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Central Govt Saved $15 Bn On Energy Subsidies; Fossil Fuels Still Largest Beneficiaries

Bhasker Tripathi,
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The central government reduced its energy subsidies–financial benefits provided to boost energy production and consumption–by over Rs 82,000 crore ($15 billion) between 2013-14 and 2015-16, a drop of 38%.

 

During the same period, carbon-emitter fossil fuels such as coal, oil and gas remained the largest beneficiaries. While subsidies to renewables increased by over Rs 6,700 crore ($1.05 billion), they accounted for less than 10% of the energy subsidies of the central government, according to this report by the International Institute of Sustainable Development (IISD), a think-tank, Overseas Development Institute (ODI), a think-tank and ICF India, a consultancy.

 

Subsidies could be transferred directly or indirectly–through transfer of money or through tax breaks, access to government land, water and other goods or legislations regulating energy prices–according to the definition by the World Trade Organization.

 

The value of energy subsidies by the central government declined between 2013-14 and 2015-16 from Rs 2.17 lakh crore to Rs 1.35 lakh crore, a drop of 38%, the report said.

 

The decline could be partially because of reforms to curb wasteful consumption of oil and gas subsidies, and partially due to the decline in global oil prices, the report said.

 

While the decline in energy subsidies is significant, subsidies still favour fossil fuels more than renewables.

 

“This is not well aligned with several government objectives–reducing harmful air pollution and tackling climate change through its Nationally Determined Contribution (NDC), both of which require less fossil fuel use, particularly coal, and more renewables,” according to Vibhuti Garg, associate, IISD, and co-author of the report.

 

India’s NDC, linked to the Paris Agreement on climate change, aims to triple the share of power sourced from low-carbon sources to at least 40%  (equivalent to 175 GW) of total generation by 2022.

 

Up to 92% of India’s primary energy supply in 2015 came from fossil fuels.

 

As a member of G­20, India committed in 2009 to phase out inefficient fossil fuel subsidies that encourage wasteful consumption while providing targeted support for the poorest.

 

With more than Rs 27 lakh crore ($425 billion) being spent each year on fossil fuel subsidies globally, these subsidies are a concern for the fight against climate change.

 

The 23rd Climate Change Conference that concluded in November 2017 in Germany witnessed discussions related to curbing fossil fuel subsidies and channelising them towards clean energy sectors across countries.

 

Support to fossil fuels remained significant

 

The report presents an inventory of central government subsidies to coal, oil and gas, renewable energy and electricity transmission and distribution (T&D) covering three financial years: 2013-14, 2014-15 and 2015-16. Subsidies for nuclear power and large hydropower were excluded due to lack of data.

 

Source: International Institute For Sustainable Development

 

India has been steadily increasing central government subsidies on electricity transmission and distribution while reducing subsidies on oil and gas over the last three years, according to the report.

 

Central government subsidies for electricity transmission and distribution increased from Rs 41,308 crore in 2014 to Rs 66,396 crore in 2016–an increase of more than 60%.

 

In 2016, transmission and distribution became the main recipient of energy subsidies in India.

 

These subsidies do not include state government subsidies provided through governments’ Ujwal DISCOM Assurance Yojana (UDAY), which provided an additional Rs 1.7 lakh crore over 2016 and 2017.

 

UDAY is the latest bailout for electricity distribution companies (discoms) announced by the central government in November 2015. UDAY involves the takeover of discoms’ liabilities by state governments over a two- to five-year period. This debt is to be financed via bonds with a maturity period of 10-15 years.

 

The total subsidies to coal mining and coal-fired electricity have remained stable-to-a-slight decline over the reviewed years and amounted to Rs 14,990 crore in 2016.

 

Subsidies to renewables have increased from Rs 2,607 crore in 2013-14 (1.20% of energy subsidies) to Rs 9,310 crore in 2015-16 (6.9% of energy subsidies).

 

Overall, the scale of support to fossil fuels (coal, oil and gas) has remained significant than subsidies to renewables through the reviewed period, the report said.

 

With an estimated 306 million people living without access to electricity, as IndiaSpend reported in May 2017, and fossil fuel being the major source of electricity generation, will the climate pledge drive Indian policies? No is the answer for Navroz K Dubash, senior fellow, Center for Policy Research (CPR), a Delhi-based advocacy.

 

The energy sector in India will primarily be driven by a range of factors–energy access, air pollution and energy security being the three primary factors–Dubash said at the launch event of the report in Delhi. India’s obligation towards climate change will probably be the fourth factor influencing the policy-making at this stage of development in India, he added.

 

Not crude oil prices, government’s efforts curbed subsidies

 

Oil and gas subsidies declined 70%–from Rs 1.57 lakh crore in 2013-14 to Rs 44,654 crore in 2015-16, according to the report.

 

While the report says the fall of global crude oil prices was one of the prime reasons for the decline in oil and gas subsidy, the government says it is a fruit of its policies.

 

“The fall in global oil prices is not the only reason,” Ashutosh Jindal, joint secretary, ministry of petroleum and natural gas, said at the launch of the report.

 

“For the past few years, we have emphasised on targeting subsidies to reach those who genuinely need them, and pull those out of the subsidy net who can afford to pay the market price.”

 

The direct benefit transfer scheme for liquefied petroleum gas (LPG) subsidy has helped in removing 35 million fake, duplicate and ghost connections, Jindal said.

 

“We also urged people to give up LPG subsidies if they can afford to pay the market prices, and a lot of people turned up. This helped us save a huge chunk of LPG subsidies.”

 

In 2014, only a fraction of central government subsidies (5.4%) was direct spending (with majority provided through tax breaks, etc) while almost half of all subsidies were provided through direct transfers by 2016, the report said.

 

Another important reason behind the drop in subsidies for oil and gas, according to Jindal, is the targeting of kerosene subsidy.

 

“The (kerosene) subsidy is given to those who neither have cooking gas connection nor electricity connection. We mapped all the kerosene subsidy beneficiaries who had either of the two and removed them from the beneficiaries’ list. This has been really effective.”

 

“We had nine billion liters of subsidised kerosene flowing into the system; it has come down to five billion liters,” Jindal added.

 

Need for greater transparency in terms of subsidies provided to energy sector

 

The report also emphasised on the need for transparency in the energy subsidies regime.

 

“There is still very limited transparency in terms of subsidies provided to the energy sector,” said co-author Shelagh Whitley, head, climate and energy programme, ODI, a think-tank.

 

“The scale of several subsidies could not be determined due to gaps in government reporting. More information on subsidies is critical for ensuring subsidies are aligned with wider government objectives.”

 

“China and Indonesia, India’s largest peers in Asia and fellow members of G20, have both opted for self-reports and peer reviews of fossil fuel subsidies,” Garg of IISD said.

 

This is also a good opportunity for India to provide leadership with a voluntary self-report or a peer- review that can help to address its domestic policy-making needs with the help of the international best practices, Garg added.

 

(Tripathi is a principal correspondent with IndiaSpend.)

 

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  1. Kanikas Reply

    January 9, 2018 at 2:58 pm

    2022 is not far away from us. Time to discuss: not crude oil prices but government’s efforts to curb subsidies.

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