Economic and Social Research Council
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Informal economy missing from climate change debate

The informal, unregistered economy accounts for two thirds of the Indian economy and some 90 per cent of jobs, yet is completely ignored in current climate change policy and mitigation debates. Ignoring the informal economy presents a major problem if governments wish to make fast responses to climate change, argues ESRC-funded researcher Professor Barbara Harriss-White.

Increasing quantities of greenhouse gas emissions (GHGs) are being generated by the informal economy worldwide. A new study of the informal economy in India pioneers methods for measuring greenhouse gases based on a case study of rice production. The measuring methods could in future allow the informal economy to be factored in to climate change debates.

In developing countries, the informal economy - the part of the economy that lies beyond the state's regulatory reach - is extensive. Even in Europe it has been estimated at 20 per cent of GDP. In India, it includes most shop and farm workers, casual workers and the vast army of self-employed - as well as a growing number of unregulated jobs in large national or global firms and the Indian state itself.

In India – as elsewhere – it is the major polluting industries within the formal sector – such as iron and steel, energy, aluminium, cement, fertiliser and paper that account for the lion's share (70 per cent) of GHGs. Focusing attention on these 'big polluters' is the obvious priority. However, the reach of the informal economy is far greater than many may imagine. Currently, for example, some 25 per cent of India's coal and 20 per cent of its electricity generation is estimated to disappear into the informal economy. Many enterprises continue to evade legislation and circumvent environmental and labour laws. And many commodities produced in India's formal 'organised' sector move in and out of the informal economy to reach their final destination. 

"If a country such as India wished to 'go green' and make the first moves towards a low carbon transition, then the fact that most economic activity is currently unregistered and taking place in the informal economy would make it difficult for government to implement its policies in the way intended," Professor Harriss-White points out.

Based on an analysis of rice production, the aim of the research was to develop new scientific techniques for measuring the informal sector, its contribution to GHG emissions, and its capacity to generate livelihoods and to adopt innovations. The team focused on rice – which is estimated to account for some 21 per cent of India's agricultural GHG emissions – not because it was a particularly large polluter but because it provided a useful case study.

"Rice production weaves in and out of the informal economy. With a range of production practices and distribution channels it is good not just for developing new research methods but also for studying the complex trade-offs between environmental, social and economic variables that are involved in the search for greater sustainability," Professor Harriss-White explains.

In studying rice production, researchers discovered several opportunities for reducing GHGs through small changes in practices and technology. For example, growing rice with less water, fertiliser and more labour (known as systems of rice intensification (SRI)) could account for a 15 per cent reduction in GHGs in addition to higher yields. The use of solar pumps to raise irrigation water and reductions in electricity transmission and distribution losses are other examples.

"We found the informal economy to be buzzing with innovation which could provide opportunities to reduce GHGs – based on small changes well within existing technological frontiers," Professor Harriss-White explains. "But until we better understand the nature and extent of the informal sector in a nation’s economy then we can't fully appreciate what the implications may be in terms of new policies for climate change response."

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Notes for editors

  1. This release is based on the current research project 'Greenhouse gas emissions, technology and work in production and distribution systems: rice in India' (external website) funded by the Economic and Social Research Council and led by Professor Barbara Harriss-White AcSS, Senior Research Fellow, Area Studies, Oxford University.
  2. Methodology: The project is modeling the complexity of the rice production and distribution systems. Four distinctive production technologies and four channels of distribution, including both market and state are being researched. Fieldwork centres on Orissa, Andhra Pradesh and Tamil Nadu. 
  3. The main objective of the study was to find new and widely applicable ways to measure resource-use and pollution in the informal economy. Having developed these innovative methods based on rice production, researchers are currently exploring new applications in the construction and livestock industries. 
  4. The ESRC is the UK's largest organisation for funding research on economic and social issues. It supports independent, high quality research which has an impact on business, the public and third sectors. The ESRC's total budget for 2013/2014 is £212 million. At any one time the ESRC supports over 4000 researchers and post graduate students in academic institutions and independent research institutes