As Oil Plumbs Lows, Will India Grab The Opportunity to Clean up?

Oil Prices at sub zero levels might be a technical aberration, but there is no doubt that global prices will be subdued, quite possibly at sub $40 levels for the rest of the year. That creates its own opportunity for India

While the slump in oil prices will have its own yet to be seen second, and third order effects, be it political stability in the middle east, or moves by the US and Russia to outflank each other, for India,  this is the opportunity that needs to be taken with both hands.

The country has already kept retail prices frozen for the past 35 days, one of the longest such stretches in the past few years, when only major elections could freeze prices at the retail level. In doing so, the government has only confirmed what we have posted regularly, that the retail price of petrol and diesel has clear floor levels below which the government is unwilling to let them go, however low global crude prices. Any benefits below those levels will be appropriated by the government for its own schemes. And so far, those fuel taxes allowed some grand schemes indeed. Be it the national  clean cooking initiative (The Pradhan Mantri Ujjwal Yojana), or even the power for all scheme, there is no doubt that high oil taxes supported these in a big way.

But these ‘green taxes’ as the government refers to them sometimes, also need to be put to truly green activities now. Thanks to the lockdown, March was the first month in decades when kerosene subsidies   in the country hit zero. But fossil fuel subsidies continue to outpace clean energy subsidies, thanks to the spread of the country’s gas grid. Besides that, subsidies to coal have also refused to shrink, after taking into account the effective cost of pollution caused by coal fired thermal plants. That could change now.

A study on India’s energy subsidies, by the International Institute for Sustainable Development (IISD), the Council for Energy, Environment and Water (CEEW) and Global Subsidies Initiative    has highlighted critical anomalies in India’s subsidies landscape.

That oil and gas subsidies have moved from $6.1 billion in FY 2017 to $10.07 billion in Fy 19. Largely due to higher oil prices and subsidies for LPG.

In the same period, Renewable energy subsidies are actually down from $2.3 billion to $1.5 billion. This has been the period when open bidding and reverse auctions have become the preferred mode of allotting projects in the sector, with next to no subsidies or VGF.

Consumption subsidies, in the form of    underpriced electricity has grown to $9.5 billion, largely to consumer segments where targeting is extremely uneven by all accounts.

EV subsidies continue rapidly, even exponentially, but on a small base. However, the largest cohort of EV’s the E-rickshaws (1.5 million at last count)  have grown almost exclusively  without government support, other than being allowed to ply with misgivings, in most cases.

That was the past. In the post corona world, the government has a chance to correct many of its mistakes, and is placed priorities, for the right reasons. Some, like the pull back on support for thermal power, will have the power of financial logic behind it, as the world itself moves away fro thermal energy, or anything to do with funding its further growth.

Other areas, like cleaning up its subsidy distribution mechanism, needs policy interventions. Some recent moves, like the push to make amendments to the Electricity act (2003) point to a new awareness of the need to grab the opportunity now.

In other cases, the mega plans to build for storage using renewable energy, seeks to make renewable energy truly relevant to grid power, with an ability to supply both peaking power and round the clock power.

Any sort of return to normalcy soon, ensures that the government still has a chance to generate an additional 7 billion dollars from the extra taxes it placed on motor fuels by the end of the year. That money should be used to push all of the above initiatives aggressively, including the opportunity to clean up discom books.

Renewable+ Storage, electricity at real cost for all ( including industries where it should be cheaper), and adding better funding behind the move to conserve and clean our water, these are all initiatives which could be a win for the economy, the country ad the environment. An economy that gets makes just over 20 percent of its GDP from exports and imports close to 23 percent of its GDP, with a massive share for oil imports, we are relatively well placed to make the recovery count. Lets hope we don’t miss the opportunity now.


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Prasanna Singh

Prasanna Singh

Prasanna Singh is the founder at IamRenew

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