Oil’s Well to Stop Binging

Consumers rejoice at the fast-falling price of oil, by half since summer of 2014. Nayan Chanda, editor of YaleGlobal Online, urges governments to use the period of respite to reduce reliance on fossil fuels, ending subsidies and instead investing in alternative energies like wind, solar and other alternative energies. The Modi administration in India has made a start, suggesting subsidies for off-grid solar systems. Less than 7 percent of India’s electricity is from renewables, and Modi has pledged to nearly double this in three years. “Given the vast area of the country that enjoys regular sunshine, a strategy that focuses on smaller decentralised units avoids the need for the costly development or expansion of electrical grids,” Chanda writes. The International Energy Agency reports governments worldwide spend more than $550 billion to subsidize fossil fuels. Subsidies for renewables total about $120 billion and are concentrated in Germany, the US, Italy, Spain and China. – YaleGlobal

Oil’s Well to Stop Binging

Falling oil prices offer a chance to diversify – cutting spending, subsidies on fossil fuels and investing in alternative energies
Nayan Chanda
Friday, January 9, 2015

With the price of oil tumbling to new lows, some are rejoicing that falling consumer prices and low inflation will finally bring the happy days that Prime Minister Narendra Modi promised during his campaign. For the sake of a healthier India and a safer world, however, rather than ramp up spending on cheaper fossil fuels this may instead be the moment for a more responsible course correction. Governments all over the world should seize the moment to scale back fuel subsidies that cause budgetary distortions and swell deficits. If they are clever, they may even redirect the sums earmarked for subsidy payments to promote investments in wind, solar and biomass energy. 

As someone who has long argued for proactive steps to wean the country off its fossil fuel addiction, I was encouraged by the Modi government’s recent moves. Ahead of hosting the First Renewable Energy Global Investors Meet & Expo in February, the government offered long overdue incentives to grow the solar energy sector. In a written statement submitted to the Lok Sabha in early December, Piyush Goyal, Minister of State for Power, Coal and New and Renewable Energy, announced fiscal and financial incentives, including capital subsidies for off-grid and decentralised solar power generation systems. Given the vast area of the country that enjoys regular sunshine, a strategy that focuses on smaller decentralised units avoids the need for the costly development or expansion of electrical grids. Goyal, also wisely offered up to 100 per cent financial support to government and non-profit research organisations and 50 per cent to industry and civil society organisations. We do not yet have a price tag for these incentives, but we can be sure it will be less than the Rs 63,426.95 crore earmarked for oil subsidies for this financial year. Most importantly, it sends an important message to producers and consumers that it is time to embrace renewable energy as a way forward.

India, which imports 75 per cent of its energy, is considered to be among the winners in the drastic fall of crude oil price, which recently reached its lowest level in five years at $65.29 per barrel. With the price plunging by 40 per cent since just April,  it would have been tempting to woo voters with lower prices of diesel, cooking gas and kerosene oil — but doing so would have squandered this historic opportunity to shift the country’s energy policy onto a more sustainable path. This adjustment could not come soon enough. Following the US-China pact on reducing fossil fuel use, India has come under intense international scrutiny. The announcement by environment minister Prakash Javadekar that India has stepped up its use of renewable energy and that 11 lakh households are using solar energy only helped to underline how far behind India, one of the world’s most sun-lit countries with a billion plus people, is in this area. Currently only 6.5 per cent of the country’s electricity is generated from renewable sources, though Modi aims to almost double this in the next three years. From its currently installed 2.8 GW capacity, India plans to grow solar power generation to 100 GW by 2019-20. 

According to an International Energy Agency estimate, governments worldwide paid $550 billion in subsidies to offset the price their consumers pay for fuel. In comparison, wind, solar and other renewable technologies received subsidies of just $121 billion in 2014. Last year, almost 70 per cent of these subsidies were provided by just five countries: Germany ($22 billion), the US ($15 billion), Italy ($14 billion), Spain ($8 billion) and China ($7 billion). It is high time that India, the world’s third-largest polluter, take its place among countries promoting sustainable and clean energy alternatives. 

The forthcoming Renewable Energy Global Investors Meet and India’s readiness to allow 100 per cent FDI in solar parks will hopefully mark a sunny departure from the coal-powered future that India has pursued so far.  


Nayan Chanda is editor-in-chief of YaleGlobal Online, based at Yale University’s MacMillan Center.

Copyright © 2015

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