If the government goes ahead with its plan to reduce kerosene subsidies every month, as it has in the case of LPG, chances are Opposition MPs will once again raise a hue and cry in Parliament on how the poor are being affected. The MPs would do well to read the latest report by the Health and Environment Alliance (HEAL), a European not-for-profit advocacy organisation, which uses data from the International Monetary Fund, the Oil Development Institute (ODI) and the Oil Change International. The HEAL study shows how major economies subsidising fossil fuels extracts a health cost many times larger than the actual amount given in subsidies. And this is even when health costs are just taken to mean those resulting from premature deaths due to heart-, lung- and respiratory diseases caused due to pollution, and not costs under other overheads such as morbidity, lost productivity, etc, that can be ascribed to exposure to air pollution. According to HEAL, G20 governments paid out $444 billion in subsidies for fossil fuel—both to producers and consumers—in 2014 while their use imposed a $2.76 trillion cost on health the same year.
While subsidies themselves mean that the true price of fossil fuel is not reflected in the market, adding the monetised burden of from the negative impact of their use would mean fossil fuel are priced dramatically lower than they should be. In the case of India, according to HEAL, the production of oil, coal and gas got a whopping $16.9 billion in 2013-14 via support for state-owned enterprises while the outgo on air pollution related premature deaths in the country totalled $140.7 billion. The International Energy Agency estimates that in India, fossil fuels receive eleven times the financial support that clean energy sources do.
The good news, here, is that India is making a lot of progress in cutting subsidies, and not just because global oil prices have crashed. Diesel subsidies, for instance, have fallen from a high of Rs 62,837 crore in FY14 to nil today because, after a period in which prices were raised by small amounts each month, diesel was completely freed. LPG subsidies have fallen from Rs 50,327 crore in FY14 to Rs 15,132 crore in FY17 and kerosene from Rs 30,574 crore to Rs 7,606 crore in the same period—LPG, of course, presents a bit of a mixed picture since, to the extent it replaces wood/coal/kerosene, anything that increases its usage is a good thing; the flip side is that rational pricing will ensure optimal usage.
And though it was imposed to help the strained treasury, India actually imposes a form of a carbon tax—53.8% of petrol and 45.7% of diesel prices in the capital comprise excise and consumption taxes. And, as part of its Paris obligations to cut 2030 emission-intensity by a third, India has impressive plans to increase the use of renewable and also increase the share of railways to reduce transport-related emissions—just distributing 25.3 crore LED bulbs, for instance, has reduced energy consumption by 32,896 million KWh.
Apart from Opposition MPs and government ministers—in case they lose their nerve—the HEAL report is essential reading for climate-change sceptics like US president Donald Trump. India needs $2.5 trillion of investment in clean technology (in FY15 prices) between now and 2030 to meet its Paris obligations—if rich countries don’t contribute, meeting the targets will be difficult. What HEAL shows, of course, is that India will have to bear high costs in a BAU scenario as well—if it doesn’t reduce fossil fuels, the health costs will be large.