A report by Cambridge Econometrics called “Fossil Fuel Prices and Inflation in India” found that transportation and home energy costs related to fossil fuels made up about 20% of India’s annual inflation rate between April and May 2022. During this time, India’s annual inflation rate was between 7% and 8%.
The report says that between January 2021 and August 2022, the prices of fuel and electricity went up nearly five times faster (57%) than consumer prices as a whole (12%). This was shown by how much people spent. In the Delhi area, for example, it is thought that households spent 25% more on fuels and electricity in 2022 than they did in 2021, and nearly 50% more, or about Rs 4,100, than they did in 2020.
Even more so for rural households, “given that they spend more on energy in relation to their income,” the report said.
It says, “This is true even though the Indian government budgeted the equivalent of about 0.5% of the GDP (Gross Domestic Product) to protect households from the full effects of price increases in fossil fuels around the world.”
You may remember that the recent G20 Energy Transitions Working Group meetings in Bengaluru brought up the idea that fossil fuels could be used for another 15 to 20 years.
“Over the last ten years, the price of renewable energy has gone down by a lot. Renewable energy is now widely known to be much cheaper than electricity made from fossil fuels. The lead author of the report, Carl Heinemann, said that India is one of the cheapest places in the world for new renewable energy projects, and that costs are only expected to go down.
“According to the RBI, wholesale prices are also going down because more renewables are being added to the grid. This should convince India’s policymakers to spend more on renewable energy so that it becomes the main source of electricity instead of locking the country into expensive energy, which will only make inflation go up, he said.
Even though subsidies for renewable energy have gone up in the last year, the report says that fossil fuels still get four times as much help as renewable energy projects in India.
It says that fossil fuel-based energy carriers are fully regulated by tariffs, taxes, subsidies, and price caps. This makes it hard to estimate the full benefits of renewable energy in India. India has one of the world’s fastest-growing economies. It is responsible for more than 10% of the increase in total global energy demand, and it is expected to keep growing quickly over the next few decades.
“If anything, the higher household energy costs and national import bills from reopening after the pandemic and the Ukraine-Russia war suggest that countries like India should look into ensuring energy security and growth by doubling their investments in renewable sources of energy. “Rapidly putting renewables to use is especially important if India wants to move away from coal,” the report says.
Long-term, making transportation and home energy use more electric and using more renewable energy will make it less likely that households and businesses will have to deal with fluctuating fossil fuel prices and lessen the need for expensive government spending.
“India should decarbonize its economy because there is a strong link between energy and inflation. There is evidence to back up the claim that renewable energy can reduce the long-term effect of energy prices on the CPI (Consumer Price Index),” it says.