Key Messages

• As the clean energy transition advances, the BRICS governments need to start preparing their budgets for a fiscal transition out of revenues from fossil fuel production and consumption. The clean energy transition offers alternatives to fossil fuels and thus can lead to the decrease in revenues for the BRICS governments in two ways: through a drop in fossil fuel prices and, over the longer term, through the shrinkage of absolute amounts of fossil fuel production and consumption.
• In 2017, taxes and other revenues from fossil fuel production and consumption amounted to 23.6 per cent of general government revenue in Russia, 17.8 per cent in India, 6.8 per cent in both Brazil and South Africa, and 4.2 per cent in China. These revenues should be used strategically to help diversify BRICS economies away from fossil fuels and cover the social costs of transition, including for vulnerable groups of consumers, workers and communities currently depending on fossil fuels.
• The BRICS governments’ budgets are also being eroded by subsidies to fossil fuel production and consumption. Phasing out these subsidies will both increase government revenues and promote transition beyond fossil fuels.

For the first time, this report brings together official data on governments’ revenues and subsidies associated with fossil fuels in Brazil, Russia, India, China and South Africa (referred to collectively as BRICS). It offers initial recommendations on aligning BRICS's fiscal policies with a clean energy transition. 

First, the cross-country analysis discusses external and domestic drivers of the clean energy transition and what they mean for BRICS as exporters and importers of different fuels. After an overview of the BRICS  countries’ revenues and subsidies associated with fossil fuels, the report discusses avenues for fiscal transition beyond fossil fuels. The conclusion presents policy recommendations. The cross-country analysis also includes an Annex with data tables and a methodology and scope description.

In addition to the cross-country analysis, the report includes country briefs on Brazil, Russia, India, China and South Africa that highlight the role of fossil fuels in respective economies. These briefs present the aggregated data on both revenues and subsidies related to fossil fuels in each country. The country briefs can be downloaded separately.  

This analysis has been prepared in partnership with the Leave it in the Ground Initiative.

Key Messages

• As the clean energy transition advances, India, along with the other BRICS governments, needs to start preparing its budget for a fiscal transition out of revenues from fossil fuel production and consumption. The clean energy transition offers alternatives to fossil fuels and thus can lead to the decrease in government revenues in two ways: through a drop in fossil fuel prices and, over the longer term, through the shrinkage of absolute amounts of fossil fuel production and consumption.
• In 2017, taxes and other revenues from fossil fuel production and consumption amounted to 17.8 per cent of general government revenue in India. These revenues should be used strategically to help diversify the economy away from fossil fuels and cover the social costs of transition, including for vulnerable groups of consumers, workers and communities currently depending on fossil fuels.
• The government’s budget is being eroded by subsidies to both fossil fuel production and consumption. Phasing out these subsidies in a socially equitable way will both increase government revenues and promote the transition beyond fossil fuels.

This case study is part of the report Beyond Fossil Fuels: Fiscal transition in BRICS. The report consists of a) a cross-country analysis for all BRICS countries (Brazil, Russia, India, China and South Africa), which offers initial recommendations on aligning BRICS fiscal policies with a clean energy transition, and b) five country briefs that present the aggregated data on both revenues and subsidies related to fossil fuels in each country. The cross-country analysis and each of the five country briefs can be downloaded separately from the report’s home page.

This analysis has been prepared in partnership with the Leave it in the Ground Initiative.

Key Messages

• To effectively promote off-grid solar pumps in India, it is important to understand the full landscape of central and state policies across water, energy and food (WEF) systems.
• This paper maps such policies and finds that many, including policies to promote off-grid solar pumps, do not explicitly acknowledge or account for complex WEF interactions, limiting their effectiveness and in some cases undermining objectives other areas.
• It recommends for off-grid pump policies to be coordinated with an upscaled set of efforts on addressing the sustainable use of groundwater in India. It also advises careful monitoring and evaluation of KUSUM, the government's new solar pumps scheme. 

Globally, many people do not have adequate access to water, energy and food: 2.1 billion people lack access to safely managed drinking water; almost 1 billion lack access to electricity and 2.7 billion lack access to clean cooking; and 821 million face chronic food deprivation. Yet water, energy and food systems are all under increasing pressure from rapid growth in economies, consumption patterns and population.

The Sustainable Development Goals (SDGs) recognize the need to deliver access sustainably through dedicated goals on each theme: SDG 2 (zero hunger), SDG 6 (clean water and sanitation) and SDG 7 (affordable and clean energy). As targets, the SDGs cannot themselves recognize or address linkages—but if all three targets are to be met by 2030, then it is important to weigh up potential trade-offs. The “water–energy–food (WEF) nexus” means that there are interconnections in all three areas. Implementing a policy to address one objective can have detrimental impacts on another.

