Serena Bellesi, January 2018.

India is one of the world’s largest coal producers, together with China, Australia, and the US. Most of its reserves are located in the central area of the Country, between the states of Maharastra and West Bengal, and in the north-eastern states of Maghalaya and Assam. Nevertheless, India remains a net importer of coking and steam coal, especially from North America, China, Australia, and Indonesia. In the wake of the recent economic slowdown, coal supply has been outstripping demand. Therefore, existing plants are now running below 60 percent of their capacity. With cheaper renewables and natural gas, the government has canceled 13.7 gigawatts in proposed coal plants, and investors are looking elsewhere, accordingly.

The cost of solar modules and wind turbine generators has dropped by 80% and 20%, respectively, over the past five years. As a result, solar and wind tariffs have been decreasing dramatically throughout 2017. For this reason, and also in an effort to reduce GHG emissions, the government is working to install 175 GW of renewable energy by 2022, of which 100 GW by solar projects, 60 GW by wind, 10 GW from bioenergy and 5 GW from small hydro. While solar is falling a little behind (mainly because of lack of investments, transmission disturbances and some issues with panels installation), the wind production has already outperformed its target for 2017. Due to the transition from a feed-in tariff regime to tariff-based competitive auctions, new actors have entered the wind energy market, thus increasing supply, and prices have dropped accordingly. Overall, the Country is expected to exceed its goal by 2022 (although one might question whether the target of 10 GW bioenergy is desirable, in an attempt to comply with the GHGs reduction goal).

According to the Paris Agreement Agenda, the government has established a number of Intended National Determined Contributions (INDCs), namely a list of targets to be met by 2030. Among them, the Country has committed to reduce its carbon emission intensity (the emission per unit of GDP) by 33-35%. Furthermore, non-fossil generation is expected to account for 40 percent of the total installed power capacity. Finally, the government has pledged to capture 2.5 to 3 billion metric tons of carbon emissions through forest cover and new trees (many of which are currently being planted along the highways and around major traffic hubs).

Sluggish growth and the commitment to curb its carbon footprint have redirected the Country’s interest toward natural gas, whose price hasn’t yet adjusted to the crude oil turning point occurred in July. One could claim that natural gas is not the cleanest of resources in terms of GHGs, since it’s still responsible for half as much carbon dioxide emissions as coal and for only 30 percent less than oil. Nevertheless, natural gas is still less polluting and way more affordable than crude oil. Hence, it might help India to reach national electrification sooner, and make the transition from a high carbon to a greener economy smoother.

Crude oil imports have been growing dramatically in the last decades. Indeed, India is the world’s third-largest oil consumer, after the US and China. Recently, Iraq and the US have overcome India’s traditional trading partners such as Saudi Arabia and Venezuela, which have fully complied to the OPEC cutback started in early 2017 (with the former leading the effort, as a matter of fact). In India, the refining process has also been adapted to a greater variety of oils, paving the way to the shift from a typically heavy and sour, to a sweeter and lighter oil. Even considering transportation costs, India has found it cheaper to import American oil. In fact, since the oil exportation ban has only been lifted at the end of 2015, the US is still a new actor in the market, and can provide a sizable supply.

Despite commitments made with the Paris Agreement, crude oil imports will hardly decline. This consideration holds for most fossil fuels, whose demand is rather expected to increase, and is already showing signs of expansion. In the short and medium term, underexploited coal and cheaper renewables might redirect the investors’ attention towards oil industry, especially if the Make in India Initiative launched by the government achieves its goals. Indeed, India’s growth is supposed to rebound and exceed 7% next year. It will mainly be driven by automotive, aviation, manufacturing, oil products, chemicals and pharmaceuticals, which will sustain, if not expand, oil dependency. Secondly, an expected increase of per capita income will likely boost demand for cars, thus for fuels. Thirdly, the Supreme Court of India has recently banned the use of petrol coke and furnace oil in the National Capital Region, in Uttar Pradesh, Haryana and Rajasthan, in order to contain GHGs. Although the ban has partially been relaxed for lime and cement manufacturing and for power generation purposes, the market will probably rush to find a cleaner substitute, with similar technical features, performances and capacities. Finally, many of the attempts to shift to a more environment-friendly energy policy meet a strong hostility in the power industry, where private investments and FDI have been welcomed in the last years and can actually make the difference in terms of increased technology and productivity.

