Parties to the historic Paris Accord on climate change signed in 2015 meet in Bonn next week, and their discussions will inevitably veer toward the Donald Trump-led US administration’s decision to exit the Accord. US is the second-largest greenhouse gas emitter in the world, in per capita terms as well as in absolute volumes. The upcoming summit takes place amid growing concerns that the US move may encourage other countries to abdicate their responsibility to rein in greenhouse gas emissions.
With the US withdrawal, all eyes will turn toward the moves China and India make. Although both emerging economies have relatively lower per capita emissions compared to developed economies, they still rank among the top three emitters in absolute volumes.
Shortly after taking charge as prime minister, Narendra Modi signalled a pivot to renewables as a major way in which India will seek to fight climate change. He set an ambitious target of setting up 100 gigawatts (GW) of solar capacity by 2022, which stood at just 4.3GW in 2015, on the eve of the Paris Accord.
So far, progress has been impressive but at 13GW of installed solar capacity in mid-2017, India has only reached a tenth of the target. And it is uncertain whether solar capacity will continue to grow at the same pace in the years ahead.
Nonetheless, India’s installed capacity to produce electricity from renewable energy sources—mainly wind and solar—currently stands at around 58GW, which is among the top five in the world. This excludes hydro power capacity.
Over the past two years, India has stepped up the overall share of renewables in its energy mix. India committed to raise the share of renewables in installed capacity to 40% by 2030 compared to 18% currently. Under its “Intended Nationally Determined Contributions” (INDC) commitments, India will seek to reduce its emissions-to-GDP ratio by 33-35% by 2030 from 2005 levels.
However, India has continued to add coal capacity over the last two years. Contrast this with the US, where installed capacity in coal fell almost 23GW or 8% between December 2015 and August 2017.
It is also worth noting that coal-based thermal power plants in India have declined in importance over the past few years partly because of commercial considerations. The pile of bad debt and overcapacity in the sector has made investments in new thermal power plants relatively unattractive. As these problems recede, coal might start looking attractive once again, at least from a commercial point of view. And given that coal remains the cheapest source of power, it will continue to be a tempting option for an emerging economy with a large power deficit. According to the International Energy Agency, 18% of India’s population did not have access to electricity in 2016.
A lot will depend on whether the growth in the renewable sector is sustained. At the moment, things do not look very bright for solar. The reverse auction system, where solar power development projects are awarded to the lowest bidders, has raised concerns over the sustainability of solar power companies. Too few solar projects and too many solar companies have pushed companies to bid aggressively for low tariff rates, raising concerns about their balance sheets. SunEdison, a US solar giant with interests in India, filed for bankruptcy last year.
Solar tariff rates have fallen significantly in India, prompting states to try and renege on offtake commitments that had been negotiated at higher rates earlier. Capacity utilization in solar is also low (around 20%) as opposed to coal (about 60%) owing to the challenge of storage of energy and grid integration.
The uncertainties in the renewable space could prompt a rethink on India’s energy mix, and make India renegotiate the commitments made two years ago. It remains to be seen whether India signals that shift at Bonn, or chooses to stay the course for now.
Recent Posts
Petrol in India is cheaper than in countries like Hong Kong, Germany and the UK but costlier than in China, Brazil, Japan, the US, Russia, Pakistan and Sri Lanka, a Bank of Baroda Economics Research report showed.
Rising fuel prices in India have led to considerable debate on which government, state or central, should be lowering their taxes to keep prices under control.
The rise in fuel prices is mainly due to the global price of crude oil (raw material for making petrol and diesel) going up. Further, a stronger dollar has added to the cost of crude oil.
Amongst comparable countries (per capita wise), prices in India are higher than those in Vietnam, Kenya, Ukraine, Bangladesh, Nepal, Pakistan, Sri Lanka, and Venezuela. Countries that are major oil producers have much lower prices.
In the report, the Philippines has a comparable petrol price but has a per capita income higher than India by over 50 per cent.
Countries which have a lower per capita income like Kenya, Bangladesh, Nepal, Pakistan, and Venezuela have much lower prices of petrol and hence are impacted less than India.
“Therefore there is still a strong case for the government to consider lowering the taxes on fuel to protect the interest of the people,” the report argued.
India is the world’s third-biggest oil consuming and importing nation. It imports 85 per cent of its oil needs and so prices retail fuel at import parity rates.
With the global surge in energy prices, the cost of producing petrol, diesel and other petroleum products also went up for oil companies in India.
They raised petrol and diesel prices by Rs 10 a litre in just over a fortnight beginning March 22 but hit a pause button soon after as the move faced criticism and the opposition parties asked the government to cut taxes instead.
India imports most of its oil from a group of countries called the ‘OPEC +’ (i.e, Iran, Iraq, Saudi Arabia, Venezuela, Kuwait, United Arab Emirates, Russia, etc), which produces 40% of the world’s crude oil.
As they have the power to dictate fuel supply and prices, their decision of limiting the global supply reduces supply in India, thus raising prices
The government charges about 167% tax (excise) on petrol and 129% on diesel as compared to US (20%), UK (62%), Italy and Germany (65%).
The abominable excise duty is 2/3rd of the cost, and the base price, dealer commission and freight form the rest.
Here is an approximate break-up (in Rs):
a)Base Price | 39 |
b)Freight | 0.34 |
c) Price Charged to Dealers = (a+b) | 39.34 |
d) Excise Duty | 40.17 |
e) Dealer Commission | 4.68 |
f) VAT | 25.35 |
g) Retail Selling Price | 109.54 |
Looked closely, much of the cost of petrol and diesel is due to higher tax rate by govt, specifically excise duty.
So the question is why government is not reducing the prices ?
India, being a developing country, it does require gigantic amount of funding for its infrastructure projects as well as welfare schemes.
However, we as a society is yet to be tax-compliant. Many people evade the direct tax and that’s the reason why govt’s hands are tied. Govt. needs the money to fund various programs and at the same time it is not generating enough revenue from direct taxes.
That’s the reason why, govt is bumping up its revenue through higher indirect taxes such as GST or excise duty as in the case of petrol and diesel.
Direct taxes are progressive as it taxes according to an individuals’ income however indirect tax such as excise duty or GST are regressive in the sense that the poorest of the poor and richest of the rich have to pay the same amount.
Does not matter, if you are an auto-driver or owner of a Mercedes, end of the day both pay the same price for petrol/diesel-that’s why it is regressive in nature.
But unlike direct tax where tax evasion is rampant, indirect tax can not be evaded due to their very nature and as long as huge no of Indians keep evading direct taxes, indirect tax such as excise duty will be difficult for the govt to reduce, because it may reduce the revenue and hamper may programs of the govt.