Home >Lounge >Features >Can the covid-19 crisis help remake India’s energy economy?

Just how dependent is India on fossil fuels? The Mapping India’s Energy Subsidies 2020 report, released on 16 April, gives a useful overview of India’s energy subsidy mix and also analyses the country’s policies on subsidies. Prepared by the International Institute for Sustainable Development’s (IISD) Global Subsidies Initiative and the Council on Energy, Environment and Water (CEEW), the study is an update on an earlier analysis prepared in 2017.

India’s three-trillion economy is set to grow to a seven-trillion economy by 2030, according to a Deutsche Bank report in January. At the same time, India’s commitment towards climate change mitigation, according to its 2015 Nationally Determined Contribution (NDC) to the United Nations Framework Convention on Climate Change (UNFCCC), includes a pledge to reduce the emissions intensity of its GDP by 33-35% by 2030 from the 2005 level. It also includes the goal of ensuring that 40% of the country’s power generation comes from non-fossil fuel (oil, coal, and gas) based energy by 2030.

So how far has India come in the past five years in this delicate balancing act of lifting millions out of poverty, while moving towards a carbon-neutral economy? This new study presents some interesting insights, through the prism of government energy subsidies. Between FY 2017 and FY 2019, India’s oil and gas subsidies rose by over 65%, from Rs40,762cr to Rs67,679cr. This came after an earlier fall of 75% in oil and gas subsidies between FY 2014 and FY 2017. The report points to two factors behind this rise: higher world oil prices and the increased use of subsidized LPG. As opposed to that, India’s subsidies towards renewable energy (RE), fell 35% from a high of Rs15,313cr in FY 2017 to Rs9,930cr, though the report’s authors expect this figure to go up again. Coal subsidies have largely remained the same, from Rs15,660cr to Rs15,546cr. Coal accounts for 56% India’s energy dependence (as compared to the global average of 27%), with oil and gas accounting for 36% (global average 56%) and RE at a mere 3% (global average 4%).

The report analyses the rationale behind the subsidies and makes recommendations about subsidy reforms that keep in mind a clean energy future for India, while also taking into consideration the economic upheaval caused by covid-19. “Rising oil prices and initiatives to promote clean cooking were the main drivers of growing support to fossil fuels since FY 2017," says energy specialist Vibhuti Garg, an associate at IISD, and a co-author of the report. “After the COVID-19 crisis, petroleum product subsidies will undoubtedly fall significantly in 2020 and other energy markets will be shaken." She adds that, “Government stimulus needs to first help people cope, but stimulus for the energy sector must avoid new fossil fuel subsidies that lock in air pollution and greenhouse gas emissions for years to come."

The report highlights the fact that when it comes to subsidies to fossil fuel, the government needs to keep in mind important factors like beneficiaries and social costs. For example, LPG subsidies, which are maintained keeping in mind the consumption needs of households, accounted for 28% of all energy subsidies and 64% of all oil and gas subsidies. However, the Ujjwala scheme, launched in 2017 and targeting LPG connections for below-poverty-line households, has not been a success. The study also reports that Ujjwala consumers used a mere 3 refills per year on average in FY2019, as opposed to 6.7 refills per year among non-Ujjwala scheme users. It also cites CEEW’s Access to clean cooking and electricity—Survey of States (ACCESS) survey from 2018, that showed that 63% of rural households across 6 of India’s poorest states still use biomass as their primary cooking fuel. This begs the question: who are the subsidies for?

“The Indian energy system is full of distortions. That’s the major issue. And within that, subsidies are distorted in that they are directed more at the rich than at the poor," says Karthik Ganesan, a research fellow with CEEW and a co-author of the study. “If we can target subsidies to ensure that it reaches the people who need it, we can actually do a lot better and bring down their cost of energy, while increasing the cost of energy for people who can afford it. That rationalisation will help free up a lot of resources and also I think bring in a lot of equity," he adds, when I ask him how energy subsidy reforms can help in the post-covid recovery of the economy. Social costs, too, need to be factored into the thinking behind fossil fuel subsidies. “The use of fossil fuels is incurring premature mortality, it’s having an impact on water resources. Now is a good time for us to encourage political decision-makers to factor this into helping India recover," says Christopher Beaton, a co-author and lead, sustainable energy consumption in IISD’s energy programme.

Among the study’s recommendations is the adaption of RE subsidies to target emerging technologies and grid balancing. In his joint address to Parliament in January, President Ram Nath Kovind declared that India aims to generate 450 GW of RE by 2030. The study says that to achieve this goal, the government needs to channel funds towards developing quality interstate grid transmission and storage. It also recommends the government subsidises solar lanterns. According to the ACCESS survey, 86% of households over the 6 states surveyed would support such a move, even at the cost of lower kerosene subsidies.

While the economy recovers from the shock of covid-19, the study also recommends that the government retain mechanisms like the coal cess, resist new oil and gas subsidies and do better targeting for consumption subsidies towards LPG and electricity. But all this would require political will. “I think now is the time for political courage. And I think we have seen it already. The extension of the lockdown in India is a huge move that requires a lot of courage. It’s asking people to incur costs in order to achieve benefits. Around the world we see that crisis is the time where change comes from," says Beaton.

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