is  a  professor of Economics, who associate with several  leaders, policy makers across globe which brought the mission instrument with  common good approach in economics. The mission statement is  solely  with  her  expertise of working with UN, President of  South Africa and many other incumbent leaders and economists  especially during the time of pandemic.  Mazzucato   worked as a special adviser to Giuseppe Conte, Italy’s prime minister to restructure its Post Covid economy which is a mission undertaken for addressing the challenges and a rethinking of the capitalism.

The people of the country are for want of oxygen, ICU beds, ventilators and vaccines, the state has literally failed to give free vaccination to all and to ensure the  provision of  emergency health care facilities. When  entire world is resolving the crisis of a  pandemic, a country like  India is in the state of a health emergency like never before, and we need to rethink about the role of a risk taker government as  it is  need of the hour.

In the light of above, the mission approach is illustrated  here. All governments  across globe are combating the crisis in its own way. Author  seeks an alternative solution of a mission economy which boost its private and physical and social securities to defeat the pandemic. It requires something just more than money to solve the nations problem - that is definitely a concrete structure, partnership development of both public and private sectors.

Countrywide examples include the success story of Vietnam, through public private collaboration via commercialisation of kits, later exported to Europe and the other part of the world. The state of Kerala’s mission  in combating the Nipah virus and the first wave is stated as an elegant example of successful public-private partnership. It also addressed the scenario of  U.S.A, UK by stating the government should invest in building their muscles in critical areas such as productive capacity, procurement abilities, public -private partnership etc and she vehemently argues that we have lost one way and we cannot keep making the same mistake again.

To address the SDG’s for the entire world nation and to solve various developmental challenges, we need a different approach. It is about that aspect of sharing both risk and reward, it is possible to put an end to the problems of our time. Hence  it is a rethinking of the capitalism by Mazzucato.

A ‘mission grounds’- what stands in the way of next moon shoot is the first part of the book. The  capitalism in crisis and the five myths impede the progress is eloquently pointed out in this section. Next, a ‘mission possible’ what it takes to achieve our boldest ambitions and the last is a ‘mission in action’ - good theory, good practices and seven principles of a new political economy.

The initial example used in this book  to state the mission and the purpose is “Appollo Mission”, landing a man on the moon and bring him back safely. Kennedy’s farsightedness, vision and ambition  resulted in a landmark change in the history that  affecting life on earth. The same mission-oriented approach  and partnership can solve several  societal problems the economies are facing at present. I agree the lesson from space mission can’t be replicated  to any challenge of a developing world, but a moon shot therapy can rescue a country and its people at a critical time.

Mission oriented approach can change the direction of the economy and  it can foster innovation and catalyse growth with the public private partnership. However, there is a confusion, whether the discussion is all about rethinking government or rethinking capitalism. Capitalism was in crisis even before the Covid 19 pandemic time even during the time of financial crisis. Also, the example of the authoritarian government like China and other state-run capitalist societies inefficient to great extent.

 The covid 19  crisis also revealed how shaky capitalism is. The pandemic hit hard the global production. It is at this time that countries like USA and UK outsourced so much of their resources to private agents and consultants to accelerate production.  The mission economy stimulates how government change in order to derive better outcome and how it interacts with various agents.  Although the government has spent huge amount on to keep life support to people during pandemic, still the neoliberal economics portrays  government just as a bureaucratic master which suppress the system. Thus, she  debunks the  most common myth about government and explain why new approach is inevitable to change capitalism.

At the end, Mazzucato  suggests seven key pillars to better political economy that can guide the above-mentioned approach. It includes market sharing, organisational change, long term planning, distribution and production growth, partnership and stakeholder value, participation and cooperation. Therefore, to come out of the clutches of a deep crisis, we  can think of a mission-oriented approach to provide life support to its citizens and  to  rescue  a nation struggling to breathe.

 

Amrutha Mary  Varkey  is a Doctoral  fellow at ISEC, Bengaluru. Currently working as Asst Professor at  Christ (Deemed to be) University, NCR.

Role of R&D capabilities in fostering India’s Pharma Industry

 

The second wave of  Covid  19 has spread quickly creating a public health catastrophe in India. This   put nation and individuals at great risk for want proper medical care and health  facilities. Therefore, the  challenge we face at present is different in its  nature and scope than we faced last year. There is on ongoing debate about vaccine nationalism and   government’s  failure to bolster its crumbling health care system. However, there are less discussions over state sponsored research and innovation in drug development in India.