For many years, fossil fuel consumption has been subsidized by the government. In India, approximately 100 million households do not have access to energy for cooking, with 70% of rural households relying on animal dung, crops, wood fuel and charcoal. In this scenario, cutting LPG subsidies, for instance, without providing a safer and cleaner alternative is not a viable strategy. Phasing out fossil fuel subsidies is one of the keys to lead to cost-recovery prices, thus to keep up with an ever-increasing demand; in the medium and long term this is also crucial to curb pollution and to reduce debt-to-GDP ratio. Furthermore, subsidies have shown to be poorly targeted so far, with the richest households benefiting from them more than the poor. Nevertheless, reforms require a certain amount of planning and design, in order to mitigate possible social spillovers and to prevent the use of more polluting fossil fuels, especially in the rural areas. Since 2016, significant efforts have been made to cut subsidies for kerosene, whose price has been slowly increasing to cost-recovery levels and is expected to grow further in the first quarter of 2018.

However, kerosene and cooking gas are still subsidized by the government, since millions of Indians are currently lacking access to electricity and natural gas. Phasing out subsidies is a major step towards the achievement of electrification for all households and to reduce death for indoor air pollution. Clean stove programs such as The Pradhan Mantru Ujiwala Yojana (PMUY) are also especially beneficial. Launched by the Ministry of Petroleum & Natural Gas, the PMUY provides households which live below poverty line with the opportunity to transition from biomass to LPG. In this context, the new government’s target to stop LPG subsidization by March 2018 might be untimely and is likely to be further delayed. But it is extremely commendable that many middle-income households have been given up the subsidy, as called for by the Prime Minister, in an effort to release resources for the poor. Clean Stove Programs are even more effective when they include awareness campaigns on the positive outcomes of the shift. Because modifying the culture and established behaviors is crucial for eradicating premature death and improving the environment, and at the end it also helps to boost public investment efficiency.

India is working hard to tackle air pollution and to become less dependent on fossil fuel imports. Nevertheless, much needs to be done in order to curb GHG emissions and to achieve the total electrification of the Country. Cheaper renewables and the ongoing cutback of fossil fuel subsidization should help to proceed to next level, which is to ensure an adequate supply and a sustained demand of clean energy, so that resulting prices will encourage both sides. If the price of renewables continues to decline, most local and foreign enterprises will only invest in the industry through incentives, such as tax deductions. To increase private initiatives, the government should speed up authorization procedures and monitor new projects in a timely manner. It should also provide a clear and reliable regulatory framework for price setting and dispute settlement. On the other side, all consumers should be educated on the advantages that a greener energy provides to the health and to their savings, through communication campaigns, share of best practices and dissemination of results. Policy reforms at the state and municipal levels, increased cooperation among the Indian states and between states and the central government might also help to boost productivity, while reducing regional disparities and social inequalities.

The population of India is projected to exceed 1.5 billion by 2030, with 300 million more people living in the urban areas. Many of its cities are facing unsustainable pollution, and the entire economy has been massively relying on fossil fuels, until recently. Growth rate is expected to reach 7-7.5 % in 2018. Nevertheless, based on its Multidimensional Poverty Index (MPI), 55% of the population is poor. A sudden transition into a carbon-free economy is unlikely, especially in the next few years. The solution might be somewhere in between, at least in the short term. With the assistance of the World Bank, India is currently working to increase energy efficiency for some of its coal-fired power plants, in an attempt to contain coal imports and curb GHGs, while transitioning to a fully renewable economy. In the next future, more efforts should be made to provide cleaner alternative fuels for transportations, until the government meets its target to manufacture and sell electric cars only by 2030 (although the set deadline is quite ambitious, given the high cost of batteries, and the current scarcity of charging stations).

In the long term, a full renewable and cleaner energy mix is hoped for the Country and for its population, so that economic development and environment sustainability can finally coexist. Leading the Country to a greener economy is necessary for the environment and for the human health. If well managed, the full exploitation of renewable resources can also ensure a sustainable energy access to all, thus setting a milestone in the struggle to fight poverty and reduce inequalities among the Indian population.