Subsidising off-grid solar power instead of polluting kerosene fuel is a policy alternative that will reduce indoor air pollution and greenhouse gas emissions

For poor households, solar lamps for lighting are a better option that polluting kerosene lanterns (Photo by Mohd Imran Khan)

For poor households, solar lamps for lighting are a better option that polluting kerosene lanterns (Photo by Mohd Imran Khan)

Switching subsides from kerosene to off-grid solar energy would benefit the millions of poor households in India that suffer frequent blackouts or cannot afford grid electricity, a new report has recommended.

Currently, there are many off-grid solar products that are cheaper than kerosene over the lifespan of the technology, according to an independent study by the International Institute for Sustainable Development (IISD) and The Energy and Resources Institute (TERI) published on April 18.

Surveys indicate that people prefer off-grid solar compared to kerosene, even if this means a reduction in the kerosene subsidy, said the study titled Policy Approaches for a Kerosene to Solar Subsidy Swap in India.

Kerosene has negative health impacts due to indoor air pollution, gives poor lighting, emits greenhouse gases, raises fire risks and causes subsidy costs to soar when international oil prices rise, the report said.

Kerosene subsidies were originally provided as a way to promote access to affordable fuel for lighting and cooking. However, these subsidies are inefficient because it is easy for fuel to be illegally diverted in the distribution system. For many years, the federal government has sought to gradually reduce kerosene subsidy expenditure by increasing product prices and restricting the volume of subsidised fuel supply.

Cost and access

Millions of households in India, however, continue to use kerosene lamps. They may not be able to afford electricity or the electricity grid has not reached their community. Electricity blackouts also drive some households to use kerosene lanterns.

The study shows that switching subsidies from kerosene to off-grid solar products would improve electricity access for households that still rely on kerosene. The costs of solar products have fallen in recent years. By spreading the initial costs over a solar product’s lifetime, there are clear cost savings for households and taxpayers that justify the switch to solar, it said.

“Over the lifetime of the products, solar lanterns, home systems and micro-grids are all cheaper than the combined household and government expenditure on kerosene,” said Balasubramanian Viswanathan, IISD Associate and co-author of the study. “The government could actually save money by switching support to solar.”

A July 2018 report by the two institutes explored the business case for a subsidy swap. The new study goes a step further by providing a six-step implementation plan for the government. The first three steps provide options on funding, targeting recipients and selecting solar products.

The next steps are presented as three separate pathways depending on whether the government chooses to subsidise consumers, manufacturers or financial products. The government could create subsidy programmes for households to help them buy solar products; subsidise manufacturers to reduce the final price of products for eligible consumers; or subsidise banks and microfinance institutions to make borrowing for solar products more affordable. The goal for each pathway is the same — to assist India’s transition to clean and reliable power for all.

Kerosene is used for more than lighting, but this is not a reason to maintain the subsidy, the report said. Census data from 2011 indicates that kerosene was used for cooking in merely 1% of rural households and 11% of urban households.

The use of kerosene as cooking fuel has declined across India (Photo by Flickr)

The use of kerosene as cooking fuel has declined across India (Photo by Flickr)

Kerosene is also used to ignite biomass for cooking, and an estimated 45% is diverted to the black market for use in irrigation or transport, the report said. Existing programmes for clean cooking and solar-powered pumps should be augmented rather than continuing to incentivise kerosene, a second-best fuel in all cases, the report recommended.

Once the upfront costs of solar products are spread over two years and government subsidies for kerosene are taken into account, solar products result in savings compared to kerosene lamps, the report said. The net cost of the swap is the amount the government could save by switching support to these technologies. In addition, the government would save the losses from fuel diversion and budget blowouts caused by volatile oil prices, it said.

This is not the first time that there have been calls to redirect kerosene subsidies toward solar products. In April 2016, IISD published a report in collaboration with the New Delhi-based Council on Energy, Environment and Water that suggested reforming kerosene subsidies in India.

The 2016 report had found that shifting from kerosene to alternatives such as solar-assisted solutions for lighting and LPG for cooking could be economically beneficial for both the government as well as households. Such a transition could result in an annual saving of INR 80-120 billion (USD 1.2-1.8 billion) to the exchequer, it had then said.

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