Carbon Tales- An Attempt to Find a Solution to the Current Energy Crisis in India

Abstract

For developing countries like India, the Energy sector holds a lot of value. Modern energy services are essential for meeting basic societal demands, supporting economic progress, and promoting human development. Every production and consumption activity requires energy to operate. Most of the facilities like health, education, transport, cooking fuel, and livelihoods are dependent on access to energy. Therefore, an energy crisis is likely to disrupt growth and lead to the failure of State machinery. Moreover, a significant portion of our energy requirements is met by utilising non-renewable resources, which means only policy reforms can help maintain a stable energy supply. The year 2021, is especially a crucial time for revising state policies owing to the strain caused by the COVID-19 pandemic. In this article, the author analyses the present Energy crisis in India and discusses policy reforms needed to address the situation.

Keywords: Carbon, Energy crisis, rising fuel prices, Coal, policy reforms

Introduction 

Rising petrol-diesel prices, constant power-cuts, surge in auto-rickshaw fares, closing down of many businesses, and such other realities point towards adeepening energy crisis soon to engulf India. India’s energy policy and ambitions are often different and sector-specific because they originate from different ministries. All of the policies and ambitions, however, are related to the overarching goal of providing affordable, reliable, and sustainable energy services. It is noteworthy that India is not a resource-poor country. It has the world’s fourth-largest coal reserves, virtually endless thorium supplies, substantial solar power potential, and 3.14 million square kilometres of sedimentary basins that have not even been explored yet. Then, why is India facing an energy crisis? The answer is simple. The problem lies in the management of resources.

The current crisis emphasises the importance of assessing the acute and chronic problems afflicting India’s hydrocarbon sector, which includes oil, coal, and natural gas. It also provides us with an opportunity to implement crucial and long-term policy reforms.

Recommendations to Address the Energy crisis 

1. To counter coal shortage 

• India’s energydemand is predicted to expand faster than that of any other country in the world during the next two decades. The Indian coal sector, which presently accounts for70 percent of the country’s power output, will have to meet much of this demand. Therefore, analysing demand based on price fluctuations in the international market and due to domestic weather conditions in advance and preparing for the same becomes highly important. For instance, when demand is expected to rise,energy conservation measures can be taken by the Government by issuing guidelines or notifications to various sectors/establishments such as commercial buildings, industries, and so on to reduce their energy consumption while simultaneously increasing the production of coal. This will help in maintaining a steady supply of coal and avert a situation where the power plants have less than a week’s coal reserves left.
• The Government has a monopoly in the coal industry, with two of its significant producers – CIL (“Coal India Limited”) and NTPC Limited accounting formore than 50 percent of coal production in the country. It stands to reason that thesestate agencies are not working efficiently as it has been seen that coal production has remained stagnant since the year Furthermore, a recent research conducted by theCouncil on Energy, Environment, and Water (“CEEW”) points out to the fact that India’s net thermal efficiency of coal-fired power plants is only 29.7 percent, far lower than the weighted world average of 37 percent. Thus, improving the efficiency of the existing power plants will further boost domestic production of energy.
• The Government of India should invest in technology that consumes less power. Reduced consumption is one technique to increase the efficiency of an existing thermal power plant by integrating the newest technology and infrastructure. For instance, ensuring that the plants are fitted with variable frequency drives to consume less electricity when operating at half-capacity, is one such method.
• Other difficulties that must be addressed include resolving thelegal impasse over private coal mining involvement and contractual disputes arising out of poor planning. Future litigation becomes unavoidable when project cost estimation, cost management, and site supervision are not diligently looked after at the initial stage itself. Since India depends majorly on its thermal power plants for energy generation, it becomes essential for it to look into the practical problems faced by the coal sector instead of just talking in terms of statistics and numbers. Finally, other steps that can be taken include expediting approvals, especially environmental clearances, and strengthening rail infrastructure to improve transportation. The coal scarcity might continue to boil until these concerns are addressed.
• One of the long-run policies that begs our attention is that of including local communities who are the affected parties, providing lands for mining projects and power plants, in the development process. The whole approach to mining ventures, whether coal or any other mineral, must undergo a paradigm shift. The local population should be included right from the outset of a mining operation, whether it’s monitoring coal output or assuring environmental compliance which are most often than not, overlooked by the authorities. In many situations,land for coal mining is secured by the use of ‘The Coal Bearing Areas (Acquisition & Development) Act, 1957 after which villagers are unable to sell their land regardless of the necessity. In the present scenario, when private entities have also entered the mining sector due to recent reforms, the incidental changes to the laws currently governing the sector should also be undertaken. The Government should ensure that individuals whose lands have been taken away get adequate compensation and employment in a speedy manner. Care should be taken to ensure that none of the government’s policies lead to exploitation of the people or environment which will then prove to be counter-productive.
• It may also be noted that thecoal phase-out that India plans to undertake, in view, of its sustainable development and climate change goals, can also help India to reduce its dependence on Coal for meeting its energy demands. However, it should be carried out in a strategic way lest India would suffer the same fate as China and dive deeper into the energy crisis. The energy transition goals of India should be met by opening up the process to a broader spectrum of perspectives and bring more focus to problems like pricing, service quality, and environmental implications. This would help reduce inefficiencies, achieve both short-term and long-term benefits, and prevent unwise judgments due to hasty policies. In the similar vein, the policymakers need to be fully aware of the fact that although India’s energy targets are primarily specified at the national level, the country’s energy transition will be at a different pace in each state. Therefore, with the rise in demand for alternate energy sources and enhanced performance of new technologies, regulators and policymakers will need to strike the correct balance between stability and flexibility. Furthermore, in order to enhance investor confidence, future policies should be stronger and more predictable.

