Price of ecological concerns

Take the case of electricity pricing. The economics of the transformation from a non-sustainable to a new technology energy plant would be higher capital costs, at the margin, but lower current costs and working capital requirements. Plant-wise analysis would show that the marginal capital cost need not always be that of a green field plant since modernisation and existing expansion costs are generally lower.

The CERC, the Indian electricity regulator, has strongly recommended a long-run marginal cost pricing policy for the power sector rather than the existing cost plus pricing setup. Also the Maharashtra Electricity Regulator has not allowed the cost plus price of imported fuel for interregional transmission, but has allowed the hydel cost as an ‘availability’ tariff, as suggested by me. But a lonely swallow does not make a summer.

The difficulty is that we now want the consumer to pay the price of public goods, which is good, but very seldom do we define what the fair price is. So the market means that he has to pay for inefficiency and historical mistakes.

As vice chancellor of Jawaharlal Nehru University, I objected to the university paying the electricity department for distribution charges, when it had its own distribution system. Either they should have taken over our distribution system and pay for it, or charge us less. Unfortunately, I could not remedy it even when I was power minister. I suspect the university was one of the few bulk consumers which paid and so they would not let go off the goose which laid the golden egg.The theoretical answer is good regulation or competition. Competition may mean capacity use of less than 30 per cent, which is what happens in developed countries. But we are poor. We cannot afford enormous amounts of capital. Regulation means politicians getting off the back of those who can do it. Also, there are no free lunches. We are a long way off. But somebody has to show the mirror, so that we start on the long way up.