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India's fossil fuel, especially coal subsidy equaling 2.7% of GDP, main hurdle in climate change target: Report
A new report, “Thermal Coal in Asia – Stopping the Juggernaut”, by top international energy consultants, Energy Transition Advisors Pty Ltd, has raised the alarm that India’s fossil fuel subsidies, especially those related with coal, remain a major hurdle in the country’s contribution to achieving climate change target of limiting global warming to 2 degrees centigrade.
Pointing out that the fossil fuel subsidies are a huge drain on India’s finances, too, the report says, “The accumulated losses of India’s power distribution utilities equates to about 2.7 per cent of GDP, largely owing to the provision of free or underpriced power.”
Suggesting that this is a populist subsidy, the report says, “India has long suffered from an overall shortage of generation capacity” with 300 to 400 million people not having access to electricity. Yet, it adds, ironically, “the official peak demand (approximately 145GW) and installed capacity (around 290GW) create an opposite impression—i.e. that of a surplus.”
Pointing out that this is because “coal-based thermal generation capacity operates at remarkably low capacity utilization factors of approximately 60 percent”, the report believes, this is happening at time when the Government of India provides subsidies to coal-fired power plants.
Thus, according to the report, “The estimated value of subsidies to coal production was $99 million on average in 2014 and 2013”, calling this an underestimation, because, “many fossil fuel production subsidies have not been quantified due to a lack of publicly available data.”
“In addition to direct spending by government agencies, the government owns the majority of India’s banks, resulting in a large number of institutions in India providing public finance as defined in this report”, the report points out.
It underlines, “We identified coal financing at 8 of India’s largest public finance institutions and state-owned banks – for coal projects including mining, transportation and/or combustion. On average per year in 2013 and 2014 support provided through Indian public finance institutions and state-owned banks was $2.3 billion.”
“Investment by state owned enterprises (SOEs) in coal mining and coal-fired power was $4.4 billion on average per year in 2013 and 2014”, the report says, adding, this is happening when “fossil fuel consumption subsidies in India are significant, and in many cases provide additional support to fossil fuel production.”
While noting that the government has begun to reform gas pricing and to deregulate downstream activities, the report regrets, “Although fossil fuel producers take on the burden of some of these costs, much of the cost of price fixing is covered by payments from government budgets.”
“In spite of the deregulation of petrol prices (in 2010) and diesel prices (in 2014) and the global fall in oil prices, costs to the government of price fixing still remained substantial at $11 billion in 2014–15”, the report says.
“Similar consumer subsidies of approximately $12 billion in 2012–13 existed in the primarily fossil fuel based electricity sector. These subsidies may drive demand for further production of fossil fuels and electricity (the majority of which is fossil fuel-based)”, the report says.
“If the ‘true cost’ of coal in terms of health and environmental impacts is included in the definition of a subsidy, the scale of subsidies in India has a greater order of magnitude”, the report says, adding, “The International Monetary Fund’s analysis showed that global energy subsidies in 2015 amounted to $5.3 trillion, of which India accounted for $277 billion mostly costs associated with the air pollution and GHG emissions.”
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