Rising LPG prices: Clouding a cleaner future

12 April 2021 | Air Pollution, Energy, Environment, Pollution

Ankur Bhardwaj

Ankur Bhardwaj

Editor, Centre for Economic Data and Analysis

ankur.bhardwaj@ashoka.edu.in

Tamil Nadu voted to elect a new government on April 6, 2021 and the result is awaited. One of the electoral promises made by the incumbent AIADMK government in its manifesto was 6 free LPG cylinders to each family every year. The challenger DMK also promised a subsidy of Rs 100 for every cylinder in its election manifesto.

These promises of cheaper or free LPG cylinder come at a time when the prices of LPG cylinders have crossed the Rs 800 mark (Rs 809 per cylinder in Delhi and Mumbai in April 2021). This is a steep increase from Rs 594 a cylinder in November 2020. Recently, media reports have also highlighted how high prices may be pushing many households back to using other cooking fuels like firewood.

Pradhan Mantri Ujjwala Yojana

These high prices also threaten to reverse the success the government achieved under the Pradhan Mantri Ujjwala Yojana (PMUY). The PMUY was launched on May 1, 2016 to distribute 5 crore LPG connections to women from BPL families. The scheme provided free connections to these families and 12 subsidized cylinders in a financial year. The government bore the upfront cost (recovered by the oil marketing companies from subsidy credited by the government). At present, there are more than 8 cr beneficiaries under PMUY.

PMUY propelled India’s consumption of LPG to 24.9 million tonnes in 2018-19, a growth of 53 percent over five years ago. This went up to 27.41 million tonnes in 2020 and surpassed the demand for petrol in the country for the first time. The increase in LPG consumption in 2020 is also attributed to the government providing 3 free refills under the PM Garib Kalyan Yojana to PMUY beneficiaries in 2020-21 (scheme announced for April to June, 2020 and later extended till March 2021). As international LPG prices dipped in 2020 owing to lower global demand due to the Covid-19 pandemic, the government also discontinued LPG subsidy from May 2020.

The government had also announced a target of 10 million new PMUY beneficiaries in the Budget for FY 2021-22. This would take the number of total PMUY beneficiaries to over 9 cr and total LPG consumers in India to over 30 cr.

With the sharp increase in cylinder prices since November 2020, this growth may be under threat.

The International Energy Agency (IEA) highlights this in the India Energy Outlook 2021 released by the agency earlier this year. The agency states that “There is a risk that the Covid‐19 pandemic and its economic effects could reverse recent gains and push some connected households back into energy poverty… Some low‐income households are facing the need to make trade‐offs between their energy needs and other demands, and this could propel them back to traditional and inefficient fuels.”

According to IEA, “Even though 97.5% of households today have the ability to access LPG (Indian Ministry of Petroleum & Natural Gas, 2020), we estimate that around 650 million people, just under half of India’s population, continue to rely primarily on traditional uses of biomass in households (and so are counted as not having access).”1

Where LPG connections have been made, they have not always unlocked sustained use due to concerns about supply, as well as cultural factors. A primary difficulty is the need to purchase quantities of LPG in bulk: even with government subsidies, other fuels are often available more cheaply, or in smaller quantities, and are therefore a better fit with the income structure of poor households, the IEA quotes Josey, Sreenivas and Dabadge.

The indoor air pollution challenge

Household air pollution (HAP) caused premature deaths of nearly 606,900 Indians in 2019 (see Figure 1 below).2 This number is nearly 40% lower than 980,000 premature deaths because of HAP in 2000. PMUY promises to reduce this further.

Besides death, many researchers also link childhood stunting with the use of solid cooking fuels in Indian households.

Figure 1

 

According to IEA, the policy efforts to promote access to clean cooking led to a 16% decline in emissions between 2015 and 2019 to 4.7 Mt.3 But Death Rate due to indoor air pollution continues to be high in India (51.03 deaths per 100,000 in 2017, see Figure 2 below)

Figure 2

As Dabadge, Josey and Sreenivas point out, “If the problems arising out of usage of solid fuels for cooking need to be truly resolved, then all households should not only obtain a connection but also use a clean fuel such as LPG on a sustained basis.” 4 The authors assert that a household would need 13 cylinders (14.2 kg each) per annum to meet all its cooking needs. At current rates, the total amount they would need to spend on these is Rs 10,517 in Delhi or Mumbai.

As the CEDA-CMIE bulletins have shown earlier, the Covid-19 pandemic and lockdowns led to a sharp fall in household income and expenditure in the first quarter of 2020-21.

The UN SDG 7.1 calls for ensuring universal access to affordable, reliable, and modern energy services.5 With that as a policy aim, the government may launch the next phase of the five year old scheme with affordability being the focus this time around. The Finance Minister also earmarked Rs 12,480 cr as LPG subsidy in the Union Budget for 2021-22 indicating that the subsidy mechanism for LPG cylinders may be reintroduced.

 

1 India Energy Outlook 2021, IEA – Page 175
2State of Global Air 2020

3India Energy Outlook 2021, IEA – Page 177
4From LPG Connections to Use – EPW, April 2016
5Part 4.2.1 – India Energy Outlook 2021, IEA – Page 174