July 22, 2024

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A cost-benefit framework for transitions to sustainable cold medical supply chains in India

7 min read
Valuing the Cold Carbon: A cost-benefit framework for transitions to sustainable cold medical supply chains in India
The global healthcare sector, known for its significant carbon footprint, contributes approximately 5.2 percent to annual global carbon emissions, with a likely 5 percent rate of increase every year. Emissions emanating from medical supply chains remain the most significant contributor to the healthcare sector’s carbon footprint. In India, while overall emissions from the healthcare sector remain well below the global average at 2 percent, supply chain emissions make up an alarming 81 percent of total emissions from the healthcare sector.

Emissions emanating from medical supply chains remain the most significant contributor to the healthcare sector’s carbon footprint.

Growing recognition of these broader trends has been a major driver in promoting environmental sustainability by encouraging collaboration between and the establishment of eco-friendly practices among associated partners globally, though the same may not be true for the Global South. As an example, the conventional fossil fuel-based cold chains used in India are often confronted with compromised functionality, significant climate impacts, and contribute to environmental degradation. Following the global trend and India’s climate commitments, transitioning to a green healthcare delivery system is imperative. While this process of transition is definitely not costless, accounting for both short-term and long-term costs and benefits associated with this transition is important for decision-making and policy purposes, and also to generate adequate interest in the supply chain. This article explores the nature, expanse, and relevance of cold medical supply chains in India, their climate impacts, their possible transition to renewables-based alternatives, and relevant factors for a cost-benefit analysis with the integration of the social cost of carbon framework.

The social cost in the business-as-usual case

Studies indicate that heavy reliance on fossil fuel-based energy services in medical cold chains has had several adverse consequences, including the availability and accessibility of fuel supplies and power outages in stationary refrigerant storage units, directly impacting the ability of healthcare providers to deliver critical services and potentially hindering life-saving interventions. The high dependence on fossil fuels contributes to greenhouse gas emissions (GHGs) and air pollution and exacerbates global warming. The Indian pharmaceutical industry has the seventh-largest climate footprint in the health sector (in absolute terms). The industry’s projected growth, at a compound annual growth rate (CAGR) of 13.4 percent till 2030, indicates a commensurate increase in energy demand and carbon footprint unless a transition to more energy efficient and green or clean alternatives is initiated.

The high dependence on fossil fuels contributes to greenhouse gas emissions (GHGs) and air pollution and exacerbates global warming.

Another potent source of global warming, specifically emanating from cold supply chains, remains GHG emissions from refrigerants such as chlorofluorocarbons (CFCs), hydrochlorofluorocarbons (HCFCs) and hydrofluorocarbon (HFC) with significantly higher ozone depletion potential (ODP) and global warming potential (GWP). These impacts further bear upon the environmental and social costs at the intersection of climate change and health. 

The case for transition

A transition to renewables-based alternatives is imperative to ensure sustainability and to mitigate the climate impacts of cold medical supply chains. Renewable energy sources such as solar and wind power offer sustainable solutions for powering cold storage facilities and transportation. Solar panels can be installed on the rooftops of storage facilities to generate clean energy, while wind turbines can be integrated into the power supply for refrigerated vehicles. This transition not only reduces GHGs but also enhances energy efficiency and climate resilience in the healthcare sector.
Successful case studies and pilot projects across India have demonstrated the feasibility and benefits of renewables-based cold chains. For example, several Indian states have implemented solar-powered cold storage facilities such as Solar Direct Drive (SDD) vaccine refrigerators, ensuring the preservation of vaccines and medicines in remote areas. Additionally, global players like B Medical Systems (BMS) have pioneered solar-powered cold chain solutions, and organisations like SELCO Foundation have improved access to such healthcare innovations in underserved regions. These initiatives showcase the potential of renewables in transforming the cold medical supply chain landscape in India.

Key aspects include the initial capital investment needed for infrastructure investment outlay, operational costs, skill requirements, medical waste reduction, healthcare delivery improvements, potential energy savings, emissions reduction, and climate change mitigation.

