Challenges of India’s Shift to Green Energy

Source: The post challenges of India’s Shift to Green Energy has been created, based on the article “The complexity of green transition” published in “Business standard” on 2nd July 2024

UPSC Syllabus Topic: GS Paper3-economy-infrastructure-energy

Context: The article discusses the challenges India faces as it moves away from fossil fuels to greener energy sources. It highlights the impact on government revenues from fossil fuels, the need for new revenue sources, and how to manage the economic and employment effects of this transition.

For more information on Energy Transition read this article here

What Are the Challenges of India’s Shift to Green Energy?

1. Revenue Loss: Transitioning away from fossil fuels will significantly reduce government revenue, which currently constitutes over 3% of India’s GDP.
2. State Financial Autonomy: Different states have varied dependencies on revenue sources. For instance, Odisha earns significantly through coal royalties, whereas Maharashtra relies on tax revenues. The introduction of GST over VAT threatens this autonomy, particularly concerning petroleum products.
3. Electric Vehicle Subsidies: While fossil fuel vehicles generate substantial revenue, electric vehicles (EVs) require hefty subsidies. Balancing these subsidies with the need to maintain government revenue is a complex challenge.
4. Employment Impact: The reduction in coal use will lead to job losses, not just directly in mining but also indirectly through associated services and industries, affecting numerous livelihoods.
5. Stranded Assets: Transitioning from thermal power to renewable energy will lead to stranded assets, where investments in thermal power become redundant, further complicating the financial challenges of the green transition.

How Can India Address These Challenges?

1. Rationalizing GST: Adjusting the Goods and Services Tax (GST) is a potential strategy, but it requires significant negotiations between the central government and the states to find a balance that does not compromise state revenue autonomy.
2. Implementing Carbon and Road Use Taxes: Introducing carbon taxes could accelerate the transition from fossil fuels and alleviate immediate revenue issues. Additionally, road use taxes offer a straightforward method that might align better with the goal of maintaining state autonomy.
3. Reducing Non-Productive Expenditure: While challenging, cutting down on non-essential government spending could free up funds for more critical areas impacted by the transition.
4. Enhancing PSE Roles in Renewable Energy: Encouraging Public Sector Enterprises (PSEs) that are currently involved in fossil fuels to participate in the renewable energy sector could align their interests with the transition goals, helping to mitigate revenue losses.

Question for practice:

Examine how India’s shift from fossil fuels to green energy impacts government revenues and state financial autonomy