2. To counter rising fuel prices 

• After the United States and China, India is thethird-largest consumer of crude oil. It imports more than 80 percent of crude oil, which is paid for in US dollars. As a result, both global oil prices and rupee-dollar exchange rates impactIndia’s oil supply. The impact is more severe as India has connected local fuel prices to the global oil market. This has its advantages as Oil Marketing Companies (“OMCs”) are no longer obligated to supply petroleum at subsidised rates. However, on the other hand, as can be observed currently, when world prices are high, the customer is forced to buy fuel at high prices. So, one thing the Indian government can do is strategically introduce subsidies in a way that the interests of the government, consumers, and businesses are properly balanced. This further emphasises the need for constantly revising policies based on changes in the conditions.
• The other aspect to consider when looking at domestic fuel prices is the taxing regime. To understand this factor, we need to look at the price split-up of Almost two-thirds of the retail price is paid in taxes to the Union and State governments. The State and Central taxes together account for around 60 percent of the overall retail price, with the dealer’s fee accounting for approximately 4 percent of the base price. As a result, the actual cost of petrol utilised by the consumer/customer is only about 36 percent of the total retail cost.
• According to data from the Ministry of Petroleum and Natural Gas’s Petroleum Planning and Analysis Cell, the excise duty on branded petrol is Rs. 20.66 per litre or about 28 percent of the total price of the fuel. For branded diesel, this percentage is 27 percent. Petrol and diesel are currently subjected to the cess, central excise, and state value-added tax, which provide the most significant advantages and money to the Centre and State governments. The overall price of diesel and petroleum products in the country has risen due to the current tax framework, which includes central and state charges at every production stage. Therefore, if petrol and its products are brought under the GST regime, costs on the consumer can be significantly reduced.
• We need to step up our efforts on several fronts. These include, among other things, increasing the percentage of ethanol in the fuel mix; reducing diesel consumption by farmers; accelerating the pace of solar-based power supply for running pumps, electrification of railways and pursuing conservation efforts across all sectors such as industries, services, and infrastructure.
• India’s oil demand is projected to rise at the fastest pace globally to reach 10 million barrels per day by the year 2030, from 5.05 million barrels per day in the year 2020. In order to meet this demand, India should increase its unconventional fuel reserves, such as shale oil, and thoroughly utilise them to its advantage. Another option for India is to expand its natural gas consumption. According to the International Energy Agency, India possesses1,340 billion cubic metres of relatively easy-to-extract natural gas reserves and 108 billion cubic metres of “unconventional” methane deposits, which require more specialised equipment, procedures, and money to extract. Apart from this, the Indian government should also increase its dedicated emergency oil reserves in accordance with the expected rise in consumption. Thus, by making necessary policy changes, India can bring fuel prices under control.
• Finally, by setting production objectives for its members, the Organization of Petroleum Exporting Countries (“OPEC”) may have a substantial impact on oil prices. OPEC can also aid in the resolution of international disputes. Given the history of oil supply interruptions caused by political events, policymakers in India should continually assess the likelihood of future disruptions. As a result, a discussion between OPEC and non-OPEC countries becomes increasingly essential for economic growth. India’s foreign policy can be tailored to assist mitigate the impact of rising crude oil prices on its home market.

