Replacing inefficient subsidies with better alternatives is a formidable task in developing countries. Reform is even more daunting when there is free supply of electricity in a sector that is the backbone of the economy. This thesis is set against the background of the policy of free supply of electricity to agriculture in India’s agricultural state of Punjab. The emerging evidence-based assessment of sustainable alternatives to replace free access of electricity to agriculture from this study would be equally applicable to economies and geographies grappling with the problem of inefficient electricity subsidies. There are multiple possibilities as the interaction between water and energy sectors in agriculture is multilayered. This thesis examines farmers’ preferences for innovative solutions collected with the help of discrete choice experiments involving groundbreaking field work. The work presented in this thesis is probably one of the first of its kind, to the best of the author’s knowledge.

Despite mounting evidence that electricity subsidies to agriculture are fundamentally unsustainable, opposition to reform presents a problem for governments. Governments must be able to convince farmers to successfully advocate reform and unlock the water-energy nexus, which represents both a low-level policy equilibrium and a crisis in environmental governance. This PhD thesis based on four discrete choice experiments and complemented with insights from behavioral sciences examines the crucial role of preferences in predicting farmers’ support for alternatives that compensate them for the losses associated with reforming subsidies. In the three chapters, micro-level data from 3436 interactions with farmers in Punjab yielding 36078 responses is econometrically analyzed to explore preferences and behavioral responses for interventions that can potentially keep the electricity subsidies as low as practically possible and incentivize sustainable use of water and energy in agriculture. The research suggests that the consideration of heterogeneity in preferences and valuations for energy-saving interventions can help in reconciling the achievement of reform objectives with securing public support and protection of vulnerable groups. The first chapter presents a summary, and the second chapter presents an introduction to the study. The sixth chapter presents the conclusions of the study. The third, fourth and fifth chapters examine farmers preferences with the help of three discrete choice experiments to alternatives that can replace free electricity and ensure more sustainable resource use in Indian agriculture.

The third chapter examines farmers’ preferences and response behavior to the potential introduction of economic incentives for inducing the adoption of low-water rice varieties and the willingness to trade off free electricity for these incentives. The estimation strategy applies conditional logit and random effects probit to highlight positive valuations for different economic incentives – area-based payments and minimum assured prices which can drive adoption decisions. The chapter shows that willingness to pay depends on the type of electricity tariff, which could be exploited to encourage payment behaviour and bring about reductions in energy use.

The fourth chapter applies the econometric estimation approach developed in the third chapter to an original data set of preferences to examine the potential for introducing an annual free electricity entitlement, reward system and incentive-penalizing tariffs in inducing acceptance of metering with payment option and adoption of energy-saving behavior among farmers. The results of the choice experiment demonstrate acceptance of the annual limit of free electricity, reward, and incentive for unused units, which can serve as important determinants in the transition towards metered consumption in Punjab agriculture. Further, designing behavioral interventions around small rewards and punishments can be useful, even if penalties are rarely used.

Finally, the fifth chapter sheds light on farmers’ preferences for financial incentives to promote the diffusion of solar PV irrigation pumps in Punjab agriculture. The flexible mixed logit formulation is additionally applied to improve the willingness to pay/willingness to accept estimates and economic evaluations. The results show that initial subsidies have a significant impact on encouraging installation of solar irrigation pumps, whereas the buyback option has a positive effect on encouraging acceptance of grid connected solar irrigation pumps. The effect of the type of purchase option and contextual factors is considered on the acceptance of grid-connected solar pumps and willingness to pay. The approach attempts to predict farmers’ preferences for an integrated platform of distributed solar power generation in the future.

The three studies illustrate strong preferences for the replacement of high-water intensive crop varieties by low-water rice varieties, substitution of unmetered supply of free electricity by metered consumption, and adoption of renewable energy in the energy mix with the help of moderate incentives offered to farmers. The cost-benefit analysis shows that the potential savings from economic and environmental benefits could compensate for the welfare losses. These complementary reform strategies have a large potential for the protection of water resources, which have reached a critical level, the reduction of electricity subsidy to agriculture, the magnitude of which has become unsustainable to continue for government budgets and the adoption of energy saving behaviour among Punjab farmers who are perceived to be opposed to reform. The refined econometric estimations shed light on the peculiarities of farmer heterogeneity, and the usefulness of deploying differentiated incentives to promote participation in electricity saving and energy conservation strategies. The findings have practical implications for environmental governance and agricultural development and contribute to an understanding of incentivizing energy-saving behavior in agriculture in a developing country. The study establishes that there is room for reform that can be widely acceptable to all stakeholders.