A deeper look at fossil fuel subsidies and emerging renewable energy solutions

A deeper look at fossil fuel subsidies and emerging renewable energy solutions

Opinion | Can India afford a green stimulus during the pandemic?

India can position itself for economic success by phasing out fossil fuel subsidies and becoming a leader in emerging sectors of global growth like EVs, solar manufacturing and energy storage.

Invest in a clean, green transition, end fossil fuel subsidies, put a price on carbon and commit to no new coal plants after 2020, urged United Nations Secretary-General Antonio Guterres, addressing India at the 19th Darbari Seth Memorial Lecture. But given that India’s quarterly GDP has fallen by a whopping 23.9% in the first quarter of this year, can the country really afford these measures?

A deeper look at fossil fuel subsidies and emerging renewable energy solutions suggests that green stimulus could actually be India’s most economically viable pathway to recovery.

Are fossil fuels supported more than renewables?

Over the past four years, the International Institute for Sustainable Development (IISD) and the Council on Energy, Environment and Water (CEEW) have been mapping India’s energy subsidies. Our latest inventory shows that in 2018-19, subsidies for fossil fuels were seven times higher than subsidies for clean energy.

Skeptics might argue that it’s natural for fossil fuels to receive more support, given their scale. But fossil technology is fully mature and shouldn’t require assistance. Further, fossil fuels come with huge hidden costs like air pollution and climate change, which exact a heavy toll on vulnerable communities. According to estimates by Urban Emissions, air pollution from coal thermal power alone caused 112,500 to 126,000 premature deaths in 2017.

Renewable energy, by contrast, gets cheaper every year, and government support plays a key role in driving permanent cost reductions, so subsidies won’t be needed in future. In June, a new record low solar tariff of INR 2.36 per kilowatt-hour was announced at a Solar Energy Corporation of India (SECI) auction.

To stay on track, it is imperative to keep shifting government financial flows from fossil fuels towards renewables. There are clear challenges: liquid petroleum gas (LPG), for example, is currently the best available alternative to polluting traditional cooking fuels. But even here, we can subsidize people instead of fuels — as the government is doing with the direct benefit transfer (DBT) scheme — and improve targeting of benefits to low-income households. We can also make clear plans to champion new, non-fossil technologies over the medium-term.

Phasing out subsidies for fossil fuels can free up much-needed fiscal resources

At a time of low tax revenues, subsidy savings could be used to improve social protection and healthcare and propel sustainable economic growth, including development and diversification in communities that are most dependent on fossil fuels.

Since COVID-19, however, efforts to track government policies suggest that India may not have taken all the opportunities to harness clean energy for recovery. The INR 90,000 crore package to bail out DISCOMs was needed to keep the sector financially stable. However, it does not distinguish between viable, cost-efficient generators and ones that were scheduled for early retirement or may be a form of overcapacity. It also doesn’t address underlying problems, including pricing that doesn’t cover DISCOM costs.

The centre has also signalled strong support for domestic coal production to help reduce import dependence. Commitments for coal transportation infrastructure alone are worth over USD 6 billion.

Where should support go instead?

India can position itself for economic success by becoming a leader in emerging sectors of global growth like EVs, solar manufacturing and energy storage.

If this is going to succeed, however, more can be done. To date, efforts to boost domestic manufacturing have been reactionary and even caused a sectoral slowdown. A comprehensive green industrial policy—with interventions targeting specific bottlenecks—will be essential. As Guterres highlighted, investments in renewables generate three times more jobs than fossil fuels.

The government can also think about PSUs, which have a long tradition of investing in India’s social objectives. Upscaling initiatives like the 2019 revival of the Central Public Sector Undertakings Scheme—which helps PSUs invest in renewables—could help drive demand. There are signs of momentum increasing here. PSUs like NTPC and ONGC have already announced plans to form a renewable JV on offshore wind projects. Others like Coal India Limited and NLC Limited have similar plans, though their scope includes thermal power as well.

The COVID-19 pandemic is causing an ongoing human tragedy and we need to solve this crisis. But as we emerge into a new normal, with news dominated by extreme weather events exacerbated by climate change, it’s clear that we also need a clean energy transition. It isn’t a choice between one or the other – we need a solution to both. India is already a global leader in renewables. Now is the time for us to lead the recovery from COVID-19 by investing in a sustainable future.

[Siddharth Goel is a senior consultant at the International Institute for Sustainable Development]

This story was originally published on ET EnergyWorld and is republished with permission.

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