Natural Gas and India's net zero targets

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  Natural Gas and India's net zero targets

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• The story: The world is focusing on net zero carbon targets as a way to mitigating climate change. India is also contemplating the concept of “net zero carbon emissions” and the appropriate target year for achieving it.
• From fossil fuels to green fuels: In this pursuit, India must first “green” its fossil fuel energy basket. This is possible by increasing the share of natural gas (NG). But the natural gas economy requires policy reforms cutting across all segments of the natural gas value chain from production (domestic and international) to transportation (pipeline and LNG) to markets (current and emergent) to commercial (pricing, taxation) and regulatory issues.
• Natural gas: NG has multiple uses and it is the “greenest” of all fossil fuels. It is abundantly available in and within the Indian subcontinent. It is a feasible prospect because it will not generate the headwinds due to shutting down of coal mines. It will not require industries to invest heavily in retrofitting their systems. It will allow the government to meet its objective of providing secure and affordable energy to everyone without degrading the environment. The average global share of fossil fuels in the energy basket is 84% which is even more for India. According to the International Energy Agency (IEA), India is the world's third largest consumer of oil. Dependence on coal and oil needs to be reduced and natural gas has to be replaced as much as possible.
• Challenges associated with NG: There are many -

1. Distortions in pricing - The pricing of natural gas is based on multiple price formulae. There is differential pricing for gas produced from domestic fields by the public sector companies and private companies. There also is differential pricing for production from deep waters offshore under high temperature etc. To build competitive pricing is tough in this scenario. 
2. Regressive taxation: It is a cascading structure so that the tax rates increase as the gas flows from one zone to another. This means that customers located at a distance from the source of gas pay a higher price than those closer to the source. The result is the dampening of demand. Gas is out of GST.
3. Conflict-of-interest: The Gas Authority of India Ltd (GAIL) is currently engaged in the production, transportation and marketing of gas. This allows GAIL to leverage its ownership of the bulk of the gas pipelines to deny its competitors access to the market. Countries have tackled this conflict-of-interest situation by separating the upstream (production/import) and downstream (marketing) interests from transportation.
4. Centre-States issue: Completion of a national pipeline grid gets affected due to clashes between Centre and state over issues like land acquisition, pipeline routing; and royalty payments. Centre-state differences have also delayed the construction of import facilities and the creation of gas markets.

• Summary: A key aspect of ensuring market reforms to boost gas economy, would be deregulation of pricing for domestically produced gas. It will allow freedom to price and market domestic gas and in turn boost domestic production, making it more viable for players to invest. The market-determined and affordable pricing would also boost industrial growth and economic competitiveness. These markets have greatly benefited from factors such as open access to infrastructure, system operator, unbundled marketing and transport functions and market-friendly transport access and tariff besides strong pipeline infrastructure. The institutional mechanism should be created to enable better coordination between the central and state governments. Through ensuring price benchmarks, it will drive competition across the value chain and stimulate investments in exploration and production along with downstream infrastructure. Factors such as inclusion under GST and an overarching regulatory framework will also play an important role in boosting the overall gas markets.

Read more on - Polity | Economy | Schemes | S&T | Environment

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