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Energy subsidies cut by $15 bn; fossil fuels still largest beneficiaries

With more than Rs 27 trillion being spent each year on fossil fuel subsidies globally, these subsidies are a concern for the fight against climate change

Bhasker Tripathi | IndiaSpend 


The central government reduced its energy subsidies–financial benefits provided to boost energy production and consumption–by over Rs 820 billion (Rs 82,000 crore or $15 billion) between 2013-14 and 2015-16, a drop of 38%.

During the same period, carbon-emitter fossil fuels such as coal, remained the largest beneficiaries. While subsidies to renewables increased by over Rs 67 billion (Rs 6,700 crore or $1.05 billion), they accounted for less than 10% of the 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

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

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

While the decline in 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 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 subsidies that encourage wasteful consumption while providing targeted support for the poorest.

With more than Rs 27 trillion (Rs 27 lakh crore or $425 billion) being spent each year on 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 subsidies and channelising them towards across countries.

Support to fossil fuels remained significant

The report presents an inventory of central government subsidies to coal, oil and gas, and 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 transmission and distribution while reducing subsidies on over the last three years, according to the report.

Central government subsidies for transmission and distribution increased from Rs 413.08 billion (Rs 41,308 crore) in 2014 to Rs 663.96 billion (Rs 66,396 crore) in 2016–an increase of more than 60%.

In 2016, transmission and distribution became the main recipient of 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 trillion (Rs 1.7 lakh crore) over 2016 and 2017.

UDAY is the latest bailout for 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 have remained stable-to-a-slight decline over the reviewed years and amounted to Rs 149.9 billion (Rs 14,990 crore) in 2016.

Subsidies to renewables have increased from Rs 26.07 billion (Rs 2,607 crore) in 2013-14 (1.20% of energy subsidies) to Rs 93.1 billion (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 being the major source of 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 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

subsidies declined 70%–from Rs 1.57 trillion (Rs 1.57 lakh crore) in 2013-14 to Rs 446.54 billion (Rs 44,654 crore) in 2015-16, according to the report.

While the report says the fall of global was one of the prime reasons for the decline in 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 (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 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 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 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.)

Reprinted with permission from IndiaSpend, a data-driven, public-interest journalism non-profit organisation

First Published: Mon, January 08 2018. 09:24 IST