17 December 2024 : The Hindu Editorial Analysis

1. The hidden cost of greenwashing the Indian Railways

(Source – The Hindu, International Edition – Page No. – 8)

Topic: GS3 – Indian Economy – Infrastructure

Context

RITES Ltd. has won contracts to repurpose redundant Indian Railways diesel locomotives for export after gauge conversion, highlighting wastage due to rapid electrification policies. The Indian Railways’ Mission 100% Electrification raises concerns about environmental, financial, and strategic implications. It underscores the gap between green claims and actual coal-based energy dependency.

RITES Ltd. Wins Contracts for Repurposing Locomotives

• RITES Ltd., a consultancy arm of Indian Railways, has won two contracts to repurpose six broad-gauge diesel-electric locomotives for export to African railways.
• These locomotives will be converted from the Indian broad gauge (1,676 mm) to the Cape Gauge (1,067 mm).
• While India has previously exported locomotives, this marks the first export of repurposed second-hand locomotives after gauge conversion.
• Despite the engineering achievement, the situation highlights wastage of operational diesel locomotives due to policy decisions.

Diesel Locomotives Made Redundant

• Current Status: As of 2023, 585 diesel locomotives were idling due to railway electrification, a number that has since risen to about 760.
• Residual Life: Over 60% of these locomotives have a service life of more than 15 years.
• Policy Impact: The redundancy stems from the government’s mission to achieve 100% railway electrification at an accelerated pace.

What Is Greenwashing?

Greenwashing is the practice of presenting misleading or exaggerated claims about a product, service, or organization’s environmental benefits to appear environmentally friendly. It involves marketing strategies that mask environmentally harmful practices, such as focusing on minor eco-friendly features while ignoring significant environmental damage. Greenwashing can mislead consumers and undermine genuine sustainability efforts by prioritizing image over substantive environmental action.

Justifications for Electrification

Saving Foreign Exchange

• Minuscule Diesel Usage: Railways’ diesel consumption constituted only 3.24% of total transport-related diesel use in 2014, reducing to about 2% by 2021-22.
• Limited Impact: While reducing crude oil imports saves foreign exchange, the overall impact on national diesel consumption is negligible compared to sectors like trucking and agriculture.

Environmental Claims

• Energy Source Dependency: Nearly 50% of India’s electricity is generated from coal, which Railways itself heavily transports.
• India’s reliance on coal-fired electricity contradicts claims of creating a “Green Railway.”
• A shift to 80% non-fossil fuel electricity generation is necessary to make electrification genuinely green.

Implications of 100% Electrification

• Asset Mismanagement: Hundreds of serviceable locomotives are prematurely made redundant, representing colossal asset wastage. Stabled diesel locomotives, if lined end-to-end, would stretch 16 kilometers.
• Disaster Management Argument: Indian Railways plans to retain 2,500 diesel locomotives for “disaster management and strategic purposes,” raising questions about the rationale behind this redundancy.
• Another 1,000 diesel locomotives will continue in service for traffic needs despite electrification.
• Railways’ financial sustainability remains tied to transporting coal, undermining claims of environmental benefits.

Critique of Electrification Strategy

• Policy Concerns: The rush to achieve 100% electrification reflects a preference for vanity projects over sound policy-making.
• Economic Impact: This approach leads to the wastage of taxpayers’ money while failing to achieve significant environmental or economic benefits.
• Until renewable energy dominates India’s electricity mix, claims of environmental benefits from railway electrification remain untenable.

Practice Question:  Discuss the implications of Indian Railways’ Mission 100% Electrification on asset management, environmental sustainability, and financial efficiency. How can India reconcile green objectives with energy realities? (150 Words /10 marks)

2. Levy a higher GST rate on tobacco, sugared beverages

(Source – The Hindu, International Edition – Page No. – 8)

Topic: GS2 – Social Justice – Health

Context

India faces significant public health and economic challenges due to high consumption of tobacco and sugar-sweetened beverages. The proposed GST hike from 28% to 35% aims to curb consumption and increase tax revenues. However, comprehensive tax reforms, including higher excise duties, are crucial to address health impacts and revenue disparities effectively.