Transitioning from conventional fossil fuel-based cold chains to renewables-based alternatives requires careful consideration of various factors for a comprehensive cost-benefit analysis. Key aspects include the initial capital investment needed for infrastructure investment outlay, operational costs, skill requirements, medical waste reduction, healthcare delivery improvements, potential energy savings, emissions reduction, and climate change mitigation. While the upfront costs may appear daunting, the long-term benefits far outweigh them.
Evaluating the economic, environmental, and social benefits of renewables-based cold chains is essential. Reduction in GHGs leads to cleaner air and improved public health outcomes. Furthermore, the integration of renewables enhances energy efficiency over time, driven by economies of scale, reducing operating costs in the long run. It also improves access to reliable healthcare services in remote areas, leading to better health outcomes and reduced healthcare burdens. Additionally, the transition stimulates job creation in the renewable energy sector, fostering sustainable economic growth. Reductions in GHG emissions limit global warming and mitigate the long-term environmental and social impacts of climate change.

A framework for cost-benefit analysis: Integrating the social cost of carbon

We propose a comprehensive cost-benefit analysis framework to understand the net benefits and the associated trade-offs in this transition process. The framework entails integrating emissions reduction and the social cost of carbon framework as we move from fossil-fuel based cold storages and supply-chains to ones that are based on renewables. This brings us to the argument on social cost of carbon (SCC) that represents the economic cost of damages caused by the emission of an extra metric ton of carbon dioxide. Globally, India has the highest country-level social cost of carbon at about US$90 per tonne of CO2 emissions, costing about US$243 billion annually in economic terms. By prioritising natural refrigerants, India is projected to achieve a reduction in direct emissions of 50 million tonnes of CO2e per year by 2030 with an annual cost saving of US$4.5 billion, along with a 14 percent reduction in CO2e by 2030 propelled by higher electric vehicle (EV) penetration in the small commercial vehicle segment adding to the long term economic benefits.

The costs will be estimated through the capital expenditure, the operations and maintenance costs, and then the total social cost of carbon through estimation of the carbon emission.

The mathematical framework we propose here considers two scenarios, namely, the Business-as-Usual (BAU or the continuation of the present conditions) and the Transition (when energy transition happens from fossil fuel to renewables) scenarios. In each case, the costs will be estimated through the capital expenditure, the operations and maintenance costs, and then the total social cost of carbon through estimation of the carbon emission. One needs to estimate the cost saving in the social cost of carbon by estimating the net present value (NPV) with a planning horizon of more than 30 years with an agreed upon rate of premium. The benefits under each scenario in terms of job creation, cost savings, energy savings, efficiency gains in the value chain, revenue generation, medical waste reduction and disposal cost reduction, and all the heads explained in the previous section, also need to be considered, and presented in the form of the NPV with the pre-decided planning horizon and premium (or discount) rate. The value under each scenario and the cost saving in the Transition scenario due to a lower carbon emission, leading to lower cost imposed by carbon on society, will lead to a better justification of why sustainable cold medical chains prove to be better options for the medium- and long- runs.

To conclude…

Efforts to transition to renewables-based cold chains must be supported by comprehensive cost-benefit analyses that consider economic, environmental, and social factors. This definitely requires better valuation mechanisms as we propose in this essay. The valuation mechanism offers an objective instrument by way of which energy transition can be rationalised at the decision-making and policy-making levels. Further even, bringing the SCC into the argument rationalises this transition mechanism from a broader social rate of return perspective than from a narrow, myopic

The value under each scenario and the cost saving in the Transition scenario due to a lower carbon emission, leading to lower cost imposed by carbon on society, will lead to a better justification of why sustainable cold medical chains prove to be better options for the medium- and long- runs. economic rate of return lens.

It is essential that stakeholders, including the government, private sector, and international organisations, collaborate and invest in renewable energy infrastructure, policy support, and technological innovation. It also requires innovative financial instruments like SDG credits and SDG bonds and fiscal interventions through tax holidays and subsidies to finance schemes like these that may have high social rates of return, but may not always reveal high private economic returns. In any case, there exists a clear case for embracing sustainable cold medical supply chains for India that can pave the way for a climate-resilient healthcare system thereby helping the cause of human and environmental health simultaneously.


Nilanjan Ghosh is Director of the Centre for New Economic Diplomacy at the Observer Research Foundation.
Debosmita Sarkar is a Junior Fellow with the Centre for New Economic Diplomacy at the Observer Research Foundation.

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