Simmering prices turn LPG knob to the low

Experts who are not climate deniers by any stretch of the imagination, vigorously push for fossil fuel subsidies, for special cases like LPG for cooking.

Renewable energy-based cooking options have significant scale-up challenges in India. Studies have shown that biogas plants are complex to manage and have feedstock supply issues even at the demonstration/ the pilot scale. Solar cookers unfortunately have not yet reached technological maturity to emerge as an affordable on-demand cooking solution: the typical peak cooking periods (early morning and late evening) are off-peak solar energy hours.

Electricity in India is not reliable enough for the widespread use of electric induction stoves. Unlike the Western countries, where only exceptional situations (such as disasters) force interruptions in power supply, power cuts are more common in India.

The situation has worsened in recent months even in the urban centres. In such a case, will one be comfortable depending on a technology that may not be operational when it is time to cook? No one should be at mercy of a power supply company when the children in the house are hungry. Also, 51% of India’s electricity generation capacity is from coal-fired power installations.

LPG is a better choice than the alternatives

Hence, people, especially in peri-urban and rural India, are left with the option of burning solid fuels to meet their cooking energy needs. They can collect (or purchase) firewood, agricultural residues and dried cattle manure to burn them in mud stoves or chulhas. Due to inefficient combustion, the smoke from these stoves results in household air pollution.

One study estimated that an Indian household solely using solid fuels for cooking, has an average 24-hour PM2.5 concentrations (particulate matter), in the kitchen and living areas of 450 μg/m3 and 113 μg/m3 respectively.

To put these numbers into perspective, the World Health Organization has recommended that the safe 24-hour average exposure limit is 15 μg/m3 of PM2.5 concentration. About 1 million premature deaths in India are attributed to household air pollution, according to a study by researchers at World Resources Institute, India.

Moreover, as women and girls are primarily responsible for the collection of solid fuels, it leads to opportunity loss related to education/ economic activities and increased drudgery. It also contributes to the degradation of forest areas.

One study has highlighted that solid fuel-based cooking practice is a barrier to at least five sustainable development goals. Also, while firewood, in theory, is renewable, another study has shown that LPG can be more climate-friendly than unsustainably harvested firewood.

Now, we turn our attention back to the key question of ‘How to retain LPG as the people’s choice when the alternatives are worse off from a development?’, and even the climate perspective, or, simply not scalable. While behavioural campaigns have a role to play, subsidies are critical especially at high price levels.

A typical family of five would need at least seven cylinders a year to meet all their cooking energy needs, i.e. spend at least Rs. 7,000 per year at the current price. In just the last 12 months, prices have increased from Rs 834.50 to Rs. Rs 1,053 in New Delhi, a hike of 26 percent. With global price volatility, there is no assurance that the prices would not increase further from the current levels.

The Indian government seems to have taken a considered stand that given the fiscal challenges with a slowdown in the economy, there is little room to subsidise LPG. The government has recently made a provision of a subsidy of Rs. 200 per 14.2 kg cylinder only for 90 million beneficiaries of the Pradhan Mantri Ujjwala Yojana (PMUY), under which only poor and socially-disadvantaged women are enrolled.

But can the 90 million PMUY beneficiaries afford LPG at the cost of Rs. 800? Also, can everyone in the rest of the 210 million non-PMUY consumers afford LPG at the cost of Rs. 1000? What happens if the price rises even higher?

The PMUY did a commendable job to empower poor women to use clean cooking fuel for the first time in their lives via the capital cost subsidy. They had significant cleaner air in their kitchens which led to a 13% reduction in premature deaths related to household air pollution.

There was also a modest increase in the refill rates over time. However, these gains are now fading away as all anecdotal examples suggest a steep decline in PMUY refill rates. These consumers still need to cook food; so, they are migrating to the worst option during economic distress – solid fuels.

Support options for LPG

I propose three novel mechanisms to make LPG more affordable, beyond demanding more subsidies from the Ministry of Petroleum and Natural Gas (MoPNG).

First, promoting carbon credits for LPG use by PMUY beneficiaries and setting up institutional mechanisms to facilitate its scale-up. Carbon credits for fossil fuels may sound like an oxymoron, but given the context, and the lack of better alternatives, it could become a viable funding mechanism riding on the massive co-benefits of clean cooking.

Second, looking beyond MoPNG and roping in other governmental and non-governmental entities to contribute to the LPG subsidy basket. If any philanthropy that is interested in maternal health wants to subsidise LPG for pregnant women and new mothers in a specific area for a specific time period, ease in the system should be facilitated to receive such funding.

They should be able to seamlessly inform the MoPNG about their target details and make payments easily. Encouraging companies to spend their corporate social responsibility (CSR) funding to subsidise the poorest and the most vulnerable citizens can materialise in a significant cash inflow to the LPG subsidy pool.

Third, expanding microfinance via a digital LPG bank leveraging the huge popularity of the fintech platforms. It targets people who can afford the price of LPG but are unable to put up the cash upfront immediately. A digital LPG bank can create a safe space for consumers to save and take loans for LPG purchases.

Digital savings, potentially earmarked for LPG, can give households a secure place to put their cash in between cylinder purchases. Deposits to such LPG accounts can be incentivised via discounts.

A short-term, easy-to-access, auto-approved loan (without paperwork and manual permission) would allow consumers with no/limited credit history records to purchase the next cylinder and continue using LPG if their cylinder runs out between paychecks or when they otherwise lack the cash on hand for immediate purchase. To avoid misuse, the shortfall (loan) amount can be credited directly to the distributor after the user exhausts their LPG account savings.

As for-profit companies, the mobile payment platforms should be incentivised via a risk-sharing agreement with the oil marketing companies, wherein both parties share the risk burden of non-repayment of the loan.

Manual approvals and loan recovery for small-ticket items are not cost-effective from a microfinance company’s perspective. The mobile payment platforms also get access to millions of consumers at the bottom of the pyramid to boost advertisement revenue as well as other products and services.

This article first appeared on Mongabay here