Background and Context

• Over the past seven years since the introduction of GST, no significant hikes have been made in GST rates for harmful products like tobacco and sugar-sweetened beverages.
• Minor increases were noted only in National Calamity Contingent Duties (NCCD) on tobacco, making these products more affordable and undermining public health goals.
• The Group of Ministers (GoM) has proposed raising the highest GST tier on tobacco and sugar-sweetened beverages from 28% to 35%.

Impact of Proposed GST Rate Hike

• Tobacco Use in India:
  • India is the second-largest consumer of tobacco, with 28.6% of adults (15+ years) and 8.5% of adolescents (13-15 years) using tobacco.
  • Tobacco is a leading cause of non-communicable diseases (NCDs) and accounts for over 3,500 deaths daily in India.
  • In 2017, the economic burden of tobacco use and second-hand smoke was ₹2,340 billion (1.4% of GDP), far exceeding the ₹538 billion annual tax revenue from tobacco.
• Expected Outcomes of GST Hike:
  • A 35% GST rate would lead to:
    • 5.5% price increase for beedis, reducing consumption by 5% and increasing revenue by 18.6%.
    • 3.9% price increase for cigarettes, reducing consumption by 1.3% and boosting revenue by 6.4%.
    • 3% price increase for smokeless tobacco, reducing consumption by 2.7% and raising revenue by 1.9%.
  • The total additional revenue could amount to ₹43 billion annually, assuming no industry over-shifting of taxes.

Recommendations for Further Reforms

• A 40% GST rate would:
  • Sharply increase prices, reduce consumption further, and generate an additional ₹72 billion annually.
  • Reduce tax disparities between tobacco products and align with the WHO Framework Convention on Tobacco Control (WHO FCTC).
• Address Industry Concerns on Illicit Trade:
  • Evidence shows tax hikes have minimal impact on illicit trade.
  • Factors like regulatory frameworks and governance play a greater role in controlling illicit markets.

Need for a Balanced Tax Framework

• Reliance on GST, an ad valorem tax, limits effectiveness as the industry can manipulate prices.
• Specific excise taxes, proven more effective in reducing tobacco consumption, should be raised alongside GST to strengthen the tax framework.

Significance of Sugar-Sweetened Beverages Tax

• Excessive consumption of sugar-sweetened beverages contributes to obesity, diabetes, and other NCDs.
• A 35% GST rate could discourage consumption and align with public health goals.
• Additional health-focused levies, such as specific excise taxes, could further enhance the taxation framework.

Key Considerations for GST Council

• Raise GST rates to 40% for tobacco and sugar-sweetened beverages for greater public health benefits and revenue generation.
• Supplement GST with higher excise taxes to create a mixed tax structure proven effective globally.
• Reduce tax discrepancies between beedis, cigarettes, and smokeless tobacco to prevent substitution.
• These measures can reduce health and economic burdens while generating vital revenue for development.

Practice Question:  Discuss the potential impact of increasing GST rates on tobacco and sugar-sweetened beverages on public health and revenue generation. Suggest measures to create a comprehensive taxation framework to address associated challenges. (150 Words /10 marks)

3. Green hydrogen and the financing challenge

(Source – The Hindu, International Edition – Page No. – 9)

Topic: GS3 – Indian Economy – Infrastructure – Energy

Context

India’s ambitious goal of producing 5 MMT of green hydrogen annually by 2030 is hindered by high production costs and financing challenges. With green hydrogen priced significantly higher than grey/blue alternatives, scaling the sector requires innovative financing models, policy support, and global collaborations. Early industrial projects can define future success.