This paper seeks to assist policy-makers and researchers in India who are working to promote the uptake of off-grid, solar-powered pumps for groundwater irrigation. It begins by setting out key WEF linkages of importance for off-grid solar pumps. It then establishes an approach for identifying policies across the WEF nexus that are key for off-grid solar pumps and maps these policies at the Central Government level and in two states: Bihar and Rajasthan.

It recommends for off-grid pump policies to be coordinated with an upscaled set of efforts on addressing the sustainable use of groundwater in India. It also advises careful monitoring and evaluation of KUSUM, the government's new off-grid solar pumps scheme.

Key Messages

• The total capital expenditure required to install SO_x, NO_x and PM pollution-control technology is estimated to be INR 86,135 crore (USD 12 billion), or INR 73,176 crore (USD 10 billion) if plants to be retired by 2027 are excluded.
• This will add between INR 0.32 per kWh to INR 0.72 per kWh for coal power plants (or around 9–21 per cent to average tariffs) depending on the size of the unit and other factors.
• Reflecting these costs in the price of coal-based power is necessary and appropriate to ensure that the external costs of air pollution are reflected in prices and therefore used to inform investment decisions in comparison to the alternatives to coal-based generation.
• An independent assessment of retrofit costs at a plant level by empanelled agencies would expedite the ability of private sector power plants to submit tariff increase petitions to the regulators.
• Most experts are of the view that the deadline will still see many plants not complying with the new standards. To avoid this situation, the Ministry of Power must take a stricter position which precludes all non-compliant plants from generating, unless they exhibit a clear retirement or phase-out plan or have made material progress in awarding tenders and beginning the construction process.

In 2015, the Ministry of Environment, Forest and Climate Change legislated new standards to limit the concentration of sulphur oxides (SO_x), nitrogen oxides (NO_x), particulate matter (PM) and mercury (Hg) in stack emissions for coal-fired power plants. The Ministry amended the standards in 2018; however, there was no material change in air pollution norms. Existing thermal generators were expected to comply by December 2017. For new plants, compliance was required at the point of commissioning from January 2017. However, by December 2017, almost no coal plants had installed the equipment and the deadline was extended to 2022.

This brief extends the analysis in India’s Energy Transition, 2018 Update—a report by the International Institute for Sustainable Development (IISD) and the Council on Energy, Environment and Water (CEEW) on India's energy subsidies in financial year (FY) 2017 and FY 2018—to explore in detail the cost of compliance with regulations on air pollution and implicit subsidies associated with extensions and non-compliance.

The brief examines the following: the reasons for slow progress by coal power plants; the cost of installing pollution-control equipment for the sector and implications for the price of electricity; the cost of externalities related to human health; and a comparison of the costs of installing pollution-control equipment with phasing out non-compliant coal plants.

Key Messages

• A fuel price cut by India’s central government from October 2018 to June 2019 resulted in subsidies of INR 26,957 crore (USD 3.9 billion) for gasoline and diesel.
• This far overshadowed funding for the government’s flagship electric vehicles (EV) subsidy program of INR 10,000 crore (USD 1.4 billion) over three years.
• The funds would have been better spent supporting India’s transition to EVs and renewable energy, given that together these technologies will reduce air pollution.

This brief examines how the latest support by the Government of India for electric vehicles (EVs) compares with subsidies for conventional vehicles and their main fuels, gasoline and diesel. Analysis is centred on two major policy developments.

First, when faced with rising world oil prices in October 2018, the Central Government reduced the excise tax on fuel by INR 1.5 (USD 0.02) per litre and required state-owned oil marketing companies (OMCs) to reduce their margin by INR 1 (USD 0.01). This decision was partially reversed in the 2019-2020 Union Budget.

Second, the government announced phase two of its flagship EV subsidy program, the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme, or FAME II.

The rising trend for EV subsidies in India has been strengthened by the addition of INR 10,000 crore (USD 1.4 billion) for FAME II over three years. However, subsidies for oil, gasoline and diesel, which had been declining since FY 2014, have also seen a sharp increase: cuts to excise and OMC margins resulted in foregone revenue and market price support of INR 26,957 crore (USD 3.9 billion) from October 2018 to June 2019.

If improving air quality is indeed a high priority of the Central Government, as it states, the funds would have been better spent supporting India’s transition to EVs and renewable energy rather than sheltering petroleum-reliant technology from the volatile international oil market.

As part of its work on energy policy and sustainable development in India, the Global Subsidies Initiative publishes a regular briefing on issues related to energy subsidies.