India has a fast-growing presence in global pharmaceuticals. Hyderabad and Bengaluru are known for pharmaceuticals with high R& D capabilities and manufacturing. But during the second wave, many condemned  the state  for not  intervening successfully to provide lifesaving drugs to people though we claim India is the pharmacy of the world. And the state  failed miserably to adopt the  role of a risk taker at the time of a crisis.

Often, the role played by the centre and the various state governments are questioned in the current public health crisis. The subtle reaction of the centre suggests that the private players can accumulate their profit through vaccine production. The existing debates over accessibility and affordability of vaccines do not bring a relief to the suffering Indians. How can poor people be expected to vaccinate themselves, as they just do not have bare minimum a day?

Government is  a risk taker when it boosts state sponsored research  for drug development. Unfortunately, the  role of a losing state was evident  when it  obsessed with  the deadweight loss of the producers like Poonawalla. Even though there  was ample time to develop herd immunity from the first wave to the current period, it was not dealt effectively. In the meantime, countries in the Europe and USA  could manage the crisis.

USA is always in the forefront in extending state support  to sponsor innovation in the private sector for a common good. USA proved  state could take a massive scale risk to spur innovation. State played a significant role  in the fields of science and technology, small businesses etc. the invisible hand of the state was there in all radical areas including pharmaceuticals. The Orphan Drug Act  (2013) made it possible to develop drugs for rare diseases.

Orphan drugs

The drug which is used for a rare disease that affects less than 20000 people in a potential market cannot expand production without financial incentives is known as orphan drugs. The above-mentioned act supports the small firms to scale up production and allowing them to become a potential player in pharmaceutical industry. It is not only the small firms benefitted , but also the  giant firms such as Johnson & Johnson, Pfizer and many others was encouraged to use the same. Statistics shows 59 percent of total revenues of biopharmaceutical firms comes from sale of orphan drugs. In critical times, the government of our country can take a deliberate effort of being a subsidizer of drug development and the protector of the people of the state.

 

 

Is India really a global pharmacy hub?

Recent announcement of the prime minister of India had created discussions on India’s ability as a global factory of drug manufacturing. India is by now accounting for 16000 plus pharmaceutical firms including small and large ones. In terms of volume of production India’s pharmaceutical industry is the fourth largest globally but notably in terms of value, India rank at the 13^th position globally.  One reason for this dispersion between volume and value of production are embedded in certain specific characteristics of the pharma firms in India. An interesting observation in this regard is that by and large (though there are exceptions), Indian pharmaceutical firms are generic drug producers where the role of patents in capability accumulation is less compared to the other segments of the industry.  In the last years, more than 76 percent of the  patent applications filed in the Indian patent office are by foreign firms with USA, Japan and Germany accounting for 45 percent. This trend raises doubts over the technological capability of the Indian pharmaceutical sector in fostering the emerging needs.

Public funded innovations with fair risk-reward sharing are essential to boost capability-based drug development. The government has played an active role in the development of pharmaceutical industry in India especially through two remarkable Patent Acts. The Patent Act of 1970 permit pharma companies only for process patents but not product patents. This has encouraged firms especially generic drug producers in manufacture drug molecules cost effectively and efficiently. The Patent (Amendment) Act 2005 re-established the product patent regime after three decades. Now the need of industry lies in increased R&D capability with adequate support via public funding. University/research institutions - firm based collaborations as prevalent in developed countries can be a feasible business model in fostering the future need of the industry.

Disinvestment and Government Spending Dilemma: How Smart Government can be in a Neoliberal World? /DH Business page

 

Disinvestments has been a main source of revenue mobilisation by the central government in the previous years. As of the last union budget, government plans to raise 1.75 lakh crore through disinvestment out of which 1 lakh crore should come from selling government stake in Public Sector Banks and financial institutions and 75 crores should come from the receipts of Central Public Sector Enterprises stakes. In many cases VRS and privatisation go hand in hand. For instance, the VRS announcement of Bharat Aluminium Company (BALCO) in 2001 to recent VRS announcements of employees in Indian Railways and BSNL in 2020 are some explicit examples.  Quite often, these schemes act as channels to offload workers before the ownership is moved to private sector. According to the current plans, a substantial part of Indian Railways would be managed by the private sector by 2023 (Vinoj and Ritika, 2020).