Green Hydrogen: A Key Pathway for Decarbonisation

• Green hydrogen is crucial for decarbonising India’s industrial sectors and achieving net-zero emissions by 2070.
• India has set an ambitious target of producing 5 million metric tonnes (MMT) of green hydrogen annually by 2030, aiming for global leadership in the sector.
• Current progress is limited, with India on track to achieve only 10% of its goal due to economic and financing challenges.

Economic Challenges and Market Deadlock

• The production cost of green hydrogen ($5.30-$6.70/kg) far exceeds grey/blue hydrogen ($1.9-$2.4/kg), deterring domestic adoption and private investment.
• Scaling production to reduce costs is challenging due to the wide price differential and lack of viable market economics.

Key Barriers to Green Hydrogen Production

• Levelised Cost of Electricity (LCOE): High weighted average cost of capital (WACC) in India increases the cost of renewable energy, significantly affecting hydrogen production.
• Electrolyzer Costs: Currently range from $500-1,800/kW, adding to financial constraints.
• Global investments reflect similar barriers, with only 27.6% of announced projects globally reaching final investment decisions.

Policy and Infrastructure Lessons from Other Countries

• The U.K.’s Low Carbon Hydrogen Standard Certification builds market confidence by setting quality benchmarks.
• Hydrogen hubs in the U.S., Japan, and Australia promote integrated ecosystems of infrastructure, production, and consumption.
• India could replicate these strategies by creating industrial clusters linked to renewable energy sources to form hydrogen corridors.

Strategies to De-Risk Investments

• Comprehensive Policy Framework:
  • Long-term hydrogen purchase agreements and partial loan guarantees can reduce investor uncertainty.
  • Regulatory sandboxes can facilitate experimentation with innovative business models.
• Innovative Financing Models:
  • Indian banks must design products to address hydrogen’s unique challenges, such as uncertain demand and long timelines.
  • Modular project financing and “anchor-plus” models can reduce initial capital needs.
  • Equipment-leasing structures can convert high upfront electrolyzer costs into manageable operational expenses.
• Global Collaboration:
  • Standardised carbon intensity and hydrogen origin certification can enhance export potential and build trust.
  • Cross-border partnerships, such as Australia-Japan’s Hydrogen Energy Supply Chain Project, provide demand certainty for investments.

The Path Forward for India

• Early projects in industrial hubs like Odisha, Maharashtra, and Gujarat must focus on demonstrating viable business models.
• Delivering cost-effective hydrogen tailored to key industries is essential for scaling the sector.
• Leveraging renewable resources, low-cost capital, and strategic investments will determine India’s success in green hydrogen development.

Green Hydrogen Mission

Goal: Establish India as a global leader in green hydrogen production, utilization, and export. Targets: Achieve 5 million metric tonnes (MMT) per annum of green hydrogen production and 125 gigawatts (GW) of renewable energy capacity by 2030. Benefits: Reduce reliance on fossil fuels, decarbonize the economy, create jobs, and improve energy security. Strategies: Provide financial incentives for domestic electrolyzer manufacturing and green hydrogen production. Focus areas: Promote the use of green hydrogen in green ammonia and green methanol production, industrial applications, and research & development. Implementation: Adopt a phased approach, initially focusing on sectors with existing hydrogen usage, such as refineries and fertilizer production. Support measures: Develop green hydrogen hubs with dedicated infrastructure and streamline regulatory processes for faster project clearances. Significance: The mission aligns with India’s commitment to clean energy transition and achieving net-zero emissions by 2070. It also aims to boost domestic manufacturing and reduce dependence on energy imports. Expected outcomes: Attract significant investments, generate employment opportunities, and contribute to sustainable economic growth.

Practice Question:  Green hydrogen is being seen as a critical tool for India to achieve its net-zero emissions target. Discuss the economic and financial challenges hindering its large-scale adoption and suggest strategies to overcome these barriers. (150 Words /10 marks)