Below are highlights from the July 2019 edition:

• As a result of high crude oil prices in late 2018, the government announced a reduction in excise duty for oil and gas that is expected to result in foregone revenue of INR 10,500 crore (USD 1.6 billion) in fiscal year (FY) 2019. Increasing connections to liquefied petroleum gas (LPG) cooking cylinders drives up gas subsidies.
• The Central Government launched programs to support solar power, including KUSUM and Phase-II of the Grid Connected Rooftop Solar Programme.
• India approved an INR 10,000 crore (USD 1.4 billion) electric vehicle (EV) incentive scheme through Phase-II of the FAME program.
• The Supreme Court ruled in favour of financially stressed coal-fired power stations, giving them more time before their debts will be foreclosed. While the government supported the ruling, analysts fear greater uncertainty over the future of these assets.
• The Central Electricity Regulatory Commission (CERC) announcements on the passthrough of costs are expected to further distress electricity distribution companies (DISCOMs), which faced combined losses of INR 24,000 (USD 3.4 billion) in the first nine months of FY 2019. 

For any additional or more detailed information, please do not hesitate to contact Christopher Beaton or Vibhuti Garg.

State-owned companies carry out most coal mining and power production in India.

This country study and accompanying data sheet compile publicly available information on G20 subsidies to the production and consumption of coal (including coal-fired power) in India in 2016 and 2017. It is a background paper to the report G20 Coal Subsidies: Tracking Government Support to a Fading Industry and provides a baseline to track progress on the phase-out of such subsidies as part of a wider global energy transition.

India could save money and reduce indoor air pollution by switching kerosene subsidies to solar.

Key Messages

• Switching subsides from kerosene to off-grid solar would benefit the millions of Indian households that suffer frequent blackouts or that cannot afford grid electricity.
• A range of off-grid solar products is now cheaper than kerosene over the lifespan of the technology. Surveys also indicate that people strongly prefer off-grid solar compared to kerosene, even if this means a reduction in the kerosene subsidy.
• This report shares a plan for India to swap kerosene subsidies for solar subsidies through a six-step implementation plan with the end goal of an India where there is clean and reliable power for all.

Kerosene is not an ideal fuel: it has negative health impacts, gives poor lighting, emits greenhouse gases, raises the fire risk and causes subsidy costs to soar when international oil prices rise.

Millions of households in India, however, continue to use kerosene lamps. They may not be able to afford electricity or the electricity grid has not reached their community. Electricity blackouts also drive some households to ignite their lamps.

This independent study by the International Institute for Sustainable Development (IISD) and The Energy and Resources Institute (TERI) shows that switching subsidies from kerosene to off-grid solar products would improve electricity access for households that still rely on kerosene. The costs of solar products have fallen in recent years; by spreading the initial costs over a solar product's lifetime, there are clear cost savings for households and taxpayers that justify the switch to solar.

This report provides a six-step implementation plan for governments. The first three steps provide options on funding, targeting recipients and selecting solar products. The next steps are presented as three separate pathways depending on whether the government chooses to subsidize consumers, manufacturers or financial products. The goal for each pathway is the same: to assist India’s transition to clean and reliable power for all.

What is driving stressed coal power assets in India, and how do we ensure workers, not assets, are the focus of government interventions in the future?

Key Messages

• India's 2018 crisis of stressed coal power assets may rear its head in future years as various drivers suggest increased coal power costs in the future. Government interventions should not only focus on the short term, they also need to support a managed transition fair for all involved, including workers.
• Current drivers of stressed assets include coal shortages and the financial distress of energy distribution companies (DISCOMs), while future drivers are likely to include water scarcity, air pollution regulations and cost-competitiveness of renewables.
• Policy support mechanisms for coal artificially dampen market signals that affect coal power costs. These take the form of subsidies, public finance through loan preferential rates, or the delay or lack of enforcement of policies (such as air pollution regulations) that would otherwise increase costs to producers.
• As part of an ongoing dialogue about labour in the coal sector, policy-makers should consider the complementary policies that can ensure that the burden of asset stranding does not fall on workers and communities. This might include general employment schemes, targeted social protection measures and financing mechanisms.

In the India Energy Transition 2018 update, the Global Subsidies Initiative (GSI) of the International Institute for Sustainable Development (IISD) and the Council on Energy, Environment and Water (CEEW) published updated estimates of the scale of energy subsidies in India for FY 2017, including partial data on the scale of subsidies for FY 2018.

One of the review's striking findings was government support measures for coal have remained largely unchanged since 2014, despite an ongoing crisis in the coal sector, where around 18 per cent of installed capacity is "stressed" and at risk of entering bankruptcy proceedings.

This issue brief takes a detailed look at why such a large share of coal power is struggling today and the drivers—including subsidies—that may cause similar crises to rear their heads in future. In light of this, it sets out some broad proposals from international literature on the topic of “just transition,” which encourages governments to recognize stranded workers and communities as much as stranded private or public assets. It builds on an analysis of the relationship between subsidies and coal power assets published by the GSI and the Overseas Development Institute in mid-2018, India’s Stranded Assets: How Government Interventions Are Propping Up Coal Power.