India's Clean Energy Struggle Amid Rising Demand and Surging Fossil Fuel Subsidies

India's Clean Energy Struggle Amid Rising Demand and Surging Fossil Fuel Subsidies

India is currently at a crucial juncture, facing the challenge of balancing its escalating energy needs with the imperative to shift towards cleaner, renewable energy sources. Recent studies have revealed a significant increase in the nation's energy subsidies, reaching a nine-year peak of INR 3.2 lakh crore (USD 39.3 billion) for the fiscal year ending in 2023.

Despite India's efforts to emerge as a leader in global climate action, the reliance on fossil fuels remains substantial, with coal, oil, and gas subsidies comprising around 40% of total energy subsidies in FY 2023. This starkly contrasts with the relatively meager support allocated to clean energy, amounting to less than 10% of the total.

The surge in fossil fuel subsidies can be attributed partly to the 2022 global energy crisis, worsened by geopolitical tensions such as Russia's invasion of Ukraine. India responded by implementing measures to stabilize domestic energy prices, including capping retail prices of key fuels and providing tax breaks and direct subsidies to businesses and consumers.

According to a report by the International Institute for Sustainable Development (IISD), subsidies for oil and gas witnessed a sharp increase of 63% in FY 2023 compared to the previous fiscal year. Similarly, coal subsidies rose by 17% over the same period, underscoring India's continued reliance on fossil fuels despite aspirations for clean energy transition.

As India aims to achieve a USD 5 trillion economy by 2027, significant investments are being made in all energy sectors. However, experts warn that this approach could impede progress towards India's clean energy targets for 2030 and perpetuate reliance on volatile and geopolitically risky fossil fuels.

Swasti Raizada, Policy Advisor at IISD, stressed the importance of targeted subsidies and a shift towards market-based pricing to mitigate growing budgetary pressures. Raizada emphasized that indiscriminate fossil fuel subsidies are inefficient and divert fiscal resources from supporting cleaner energy technologies.

In response to these challenges, the report suggests reallocating a portion of fossil fuel tax revenues to facilitate a just transition towards cleaner energy sources. Deepak Sharma, Policy Analyst at IISD, highlighted the necessity of ensuring that state-owned enterprises align with India's net-zero commitments to enable a sustainable and equitable energy transition.

India faces the dual challenge of meeting rising energy demands while reducing carbon emissions. The way forward necessitates decisive policy interventions that prioritize investments in clean energy while addressing the adverse effects of fossil fuel subsidies.

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