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Carbon tax on energy, fertiliser to ease urea subsidy burden, says study

In the study that has been published in the journal, Energy Policy, researchers studied the consumption and production trends of natural gas in India and the effect of depletion of domestically-produced natural gas on the economy and environment.

By: Express News Service | Mumbai | December 30, 2020 4:02:36 am
Carbon tax on energy, IIT Bombay study, natural gas consumption, MUmbai news, Maharashtra news, Indian express newsAccording to IIT Bombay, the study showed that the natural gas reserves in India will be depleted by 2040, and the price of domestically-produced gas is expected to double due to the scarcity.

Researchers from IIT Bombay and the Monash University , Australia, who studied the impact of increasing natural gas consumption on the economy and environment in India, have suggested that the country must implement a carbon tax on power plants, fertilizer industry and consumers for releasing carbon dioxide, while encouraging the use of natural gas.

While the researchers said the government should induct natural gas – a cleaner fuel with low emission of particulate matter, ash and greenhouse gases – in the fuel market, they have suggested that the carbon tax should be levied so that urea (produced from natural gas) subsidies given to the fertilizer sector do not burden the economy and are recovered by the government by up to 44 percent through the carbon tax.

In the study that has been published in the journal, Energy Policy, researchers studied the consumption and production trends of natural gas in India and the effect of depletion of domestically-produced natural gas on the economy and environment.

According to IIT Bombay, the study showed that the natural gas reserves in India will be depleted by 2040, and the price of domestically-produced gas is expected to double due to the scarcity. It claimed that domestic gas production has been on the decline since 2011. To counter fuel shortages, the government will need to rely heavily on imported liquefied natural gas (LNG), the research claimed. Due to increased fuel prices, the largest consumers of domestic natural gas like power, fertiliser and transport sectors too will begin to rely heavily on the imported LNG. Domestic gas will only be available to city consumers who use it for cooking, the researchers claimed.

“The increased use of clean yet carbon-emitting fuels such as natural gas will result in adverse impacts on the environment in the long run. Hence, despite the use of natural gas as a fuel source, the distant future may witness higher levels of ozone depletion and global warming,” the study found.

In India, natural gas constitutes only six percent of the energy consumption, while crude oil and coal dominate. “We wanted to study these factors over the next two decades, until 2040. The goal was to understand the possible transition of the natural gas sector in the Indian context, given these varied factors,” said Yogendra Shastri, an associate professor at IIT Bombay, and a senior researcher of the study.

The challenge with the use of natural gas, the researchers said, is that India becomes dependent on imported gas and its fuel sources may be vulnerable to geopolitical issues. The government subsidizes the production of urea from natural gas in the fertilizer sector by almost 70 percent. This, the researchers said, poses another challenge.

“At the current rate of production, urea subsidies amount to 7.51 billion USD per year. As the price of natural gas increases, the expenses from these subsidies will overburden the government. The researchers suggest implementing carbon tax for all the stakeholders such as power plants, fertilizer industries, and consumers (through pricing mechanism). They estimate that a carbon tax of 10 USD per tonne of carbon dioxide released into the atmosphere will amount to 3.31 billion USD collected per year, which would cover 44 percent of the total subsidy cost per year,” the research suggested.

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