Renewable subsidies on coal to result in lower emissions in India: Study

Combining renewable subsidies and higher tariffs on coal would lower the emissions by nearly one-third in India by 2030 compared to the current policies, according to a study carried out by two IMF economists.

The study, conducted by Margaux MacDonald and John Spray, notes that the two steps would also decrease coal imports by 14 per cent by 2030, thus increasing resilience to global changes in energy prices and improving energy security.

Released on Tuesday, the study observes that India has made significant progress towards meeting its emissions reduction targets under the Paris Agreement, but with current policies total greenhouse gas (GHG) emissions would nonetheless increase by more than 40 per cent by 2030.

While a modest increase in short-term emissions may be necessary to meet poverty reduction and energy security goals, a more rapid scaling up of current policies could help lower emissions considerably over the medium term and bring India closer to a path to net zero by 2070, it said.

The two economists said that their research shows an alternative emissions trajectory could be achieved by scaling up current policies.

One of our proposals includes a gradual increase in subsidies on the use of renewable energy coupled with higher taxes on emissions, in addition to the many targeted policies that India has focused on, it said.

This would have the added benefit of early reduction in the reliance on imported fuels, helping to ensure universal access to energy, and lessening the negative health effects of pollution.

External climate financing and technology transfer would help mitigate costs and ensure sustainability.

In our model, combining renewable subsidies and higher tariffs on coal (roughly equivalent to ramping up India's existing excise duty on coal) would result in nearly one-third lower emissions by 2030 compared to current policies, said the IMF paper.

In this scenario, growing energy demand is met through a gradual increase of renewable energy and by allowing coal power to taper off, thus exceeding the goal of 50 per cent non-fossil fuel electricity capacity. Under such a policy, not only would the share of renewables rise significantly but overall electricity supply would increase, it said.

While this policy has clear environmental benefits, the economists estimate that the policy will result in a modest reduction in the level of real gross domestic product (relative to projections based on current policies) as firms and consumers pay higher taxes.

However, enough fiscal revenues would be raised to compensate the poorest citizen to such an extent that the policy would be progressive overall. Additionally, the small cost of this policy is less distortionary than other options, they noted.

Lower emissions would have significant benefits. Increasing renewable energy usage and allowing coal to taper off in this policy scenario would lead to a 2.5 per cent reduction in pollution, saving lives and leading to fewer missed school and workdays. It would also decrease coal imports by 14 per cent by 2030, thus increasing resilience to global changes in energy prices and improving energy security, the IMF paper said.