The state-owned Indian natural gas sector has been slowly moving towards deregulation for close to a decade. However, rather than wholly introducing free market forces into the existing state-managed sector, India has developed a separate, almost entirely decontrolled gas market alongside the existing sector.

The major challenge to complete gas sector reform that remains is how to transition gas users from the state-managed sector to the free market. This paper explains the origins of this hybrid market and its likely evolution.

The fertilizer and electricity sectors, which account for most gas consumption in India, are reviewed in detail. In both, while interlocking political forces have prevented full transition of the sector to the free gas market, some users have already made the transition. In electricity, parts of the sector, such as private power plants, are already shifting private gas supplies on their own because private gas, while more costly, is much more reliable. The ultimate viability of private gas in electricity and fertilizer production will depend on reforms within the offtaking industries.

The South African government is introducing a poverty-reduction policy that will supply households with a monthly 50kWh "Free Basic Electricity (FBE)" subsidy. We show that FBE distorts the energy choices of poor households by encouraging them to cook with electricity, whereas alternatives such as liquefied petroleum gas (LPG) can deliver a similar cooking service at a much lower cost to society. An alternative energy scheme, such as providing households with clean energy credits equivalent in value to the FBE's cost, could deliver additional energy services worth at least 6% of total household welfare (and probably much more) at no additional public cost; those benefits are so large that they would cover the entire cost of LPG fuel needed to implement the scheme.

The analysis is extremely sensitive to the coincidence of electric cooking with peak power demand on the South African grid and to assumptions regarding how South Africa will meet its looming shortfall in peak power capacity. One danger of FBE is that actual peak coincidence and the costs of supplying peak power could be much less favorable than we assume, and such uncertainties expose the South African power system to potentially very high costs of service.

This paper was published by Energy Policy in January 2005.

The study examines the dynamics of carbon emissions baselines of electricity

generation in Indian states and Chinese provinces in the backdrop of ongoing electricity sector reforms in these countries. Two Indian states-Gujarat and Andhra Pradesh, and three Chinese provinces-Guangdong, Liaoning and Hubei have been chosen for detailed analysis to bring out regional variations that are not captured in aggregate country studies. The study finds that fuel mix is the main driver behind the trends exhibited by the carbon baselines in these five cases. The cases confirm that opportunities exist in the Indian and Chinese electricity sectors to lower carbon intensity mainly in the substitution of other fuels for coal and, to a lesser extent, adoption of more efficient and advanced coal-fired generation technology. Overall, the findings suggest that the electricity sectors in India and China are becoming friendlier to the global environment. Disaggregated analysis, detailed and careful industry analysis is essential to establishing a power sector carbon emissions baseline as a reference for CDM crediting. However, considering all the difficulties associated with the baseline issue, our case studies demonstrate that there is merit in examining alternate approaches that rely on more aggregated baselines.