Why cancelling the LPG subsidy is a poor option
Shifting from biomass to cleaner fuels is the only longterm way to neutralise indoor air pollution
Air pollution kills more than 1.6 million people in India every year. While outdoor air pollution rightly gets a lot of attention, indoor air pollution from household cooking and heating with biomass fuels kills almost as many, or about eight lakh people, every year. A majority of rural households continue to use biomass as their primary cooking fuel. Various measures have promoted cooking with LPG, a cleaner fossil fuel. An LPG subsidy is supposed to make sure that the poor can afford clean cooking fuel.
However, this policy cost the government ₹22,000 crore in 2016-2017. Subsidies are expensive and blunt, and the prime minister has called on citizens to give up the LPG subsidy. As of 2016, more than 10 million citizens had done so. The government then announced — and later shelved — a plan to cancel the LPG subsidy altogether. New research suggests that the U-turn was the right move. Environmental economist Bjorn Larsen studied the effects of halving the LPG subsidy from its April 2018 level. LPG fuel retail prices in India remain substantially below the market, as determined by world prices and transportation and distribution cost. Halving the subsidy would, of course, save the government money. However, studying the effect in Rajasthan and Andhra Pradesh, Larsen finds that there would be a significant increase in indoor air pollution health problems, which would more than wipe out the benefits.
The new research uses benefit-cost analysis which captures social, environmental, health and financial costs and benefits of different policies. In this case, when the health effects are also included, Larsen finds that cancelling the LPG subsidy is a poor deal. A smarter approach, the research finds, is to target poor households with free LPG connections — effectively the Pradhan Mantri Ujjwala Yojana. It turns out that a free connection does not make most households permanently switch. Since the LPG stove is about as costly as the connection, and the fuel several times costlier per year, almost two-thirds of all households given a connection will continue to use or soon revert to mostly using polluting wood. Nevertheless, switching the last third of households to cleaner fuels will help save 5,000 lives every year in Rajasthan. The total annual cost for Rajasthan is estimated at ₹1,450 crore to reach 1.8 million households, but each rupee spent will generate more than three rupees’ worth of benefits.
Shifting from biomass to cleaner fuels is the only longer-term way of resolving indoor air pollution. But as a stopgap measure, promoting improved biomass cook-stoves that reduce the indoor air pollution can play an important role.