$15.4 Billion Decline In Energy Subsidies: Government Is Now Backing Renewables, Says Report

India has seen a significant drop in energy subsidies provided by the government between 2014 and 2016.

A new report by the International Institute of Sustainable Development (IISD), the Overseas Development Institute (ODI) and ICF India shows that the total value of energy subsidies from the central government has declined between financial years 2014 and 2016, from Rs 216,408 crore ($35.8 billion) to Rs 133,841 crore ($20.4 billion).

The $15.4 billion decline could be because of India’s reforms to curb wasteful consumption in oil and gas subsidies as well as due to the decrease in global oil price, said the report.

“While the decline is significant, subsidies still favour fossil fuels much 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, both of which require less fossil fuel use, particularly coal, and more renewable,” said IISD associate Vibhuti Garg.

Garg said the government is gradually switching its support to favour renewable – but more could be done.

“With the introduction of the goods and services tax (GST), it isn’t clear how some fossil fuel subsidies will go up or down, and there is still a very incomplete picture of state-level subsidies. To make informed decisions, policy-makers need ongoing transparency on these issues,” said Garg.

The report captures the main trends in energy subsidies in India in the following graph.

In FY2014 oil and gas subsidies, mainly in the consumption sphere, were by far the largest of all energy subsidies in India, at Rs 157,678 crore ($26 billion). In FY2016, oil and gas subsidies amounted to Rs 44,654 crore ($6.8 billion), implying a reduction by almost three quarters, partially due to India’s reforms and partially due to the decrease in the world price for oil.

Subsidies to electricity transmission and distribution (T&D) increased from Rs 40,331 crore ($ 6.7 billion) in FY2014 to Rs 64,896 crore ($9.9 billion) in FY2016, and this grouping became the main recipient of energy subsidies in India.

The total subsidies to coal have remained relatively stable over the reviewed years and amounted to Rs 14,979 crore ($2.3 billion) in FY2016. Subsidies to renewables have significantly increased from Rs 2,607 crore ($431 million) in FY2014 to Rs 9,310 crore ($1.4 billion) in FY2016. Overall, the scale of support to fossil fuels (coal, oil and gas) has remained more significant than subsidies to renewables through the entire review period.

The IISD, ODI and ICF India report reveals that India has been steadily increasing central government subsidies on electricity transmission and distribution, while cutting down subsidies on oil and gas over the last three years. Central government subsidies for electricity transmission and distribution increased from Rs 40,331 crore ($6.7 billion) in 2014 to Rs 64,896 crore ($9.9 billion). In 2016, transmission and distribution became the main recipient of energy subsidies in India.

These sums do not include the even larger volume of state government subsidies that have been provided through the government’s UDAY programme, which provided an additional Rs 170,000 crore ($25 billion) over 2016 and 2017. 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 14,979 crore ($2.3 billion) in 2016. Subsidies to renewables have significantly increased from Rs 2,607 crore ($431 million) in FY2014 to Rs 9,310 crore ($ 1.4 billion) in FY2016.

As a member of the G­20, India committed in 2009 to “phase out inefficient fossil fuel subsidies that encourage wasteful consumption while providing targeted support for the poorest.” Overall, the scale of support to fossil fuels (coal, oil and gas) has remained more significant than subsidies to renewables through the entire reviewed period.

The report’s co-author and ODI’s climate and energy programme head Shelagh Whitley said though there have been significant positive changes in terms of a decline in India’s subsidies to oil and gas consumption, there is still very limited transparency in terms of subsidies provided to the energy sector.

“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. Reallocating the balance of government support to sustainable energy, or other priorities like health and education, may be better able to serve people’s interests,” Whitley said.

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

“More countries are expected to announce reviews in the coming months, and many others will be encouraged to start reporting fossil-fuel subsidies under the sustainable development goals. This is 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 said.

In 2016, Rs 28,500 crore was collected through the clean environment cess, a tax on coal whose revenues are allocated to a clean energy fund. Yet only Rs 9,310 crore was utilised for clean energy development. In the same year, India incurred an expenditure of Rs 14,990 crore to coal subsidies. Such subsidies have ramifications for the markets, society and the environment.