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An inventory of energy subsidies provided by the central government in India shows that the total value of such incentives has declined substantially to Rs 1.3 trillion (USD 20.4 billion) in the financial year April 2015-March 2016 from Rs 2.2 trillion (USD 35.8 billion) two year earlier, primarily due to the drop in global oil prices and reforms to curb wasteful consumption in oil and gas subsidies.
The good news is tempered by the fact that federal subsidies to coal mining and coal-fired electricity generation have remained more or less the same at Rs 150 billion (USD 2.3 billion) in 2016, according to a new report, titled India’s Energy Transition: Mapping subsidies to fossil fuels and clean energy in India, which was prepared by the Global Subsidies Initiative of the International Institute of Sustainable Development (IISD) in collaboration with the UK’s Overseas Development Institute (ODI) and consultancy firm ICF.
Government subsidies, in the form of tax breaks and business incentives, typically drive the trend of energy consumption in any country. This is famously illustrated by the example of Energiewende, the transition by Germany to a low carbon, environmentally sound, reliable and affordable energy supply.
Energiewende has been the European country’s primary tool to cut down emissions of greenhouse gases that cause global warming.
GST, which came into effect on July 1, is aimed at subsuming all local and national levies into a single payment, unifying India’s 29 states and 1.3 billion people into a common market for the first time.
Subsidies for T&D increased from Rs 403 billion in 2014 to Rs 649 billion in 2016, becoming the main recipient of energy subsidies.
Although T&D subsidies are neutral to the energy source, they benefit mostly coal because of its dominance in India’s electricity generation at around 66 percent.
In addition, these sums do not include the even larger volume of state government subsidies that have been provided through the government’s UDAY programme to bail out state-owned power utilities, which were provided an additional Rs 1.7 trillion over 2016 and 2017.
Subsidies to renewables have also significantly increased from Rs 26 billion in 2014 to Rs 93 billion in 2016, the report said. “The government is gradually transitioning its support to favour renewables, but more could be done,” said Vibhuti Garg, Associate, IISD, who led the preparation of the report.
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 IISD report revealed.
The report also critiqued India’s utilisation of the Clean Environment Cess, a tax on coal whose revenues are allocated to a clean energy fund.
Such subsidies have ramifications for the markets, society and the environment, IISD said. According to a recent report in the Lancet medical journal, outdoor air pollution caused more than a million premature deaths in India in 2016.
(This article was originally published on India Climate Dialogue and has been republished with permission.)
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