3. To counter low natural gas production

• Natural gas use in India is small but growing. The majority of the gas is used in industry and electricity generation. India aspires toexpand natural gas’s contribution to the energy mix from 6 percent to 15 percent by the year 2030, implying a doubling of present demand and infrastructure needs. TheMinistry of Petroleum and Natural Gas (MoPNG) expects a five-fold rise in output from private producers under the PSC regime by the year 2022-2023 and significant changes in the production mix. Thus, there is a need for the establishment of a gas hub that would allow for transparent price discovery based on buyers and sellers interacting in an open market.
• Despite the gas market in India rapidly growing, gas has not been deployed in every sector which could utilize this fuel’s strength, because of limited supply options, high cost of gas, and inadequate infrastructure. Therefore, the government should frame such policies which would invite foreign investment in gas facilities and pipeline infrastructure to boost gas production.
• Since India has only recently started transitioning to a gas-based economy, it cannot harness its true potential without investment, technology, and competition among private and public sector enterprises. India will be able to discover, extract, convert, and distribute resources only with crucial policy reforms. One of the major tasks of the policymakers would be to develop a robust and independent regulatory institution such that it is free to bring in the reforms needed without interference from the parent ministries or any other political interference.
• Due to soaring prices in the global market, India has raised the price of natural gas generated from domestic fields for the first time in two years. According to the Energy Ministry’s, Petroleum Planning & Analysis Cell, the price of gas generated from areas given to State agencies has jumped by62 percent to $2.9 per million British thermal units. It also increased the ceiling price for gas produced from challenging fields, such asReliance Industries Ltd.’s KG-D6 block, by 69 percent to $6.13 per million British thermal units.
• While this is a move by the Indian government to incentivise gas production, it can lead to demand erosion as some sectors cut capacity due to squeezed profit margins. This is especially the case since the utilisation of natural gas in energy production is relatively new. Aside from this, with global demand for natural gas likely to surge, India would need to execute a solid natural gas import diversification policy so that it has multiple gas sources available to it for imports in case of a sudden rise in demand.
• India’s domestic natural gas output will only meet a portion of the predicted rise in demand in the future years, forcing the country to boost imports to make up the difference. The country’s energy security is subject to regional and global events because it relies on imports. Besides this, the amount of natural gas stored underground has a significant impact on the total supply. Storage aids in meeting seasonal and unexpected demand spikes which domestic output and imports would not otherwise be able to satisfy.

Conclusion

The Indian government has already started taking necessary measures to respond to the rising energy demands in the country. However, the government has to be mindful of all the indirect consequences as well as direct consequences of the energy shortage faced by the country. If the government does not take any action to mitigate the situation then, the already pressured sectors such as transportation, agriculture, and micro, small, and medium-sized businesses (“MSMEs”) will suffer greatly. According to analysts, increasing fuel prices may lead to higher retail and food inflation at a time when the pandemic has depleted India’s household incomes and pushed millions of people into debt and poverty. Since the management of resources is what deserves our attention in the present energy deficit scenario, there is also a nagging need to have clarity over how the revenue from taxing the hydrocarbon sector at high rates is spent. This is especially important to ensure that the allocation of funds is done in such a way that no region is left out from being insulated to the present energy crisis.

Disclaimer

The views, thoughts and opinions expressed in the text belong solely to the author, and not necessarily to their employers, organizations, committees, or other groups or individual to which they are affiliated. The scope of this article is restricted to only long-term policy reforms needed to maintain a steady supply of energy.

About the Author

Ms. Faiza Khanum- Practitioner at King and Partridge, Bangalore.

Editorial Team

Managing Editor: Naman Anand

Editors-in-Chief: Akanksha Goel and Aakaansha Arya

Senior Editor: Jhalak Srivastav

Associate Editor: Aribba Siddique

Junior Editor: Joseph Antony Paddikala

Preferred Method of Citation

Faiza Khanum “Carbon Tales- An Attempt to Find a Solution to the Current Energy Crisis in India” (29 November 2021)