The increasing privatisation including the outsourcing of public services to private hands by and large occur as a tool for enhanced public sector efficiency. But in most of these cases which is often termed as ‘state failures’, one should not ignore that the state was trying to do something much more difficult than what many private businesses do. It is not merely the efficiency argument nor accumulation of profit the mandate behind the very establishment public sector enterprises. Rather it was to foster the essential development goals such as building infrastructure capacity, delivery of public services at an affordable rate and nation building. Moreover, the efficiency arguments do not hold true as market failures and bankruptcies of private sector firms are nor rare events in India.

These cases relating  not only  to Indian scenario as it happens all around the globe irrespective of the nature of government and stage of development. How many of us know touch pad of our mobile phones, global positioning technologies and Google’s search algorithm etc are the products of public funded research. The company, which was supposed to provide security protection in the London Olympics, was massively failed and therefore the British Army was called for. The examples do not end here.  ISRO provide its low-cost technology to manufacture Lithium-Ion Battery (LIB) to private players, which is expected to transform the automobile industry.  Product level information on the capital goods sector in India shows that it was one public sector firm (BHEL) used to dominate in terms of size of production and more importantly product diversification and forward and backward linkages. The point I try to make here is that much needed mission-oriented investments in production, infrastructure and technological innovations by and large are public funded and profits are privatised.  

As of 2017-18, top 12 corporate NPAs cost exchequer twice as much as the total farm loan waivers in India.  Privatisation of Public Sector Banks and financial institutions may now provide a case for profit run banks. But who will appropriate the profits and who carried the burden of loss and Non-Performing Assets? It was public money the loss-making banks got recapitalised. Yet another important issue in privatisation and disinvestment of public sector enterprises are lower valuation of assets. The raging controversy in the beginning of 2000s regarding the privatisation of two hotels Airport Centaur and Juhu Centaur are striking examples. It was later found that the assets were highly undervalued, and the disinvestment was done through single bidder transaction. Moreover, both hotels were profit making entities till government decided it to privatise.

The disinvestment channel of revenue mobilisation is the result of non-confidence of the government in it’s role. Scholars including Mariana Mazzucato talks about the role of the state in promoting the catching up process as an entrepreneurial risk taker of the first resort than more passive facilitator of the last resort.

Role of state: State has played an active role  in the ‘hotbeds’ of innovation and entrepreneurship  as we see in San Jose, California. Silicon Valley example shows state  not only facilitate the knowledge economy, but actively create it with a bold vision and targeted investment (Mariana Mazzucato, the Entrepreneurial State,2014). Often,  we have to learn from examples of  public sector funding ends up  than merely fixing market failures. The role of state should be that of a risk taking one. However, some of the experiences from the recent past shows the scenario of a system failure  rather than the  market failure.

Think  why Apple was able to have such a  vast  amount of  public investments  that boosted the iPhone and iPad revolution ? It has received substantial public funding in the initial stage itself.  Remember without these publicly funded ideas, there would not have been an option to  surf even! The example set by  ‘Apple’   raises  the questions that  challenge the practices of the role of the State. In the absence of government support, private actors will hesitate to undertake certain economic activities especially the research and development (R&D). The gross R&D spending in India is notably below 1 percent of GDP, but at the same time a major chunk of the R&D activities in India are carried out by central and state governments, public sector companies and research institutes, which are essentially public funded (as of 2018).

The very visible hand of state has to act smart in the challenging times and to set example with substantial state funded research. Therefore, it is important to  reflect upon how quick and smart  Government can  behave  with its better strategies of innovation, public funding of technologies rather than being non confident in playing its role in an elegant way. The role of the state should not be seen in a parasitic relationship between the public and private sectors where one party always do the necessary investments and the other appropriate the returns. It must go hand in hand where both the risk and reward are fairly shared. Instead of selling of the public assets, coordination and collaboration through effective joint ventures between the public and private sectors will prompt the private sector to carry out activities they would not have done in isolation.

DH Business Page 05 April 2021

 

Save Lives and Protect Livelihoods

 

The Covid 19,a disease caused by a novel coronavirus called SARS-CoV2,has spread quickly around the globe, creating a public health catastrophe all over the world. Although the world nations are taking measures to control this menace, the lives and livelihoods of the people are on hold at a significant social and economic cost to the society. This pandemic has wide spread and hit the market economies hard with the growing toll of illness and lost lives.“ The outbreak of coronavirus is disrupting people’s lives and interrupting business and other economic activities around the world.”(Masatsugu Asakawa,President ADB).This is  first  and foremost a health crisis put nations and individuals at great risk. Therefore the  challenge we face today is different in its  nature and scope than we faced before.

