India’s fossil-fuel subsidies still dwarf subsidies for renewables

India’s subsidies for renewable energy rose by a record USD 0.8 billion from FY16 to FY17. Despite this, total support for fossil fuels (USD 8 billion) was over three times total support for renewables (USD 2.2 billion) in FY17. Coal subsidies rose by USD 116 million from FY16 to FY17.

New Delhi, 20th December 2018: India’s total energy subsidies amounted to INR 151,480 crore (USD 23 billion) in FY17, a 36 per cent decrease since FY14, according to a new report released today by the International Institute of Sustainable Development (IISD) and the Council on Energy, Environment and Water (CEEW).

Further, India’s fossil-fuel subsidies fell sharply by nearly 70 per cent, from INR 1,73,330 crore (USD 29 billion) in FY14 to INR 52,980 crore (USD 8 billion) in FY17. Between FY16 and FY17, fossil-fuel subsidies declined by INR 12,270 crore (USD 2 billion). The decline was driven by lower world oil prices during this period and reforms to subsidies for consumption of petrol, diesel, cooking gas and kerosene.

On the other hand, renewable energy subsidies increased six-fold since 2014, including a mammoth increase of INR 5,770 crore (USD 0.8 billion) from FY16 to FY17. The report is an update of a comprehensive inventory of India’s subsidies released last year.

“A growing share of subsidies are dedicated to making India’s energy mix cleaner. Despite this, subsidies to oil, gas and coal were more than three times the value of subsidies to renewables and electric vehicles in India in FY17. The government must redirect more subsidies to cleaner energy sources to achieve its goals of cutting greenhouse gas emissions and air pollution, as well as to exceed the 175 GW target for renewable power by 2022. In FY17, support for coal alone (INR 15,990 crore) exceeded that for renewable energy (INR 15,000 crore).” Vibhuti Garg, IISD

 “Volatile oil markets remain a risk for budget blow-outs in consumer subsidies. Higher import prices result in rising subsidy bills for cooking gas and kerosene. At the same time, tax cuts on gasoline and diesel during these times impact government revenue. A concerted shift to public transportation, electric mobility and supporting renewable energy application beyond the generation of electricity, will reduce import dependency and the subsidy burden in the long run.” Abhinav Soman, CEEW

The IISD-CEEW report further found that coal subsidies (mining and power generation) amounted to INR 15,990 Crore (USD 2.4 billion) in FY17, a rise of INR 1,150 crore (USD 116 million) between FY16 and FY17. While relatively small, the change represented a shift from the previous three years, which had seen stable or declining support for coal. The biggest coal subsidies were tax breaks that reduce the cost of coal to power plants.

“Financial incentives to the coal sector risk further entrenching fossil-fuels in India’s energy mix. There are signs of overinvestment already, as well as evidence of coal’s negative impacts on human health and the environment.” Vibhuti Garg, IISD

 The electricity sector saw the single largest increase in subsidy support between FY16 and FY17 of INR 20,800 crore (USD 3.3 billion). These subsidies compensate electricity companies for keeping consumer prices below cost and accounted for half of India’s energy subsidies in FY17 (INR 72,439 Crore or USD 11.2 billion).

The IISD-CEEW report also highlighted potential shifts in India’s energy subsidies for FY18. The electricity subsidies would be larger, at around INR 81,000 crore (USD 12.5 billion). Reforms associated with the Goods and Services Tax (GST) could see tax breaks for coal and renewables decline by about INR 2,000 crore (USD 310 million) each though total tax subsidies to coal remain large compared to renewables. And the largest subsidy for renewables, “viability gap funding,” is likely to decline in line with increasingly competitive pricing for renewables.

“Even though utility-scale solar and wind projects have achieved grid parity in India, certain clean technologies still require budgetary support from the government. They include offshore wind, energy storage and electric vehicles. In addition, subsidies to cover integration costs could potentially accelerate uptake of renewables.” Abhinav Soman, CEEW

In the coming few months, India will approach its target of universal access to electricity and clean cooking owing to government schemes such as Saubhagya and Ujjwala Yojana. While subsidies for connections would decline, demand for subsidised energy would rise from millions of poorer households. Consumption subsidies already comprise over two-thirds of India’s energy subsidies. In the case of cooking gas and kerosene, these subsidies are linked to world oil markets. Better targeting of these subsidies to the poor is key to reigning in expenditure, while still directing support to those most in need.

For more information, contact:

Vibhuti Garg, India Associate & Senior Energy Economist – IISD – vibhuti.garg@iisd.net                

Abhinav Soman, Programme Associate – CEEW – abhinav.soman@ceew.in

About The Author

IISD

The International Institute for Sustainable Development (IISD) is an independent think tank that delivers the knowledge to act. Our mission is to promote human development and environmental sustainability. Our big-picture view allows us to address the root causes of some of the greatest challenges facing our planet today – ecological destruction, social exclusion, unfair laws and economic and social rules, a changing climate. IISD’s Global Subsidies Initiative (GSI) is dedicated to promoting a positive relationship between government support policies and sustainable development. With offices in Winnipeg, Geneva, Ottawa, Toronto and Beijing, our work impacts lives in nearly 100 countries.

See author's posts