This version: August 2017. Updated: September 2017.

India's CO 2 emissions have risen by only 0.5% in the first 7 months of 2017 compared to the same period last year.

Preliminary analysis indicates that growth of CO2 emissions in India, the world's third-largest emitter, could slow dramatically in 2017.

Monthly data on consumption of coal, oil products, and natural gas, along with production of cement, indicate much slower growth over the first half of 2017 compared with the same period in the previous year.

However, indications are that underlying drivers will pick up in the second half of the year, lifting emissions growth. Moreover, there is no indication that this year's potential slow down is anything more than a temporary consequence of fluid conditions in India. Significant disruptions in economic activity caused first by the demonetisation shock in November 2016 and then the introduction of GST in July 2017 have left their mark on 2017's emissions.

[All growth rates reported in this article have been adjusted to reflect the leap year in 2016. All years are calendar years.]

Coal

We estimate that coal consumption has risen by 0.8% to July, compared with the same period in 2016. This is a considerable decline in the growth of coal consumption compared to the longer trend (7.5% pa over 2005-16).

While domestic coal sales are up, and power stations have been drawing down stocks, imports are down. Sales of domestic coal have increased by almost 6% to July, while sales of lignite have increased by over 9%. Imports have dropped dramatically by almost 18% to June, while power station stocks have been drawn down 4.2 Mt compared to 0.7 Mt in the same period last year.

Coal production typically ramps up significantly in March in preparation for the monsoon season, when production is curtailed by flooding. But despatches (deliveries, also known as offtakes) from coal mines follow a slightly smoother pattern through the year.

Data on total national sales from mines are unavailable, so we use the very strong relationship (R2=0.99) between the combined production of state-owned Coal India Limited (CIL) and Singareni Collieries Company Limited (SSCL) – together about 90% of all Indian coal production – and national production, along with an assumption that the delivery patterns of these two companies reflect national deliveries.

While coal production continues to increase (with increased targets despite lagging demand), the Central Electricity Authority (CEA) has said that, once the current tranche of construction is complete, no more coal-based power generation capacity will be required before 2027.

This does not mean that India's coal emissions have plateaued. Capacity utilisation at India's power stations remains stubbornly low, and there is plenty of scope for load factors to increase, with consequent growth in emissions, before new power stations are required. Demand has experienced various hiccouphs, including as a result of demonetisation, but another key reason that utilisation is low is that the majority of regional distribution companies (known as discoms) are in severe financial distress and cannot pay for the electricity to supply their customers. In May the tariff charged by state discoms was on average 0.82 rupees below what they pay for the power, leading to huge indebtedness: over 4 trillion rupees. With power stations not being paid, they are also in debt to Coal India to the tune of 80 billion rupees (as of May this year). The government has introduced a bailout package for discoms called Ujwal Discom Assurance Yojana (UDAY), which is already showing signs of success, but the process will probably take several years.

Meanwhile, the introduction of GST has reduced the taxation on coal from about 12% to 5%, and this is expected to lead to increased demand.

Oil products

We estimate CO2 emissions from energy-use of petroleum products in India increased by only 0.6% to June, compared to the same period in 2016. This compares with year-on-year growth of 8.3% from 2015 to 2016, but is similar to the low growth of 2012-13.

While the effects of the 2016 demonetisation linger, they are most likely temporary. Other initiatives are likely to have more permanent effects. One of these is the removal of subsidies for oil products.

The Indian government has taken advantage of low international oil prices to reduce and remove subsidies on some oil products, when the effect would be less noticeable. Prices of first diesel and LPG and now kerosene have been steadily rising toward market rates. Consumption of kerosene, commonly used in rural areas for both lighting and cooking, has dropped dramatically, over 30% lower in February 2017 year on year. The government's programme to electrify villages and its distribution so far of 250 million free LED light bulbs will go some way to reducing demand for kerosene, although subsidies will remain in place for the poorest households.

However, kerosene is only a small component of petroleum consumption in India, with diesel dominating. The introduction of GST in July this year is expected to greatly ease inter-state trade and transport logistics. Not only has the complexity of taxes been reduced, the overall level of tax on transportation has dropped dramatically, and freight costs are down by as much as 50% immediately following the introduction of GST. Such a significant drop in freight costs, and improvements in logistics, is likely to lead in a steep increase in the amount of road transportation and therefore emissions. In the short term, however, fully one quarter of India's trucks were idle at the end of July as their operators struggled to adjust to the new taxation scheme.

Natural Gas

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We estimate that emissions from natural gas grew by 5.7% to June compared to the same period last year. However, natural gas consumption forms only a small fraction of India's COemissions. Gas production remains low, and while India is already the world's fourth-largest importer of LNG , this is still at very low levels compared to overall energy consumption in the country. India does plan to increase import capacity significantly in the next few years, with one new LNG terminal already contracted and three more in the works, but there are no indications that gas consumption will rise significantly before the end of 2017.

Cement

Production of cement has declined by 7.2% to June compared with the same period in 2016. Much of this decline has been laid at the door of demonetisation, and levels have already begun to recover, after February's production was down almost 16% year on year. The introduction of GST in July has reduced the tax on cement from 30-31% to 28%, leading already to sales price reductions of about 3%; however, the lack of clarity about the new tax rates has contributed to lower sales. The government's massive infrastructure investment programme is expected to lead to higher cement production in coming months.

Renewables

Renewable energy generation in India has been growing sharply in recent years, with significant investment in both wind and solar generation. Reverse auctions for large solar installations have drawn particular attention for the rapidly declining prices per generated unit of electricity. But wind power capacity has also been expanding very rapidly.

These developments have significant consequences for the future of coal in India, with already 14GW of new coal capacity cancelled in May this year.

The introduction of GST in July has also affected the solar industry, with uncertainty over the new taxes stalling new tenders. The rapid price declines are also having the perverse effect of causing some states to postpone new auctions in the hope that prices will continue to fall.

Summary

India's CO2 emissions growth has almost certainly stalled in the first half of 2017. However, the economy is in a state of significant flux, with dramatic changes driven by government policy. It is therefore unclear how emissions will look through to the end of the year, and the coming months' new data are awaited with interest. Watch this space.