At this juncture, there is a dire need of  the revival of a short-term fiscal policy, provision of public good and relief package to low- and middle-income  farm households and to state and local government. In this context “ short term fiscal policy should aim at channelizing the public expenditure to equip medical personnel, and people who affected by Covid 19 pandemic” said Cesar Calderon, World Bank Lead Economist. “But it is also important to consider that most workers in the region are engaged in the large informal sector where they lack benefits of insurance, unemployment benefits and paid leave.  They usually need to work every day  to earn their living and pay for the their basic household necessities. A large prolonged lockdown would put their basic survival at great risk.”

Therefore, the fiscal policy approach is with two primary objectives-to save lives and protect livelihoods. Immediate actions to consider include  strengthening health system, implementing social protection programs including cash transfers and social grants.

Unfortunately the burden is on the grass root level of the society.  The provision of public good is necessary to offer relief to those who are suffering. And there is a requirement of safe drinking water, sanitation amidst urban sprawling, weak health systems in a large informal economy of major  metropolitan regions  of  the nation while battling with this  plaguing situation.

Certainly, this pandemic led to various undesirable  consequences  in enormous population centres of  UP and Bihar to the sprawling  cities like Maharashtra,  TamilNadu, Andra Pradesh,  Delhi and to great extent to Kerala in search of employment. Finally various state governments had to play a significant role to fight the battle. One such example is of Kerala State which was under Communist rule more than three decades and  invested tremendously in public health and education.

The Kerala Model

Although Kerala was the first state to report a  Covid 19 case in late January, the success of Kerala model proved it could stop the spread of a contagion  amidst the challenge of high population density through its proactive measures like early detection, longer quarantine, contact tracing, building shelters for migrant workers, distributing cooked meals  and adequate social support. According to Henk Bekedam, the World Health Organisation’s representative in India, this is mainly attributed to its past experience of combating Nippah Virus and its investment in emergency preparedness  with community engagement. Indeed it was a disastrous challenge with high number of foreign arrivals, one sixth of its 33 million citizens are expatriates, thousands of its students study in China, UK and Europe and millions  of its nurses are   in the health care profession  all over the world.

In the first week of April Kerala had conducted more than 13000 tests ,that is 10 percentage of  all test across India, By comparison ,Andhra Pradesh ,nearly 6000 tests, while Tamil Nadu 8000 tests. However “ cluster cases” are first reported in Karnataka, the state government has decided to ensure designated quarantine facilities. A third of all cases are in Maharashra and Tamil Nadu. Research shows that some of the 15 states and /UTs need to make a deliberate effort to flatten the  Covid curve.

The so-called exponential curve is a cause of great worry to the experts all over the world. Researches shows Covid 19 will continue to spread exponentially for months. In a country like the United States, with its 330 million people, the curve steepen for a long time. Therefore the articulation of forced quarantine strategy( Chinese government imposed on Hubei Province) is a rational solution to slow spread of the virus before it infects the masses in any state or region.

Developing countries in East Asia and the Pacific(EAP) suffer from trade tensions as the virus that triggered a supply shock  in China has ultimately caused a global shock resulting financial jerk and recession across the world. In a rapidly changing environment, the entire globe stand still and the developing countries like India has to follow sound macroeconomic policies to deal with the tremours. There is severe supply shock in the Indian cities and towns as well since the virus hit hard the supply chain and the logistics, such circumstances are evident in metropolitan cities like Bengaluru as there are cases of delayed deliveries by online stores like Bigbasket which cater the need of many in the city.

The Covid 19  also has a serious impact on poverty. Nearly 24 million fewer people will escape poverty across the region in 2020 than would have in the absence of the pandemic(using poverty line of  US$5.50/day).If the situation deteriorate further, the repercussions will be more on developing countries. Therefore, the targeted fiscal measures are inevitable. In addition to national action international cooperation is a must to vaccine against this crisis.

It is a twin challenge of doctors treating patients  and policy maker articulating strategy, hence various state governments find it tough to relax the lockdowns as the potential cost to the human life is huge. Thanks to the people on the frontline  trying to defeat the outbreaks risking their lives, those working in health care,  doctors and nurses, delivery agents and countless many to care  for us and to ensure the necessities at this difficult time. Mitigating measures need to be lifted as an exit strategy from Covid 19 that  flattens the epidemic curve while overcoming extraordinarily challenging times.

(an article in the backdrop of first wave of covid in India,in February 2020)