About 150 million people went missing in the media coverage of India’s power crisis this week. Reports spoke of the 600 million people affected by the blackout across India’s north and east as cities plunged into darkness for two nights in a row – and the high priests of capitalism worried about the effect on what is euphemistically termed “global economic growth”.
In fact, the real figure was more likely to be 450 million people – but that’s actually bad news. The higher figure was calculated by adding up all the people living in the areas served by three separate, massive grids. The lower figure factors in the quarter of the population in these and all areas of India who weren’t cut off from the grid – for the simple reason that they have never been on it.
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A mere reporting glitch, of course, nothing intentional. But one that speaks volumes for the state of the global discussion about energy, how stuck it is in the 20th century, how riddled with ancient ideological canards. Those 150 million people who literally didn’t count belong to a global underclass of up to two billion people across Africa and Asia, mainly, who are off-grid. Who yesterday, today and every day, often go to sleep when it gets dark and live and work through summers of up to 50 degrees or winters of minus 20, without any means to cool or warm themselves other than keeping to the shadows or burying themselves in a mountain of blankets.
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In order to include them in the global energy debate, it is time for socially progressive thinking to revisit the issue of energy subsidies.
In dozens of countries including India, fossil fuel subsidies lie at the heart of an energy infrastructure and political dispensation that was established in the second half of the 20th century, but which cannot keep pace with growing populations and their very legitimate growing expectations. Globalisation means those two billion people are acutely aware that they belong to an underclass. In India, for example, power generating capacity has jumped by a factor of 150 since independence in 1947 and now stands at greater than 200 gigawatts. But it’s still not enough (the US, for example, has a 1,100 gigawatt power infrastructure and a population a quarter the size of India).
In Egypt, similarly suffering widespread power cuts through a fiercely hot summer and the fasting month of Ramadan, electricity use has doubled in the past ten years. Only a third of that is due to population growth. The other two-thirds is due to rising use per capita, a story that repeats itself across the global south.
Subsidies were instituted to help the poor afford electricity and fuels. In many oil-producing countries, they became the proxy for an entire social contract that went missing as rulers kept most of the oil wealth to themselves and a small elite. Hence the massive sensitivity in countries such as Nigeria whenever a government tries to cut the subsidies. In importing countries too, such as India and Indonesia, subsidies underwrote a government’s commitment to the poor, and to inclusive development, which was sometimes genuine, sometimes just cynical appeasement.
But we must now face the fact that the truth is the opposite.
Study after study shows energy subsidies are massively regressive, and involve massive transfers of wealth from the poor to the middle class and rich. It turns out you need assets to take advantage of fuel subsidies. You need to own a car to benefit the most from cheap petrol, and an air-conditioning system, refrigerator, and other modern appliances to really capitalise on cheap electricity. The drain on government budgets is truly astonishing. Energy subsidies in Egypt – which have been projected this year to soar 40 per cent to $15bn – more than the entire public spending on health and education services combined, including about $1.4bn dollars last year on subsidies of gasoline, 94 per cent of which was consumed by the country’s top 20 per cent income bracket.
The scale of the subsidies means there is no scope in public financing to develop the energy infrastructure to meet growing demand. But it also precludes private investment, since producing power becomes a loss-making proposition. Hence those 150 million Indians who weren’t cut off this week because they were never connected.
Even these figures understate the extent of the poverty trap, because if you’re poor you can end up paying more for energy than the rich, not just relatively but in absolute terms. Most oil producers have underdeveloped domestic networks to use natural gas because, first, governments can’t make zillions of dollars out of it like oil, and then later, when market conditions changed and they could, there was a drive to export rather than to use at home.
But when gas networks were developed, they were rolled out to the residential, middle- and upper-class neighbourhoods. Most of the two billion people without electricity also face a bum choice for heating and cooking between either foraging for brushwood and other “traditional biomass” in rural areas, or, in the cities, paying more per unit of energy for cylinders of LPG and butane. These fuel sources have the additional downside that they regularly explode and kill people. And this is before we consider the other externalities of the pollution and environmental degradation caused by inefficient energy use and the lunacy of subsiding global warming to the tune of something like $800bn worldwide every year.
It is a broken policy.
But we are stuck because the debate is hostage to wider concerns. Progressives have long defended subsidies for pro-poor reasons, but since the global financial crisis began the ideological divide has only sharpened. Subsidy reform policies become tainted in the eyes of many because they are pushed by such champions of the neo-liberal world order as the World Bank or regional development banks. Talk of market pricing is dismissed as the preaching of Onepercenters who are, in any case, expert at finding loopholes to avoid paying the taxes that go to the subsidies in the first place. Governments sit nervously in the middle. They are acutely aware of mainstream public sentiment and often in some sympathy with it. They are highly sensitive to the traditionally coercive nature of the relationship with the main agents advocating and modelling subsidy reforms, and often predicating other forms of help on them.
And yet the stark reality of the failure of the promise, its total unworkability in the future and the damage it is wreaking now, stares them in the face as they sit behind their ministerial desks. A lot of good men and women in positions of responsibility probably lose sleep over this around the world.
But this sensitivity, on our part at least, is wrong-headed. The main issue with subsidy reforms is how to protect the poor. At the nuts-and-bolts level of transitioning a system, there are a lot of policy options out there. Some, such as social welfare nets, are tried and tested with varying results. Others, such as cash dividends – or, to use the jargon, “untargeted transfers” – are just now emerging. Zooming out to the political and philosophical level, there is the Basic Income movement, which argues governments should provide enough cash unconditionally to guarantee the livelihoods of the entire population. We should welcome debate at all levels, as these are massively complex issues that will require political consensus to work. It is a mistake to treat energy systems as the exclusive affair of economists, treatable by the right dose of technical assistance.
What we cannot continue to do is to allow an allegiance to the ideals of social justice to blind us to the unpleasant reality that the status quo embodies injustice. Social progressives should not be dragged kicking and screaming into the debate about how to remove energy subsidies. They should be leading it.
Johnny West is founder of OpenOil, a Berlin-based consultancy in oil and other extractive industries. He has covered global energy markets since the early 1990s. He regularly contributes to The Guardian, Huffington Post and Petroleum Economist.