Liquefied Natural Gas can serve as the ideal bridge to sustainability for India, as the country seeks to drastically reduce greenhouse gas emissions and transform itself into a green economy, while still maintaining a rapid rate of growth.
Though still a fossil fuel, natural gas is far cleaner than the solid fuels (coal, wood, briquettes, etc.) and liquid fuels (furnace oil) that currently powers the majority of India’s industry and the liquid fuels (petrol, diesel) that fuels its transport sector.
With the potential to wean India off its reliance on polluting fossil fuels, greater use of LNG can buy the country time as it transitions towards an economy majorly powered by renewable energy, helping it cut emissions without curbing economic growth.
But for the country to harness the full potential of LNG it needs an enabling framework, similar to the framework driving greater adoption of EVs. At the moment, there is promising draft legislation in the works but no set policy. As this legislation assumes concrete shape, here’s what we think it should contain if it is to truly accelerate LNG adoption.
Harmonisation of taxation
The reason coal is so widely used is because relative to LNG, it is cheap. One of the key reasons for this is the tax structure. Coal is taxed according to the GST regime which means it can be adjusted against the GST levied on the goods produced using that fuel. Natural Gas meanwhile, and this includes LNG, PNG and CNG, is taxed in accordance with the VAT regime, meaning it is not eligible for input credits the way coal is. This makes natural gas much more expensive than polluting fuels like coal. Narrowing the commercial advantage dirtier fossil fuels have by harmonising the tax code is key to making cleaner fuels financially competitive.
Incentivising LNG-powered equipment
One way to boost LNG use is to borrow a page from the EV playbook and incentivise a conducive environment for the increased use of cleaner equipment powered by LNG. This can be done by lowering GST rates on equipment used in building mono-fuel machines that run solely on LNG. A special, lower GST rate can also be applied on vehicles using LNG, similar to the incentives offered on EVs while on the other hand levying a green cess to disincentivise engines running on polluting fuels. A special ‘blue’ number plates, similar to the ‘green’ number plates used on EVs, can be introduced for LNG-powered vehicles making them eligible for lower road taxes and tolls.
One of the key measures to enable an LNG-friendly ecosystem is putting in place the required infrastructure. As EV policies have shown, there’s no point rolling out an enabling framework without the infrastructure to back it up. To be truly effective, India needs to set up LNG terminals, establish retail outlets, and create a virtual pipeline network by building a transportation, distribution and manufacturing backbone for LNG-powered vehicles. Moreover, the accountability framework needs to be strengthened, the approvals process needs streamlining via measures like single-window online clearance portals.
Bridging the skills gap, making tech affordable
India also needs a skilled workforce that can handle LNG safely – skills like cryogenics for instance need to be incorporated into engineering curricula. Start-ups should also be encouraged to harness their entrepreneurial zeal so we can have home-grown and therefore cheaper LNG technology. India is a hotbed of startup activity, we should be harnessing this entrepreneurial spirit via measures like tax holidays to drive the technological evolution of the LNG sector.
LNG is an indispensable part of India’s energy mix if it wants to truly achieve its climate goals and commitments. Renewable energy is the future but the path to that future is paved with LNG.
A robust LNG ecosystem is crucial to India fulfilling its COP26 commitments. A few of the ideas mentioned here will go a long way in making India a green economy.