Union Budget: How fiscal policy could shape coal and petroleum use

India is largely reliant on fossil fuels for its energy needs, which account for ~57 per cent of the installed electricity capacity and 75 per cent of the electricity production in India. However, India has also been aggressively working towards increasing its renewable energy portfolio, with an ambitious target of achieving 500 GW of renewable energy by 2030, according to the Union Ministry of Power.
To ensure a sustainable energy scenario for India, a two-pronged approach needs to be adopted. First, the adoption of renewable (solar, hydro, wind, etc.) and alternate sources of energy (battery storage) needs to be increased. Secondly, the carbon footprint needs to be reduced for existing projects and initiatives by funding cleaner technologies.
Expectations from the 2024-25 budget
The proposed budget could prioritise renewable energy affordability, possibly by initiating cash transfer schemes for solar panel purchases, funded by reducing fossil fuel subsidies. Viability gap financing might be introduced for hydrogen electrolysers and offshore wind projects, emulating the support for battery energy storage systems. Electric mobility could be incentivised, focusing on developing EV batteries, promoting vehicle scrappage, and securing the supply chain for essential minerals like Lithium and Cobalt.
Infrastructure development is also expected to be a focal point. The budget may propose installing more fast chargers, even in low-income areas, to encourage EV adoption and battery storage use. Small-scale renewable energy projects in domestic housing might receive incentives, and significant funds could be earmarked for an interstate transmission system, ensuring seamless renewable energy integration into the national grid.
The budget might also allocate funds for workforce development, aiding the transition of workers from coal and petroleum sectors, facilitating skill development for a cleaner energy sector.
In reducing the carbon footprint, the budget might support clean technologies, including coal gasification, funded through transparent bidding. It may also offer incentives for small-scale product-based gasification plants, reimburse the GST compensation cess on coal, and promote ethanol blending in petroleum products.
Energy efficiency could receive a boost through mandatory appliance standards, building codes, and demand-side management in agriculture and municipalities. The State Energy Conservation Fund (SECF) Scheme might receive allocations for state-level conservation initiatives.
Carbon regulation measures, including a potential $40 per tonne CO2 carbon tax, which, according to the World Bank, could reduce emissions by up to 1.7 billion tonnes by 2030, and tax credits for emission reductions, could be introduced. Finally, the budget is expected to significantly invest in R&D, focusing on clean energy technologies, gasification, coal waste conversion, and carbon capture projects, reflecting a commitment to sustainable and environmentally responsible energy development.
India’s international commitments to climate change goals in shaping the budget decisions
India’s budget decisions are significantly influenced by its staunch commitment to international climate change goals, aiming for ambitious targets like achieving net zero by 2070, enhancing non-fossil electricity capacity to 500 GW by 2030, and reducing carbon emissions by a billion metric tons within the same timeframe. To align its fiscal strategy with these objectives, India may consider subsidies for small-scale renewable projects, particularly in rural areas, to foster widespread adoption of technologies like rooftop solar and heat pumps. Furthermore, the establishment of Green Finance and Climate Funds is anticipated to finance large-scale renewable projects and attract private investments. The budget is also expected to facilitate carbon market participation through mechanisms like emissions trading and carbon offset projects, alongside initiating carbon capture and utilisation projects. These measures, coupled with support for indigenous technologies and start-ups focusing on carbon-based products, reflect a comprehensive approach to meeting India’s climate commitments and reducing its carbon footprint.
The potential economic opportunities associated with clean energy transition
India’s clean energy transition is not only an environmental imperative but also an economic opportunity, projected to generate a market worth up to $80 billion by 2030, according to the International Energy Agency (IEA). Renewable energy, expanding at an unprecedented pace, is poised to double its capacity by 2026, potentially creating 3.5 million jobs, as per the NRDC (Natural Resources Defence Council). This shift promises to catalyse innovation, bolster competitiveness in sectors like green hydrogen and electric mobility, and ensure energy affordability, particularly for underserved communities.
Geopolitical factors
Geopolitical dynamics, including OPEC policies, supply chain disturbances, and international alliances, significantly sway global oil prices and have a considerable impact on India’s energy sector. Internal conflicts within OPEC or strategic production adjustments by key players like Saudi Arabia and Russia can lead to abrupt price changes. India’s energy landscape is also shaped by its trade relations with major partners like the US and Russia, with shifts in these relationships potentially disrupting fossil fuel imports and pricing structures. Moreover, global occurrences such as the Russia-Ukraine conflict and the COVID-19 pandemic have heightened price volatility and import costs, underscoring the need for India to enhance domestic energy self-sufficiency and navigate the complexities of political stability in oil-rich regions.
The author is Partner, Deloitte India. Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect Firstpost’s views.
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