By Dr Sapan Thapar, Associate Professor, and Dr Gopal Sarangi, Associate Professor, TERI School of Advanced Studies
Incentives, subsidies and other forms of support are being provided by both the central as well as state governments to ensure the accessibility and affordability of energy, catering to different sections of society. These support schemes exist in various forms, including free/discounted electricity tariffs for household and agricultural consumers, subsidies on cooking cylinder refills, excise/value added tax concessions on petroleum end-products, tax rebates on electric vehicles (EVs), and capital subsidies on solar equipment.
In the ongoing debate on energy subsidies, it is challenging for stakeholders, including governments, political parties and beneficiaries, to assess the efficacy of multiple schemes. These include identifying beneficiaries, estimating lifeline energy needs, understanding the linkages between energy outcomes and pricing, assessing associated carbon emissions, and, most importantly, evaluating the fiscal health of the government.
In most cases, it is difficult to gauge the efficacy of support schemes. For example, in the case of free power, there is bound to be misutilisation, associated with impudent behaviour. Similarly, a retail outlet that dispenses fuel at similar price points to an SUV owner, a public transport vehicle, a truck, or a moped driver, faces challenges in adopting differential pricing norms.
Likewise, a consumer may become confused about how to avail of subsidies – whether for procuring biogas or liquefied petroleum gas (LPG), or for operating electric stoves. Another example is setting government priorities, say, between ensuring energy access or mitigating emissions. Should it support e-buses or e-rickshaws? Should the government promote compressed natural gas or compressed biogas? Should it extend free rides or build a public transport system? Incidentally, each fuel is associated with a certain energy content (calorific value), has a distinct usage format, and the equipment may have a different level of conversion efficiency.
In this context, we propose a UPI-based application, “Energy Wallets”, which can be offered to the intended beneficiaries. “Energy tokens”, equivalent to a certain quantum of energy, could be digitally credited to these e-wallets. The beneficiaries can then procure the required form of energy using these tokens. This could be petrol for vehicles, diesel for tractors/agricultural pumps, LPG/piped natural gas for cooking, electricity for lighting/cooking/EV charging, or even solar-based power. The scheme would require the onboarding of “energy service providers”, such as petrol pumps, power discoms and solar renewable energy service companies, to whom these tokens shall be transferred by consumers.
The next step would involve determining the monthly energy consumption of a household. Based on calorific values and monthly requirements, we estimate the demand to be 0.1 tonnes of oil equivalent (or, 100,000 kilocalories). This is based on the consumption of 30 kWh of electricity and 7 kg of petroleum fuels (gas/petrol/combination) per household per month.
Each energy token can be denominated to 1,000 kilocalories of energy, making the requirement 100 tokens per household. Thus, one token would suffice to procure a unit of electricity, while 10 tokens would enable the purchase of 1 litre of petrol or 1 kg of cooking gas. To promote prudent usage, trading/sale of unutilised tokens can be permitted among users.
The scheme can initially cover 10 million households, currently covered under the public distribution system. Using existing fuel prices, a token would cost around Rs 10. Offering 100 tokens per household per month would require Rs 120 billion. This is substantially lower than the quantum of existing energy-related subsidy schemes. Corporates should be allowed to subscribe to tokens as part of their corporate social responsibility commitments.
To encourage sustainable development, there can be a certain percentage share of green tokens in the e-wallet, to be exclusively used for procuring green energy. These tokens could be used for charging EVs, procuring biogas for cooking and ethanol for vehicles, or securing solar power for agricultural pump sets. Companies subscribing to green tokens could be allowed to offset their carbon reduction targets, with the share of green tokens gradually increasing over time.
The proposed scheme would offer multiple benefits going forward. These include enabling the targeted delivery of subsidies, promoting prudent energy use, supporting the growth of energy entrepreneurs, and creating awareness among the citizens on energy/climate-related issues. A robust green energy market will attract service providers, including start-ups, near the demand centres, creating local green jobs. Fuels could be sold at market prices, reducing anomalies and ensuring ease of doing business.
