Page 2 - Can Subsidies be a Tool for Strengthening the Improved Cookstoves Market?
P. 2
Policy Brief
TERI partnered with the Department of International Development (UK) to roles in the improved cookstoves value chain. Markets
disseminate more than 50,000 forced-draft improved biomass cookstoves in catering to poor rural households involve a constellation
India. The primary aim of the programme was to develop sustainable local of diverse stakeholders in the value chain.6 Past studies
markets for improved cookstoves across India. TERI worked in 19 states of India, on improved cookstoves dissemination have emphasized
experimenting with a variety of technologies and business models. The programme that distributors, manufacturers, non-governmental
succeeded in developing 31 local business models for dissemination of cookstoves, organizations (NGOs), rural entrepreneurs, and financial
involving six manufacturers, ten distributors, 220 rural retailers, 29 NGOs, and institutions play crucial roles in invigorating and sustaining
11 financial institutions. the market.7 TERI recognized the inextricable role of each
of these stakeholders in improved cookstoves value chain,
It seeks to suggest mechanisms that may be employed apportioning subsidies to all involved stakeholders for
to make improved cookstoves subsidies market-friendly, supporting their value-chain specific activities. The table
maintaining the pro-poor approach of the Unnat Chulha (see page 3) shows the role of each stakeholder in the value
Abhiyan (UCA). chain, and the intent of subsidization.
Defining the Role of Subsidies for Owing to lack of organization of the market and
Improved Cookstoves low demand for improved cookstoves, stakeholders in
the value chain incur high costs and face heavy risks in
The primary role of subsidies in the National Programme the business. Providing performance-based subsidies to
for Improved Cookstoves was to bring down the cost of diverse stakeholders playing critical roles in the improved
the cookstoves, and thus enhance adoption. The UCA, on cookstoves value chain enables holistic development of the
the other hand, intends to develop local markets for sale of market. Instead of providing a direct subsidy to a single
improved cookstoves, using subsidies as a tool to achieve entity in the entire value chain, government-run improved
this end. However, the current design of subsidies in the cookstoves programmes such as the UCA must aim at
UCA continues to employ subsidies as a means to reduce dividing the subsidies across the value chain. Not only will
cost of improved cookstoves for end-users. If subsidies it strengthen the value chain in its entirety, it will encourage
are to achieve their desired intent, they must ideally be higher participation of all value chain actors in the improved
utilized for seeding the market and strengthening market cookstoves market.
value chains. There is still not much clarity on how subsidies
can actually be utilized to strengthen the market, beyond How much to subsidize?
serving as a means to reduce the cost of the product.
Excessive subsidies on improved cookstoves have been
Targeting subsidies across the improved cookstoves known to render large-scale cookstove programmes
value chain unsuccessful in the long run.8 TERI allowed considerable
flexibility in the amount of subsidies given to value chain
The UCA aims to ‘develop business models for actors across business models and technology types.
commercialization’ of improved cookstoves through However, the focus was on subsidizing the supply chain
‘delivery models leveraging public–private partnerships’. costs of improved cookstoves (other than the manufacturing
However, it does not distinctly mention the type of market costs) in order to build the capacities of market actors.
or non-market actors who will be eligible for subsidy In each case, the following cost heads were subsidized
under the programme. Subsequent notifications by State under the programme:
Nodal Agencies implementing the UCA, have issued Cost of awareness generation
notifications inviting approved5 improved cookstove Transport costs from manufacturer to retailer
manufacturers to apply for subsidy under the programme. Commercial taxes
In its current mode of implementation, subsidies are
directed only to ‘manufacturers’ or ‘developers’ of 6 Dorward, Andrew, et al. Institutions, markets and economic
improved biomass cookstoves, leaving out a range of co-ordination: Linking development policy to theory and
market and non-market stakeholders that play crucial praxis. Development and Change 36.1(2005): 1–25.
5 41 models approved by the Ministry of New and Renewable Energy, 7 Bailis, Rob, et al. Arresting the killer in the kitchen: The
Government of India, as on July 1, 2015. promises and pitfalls of commercializing improved cookstoves.
World Development 37.10(2009): 1694–1705.
8 Barnes, Douglas F., et al. What makes people cook with improved
biomass stoves?. Banco Mundial, 1994.
2 APRIL 2015
TERI partnered with the Department of International Development (UK) to roles in the improved cookstoves value chain. Markets
disseminate more than 50,000 forced-draft improved biomass cookstoves in catering to poor rural households involve a constellation
India. The primary aim of the programme was to develop sustainable local of diverse stakeholders in the value chain.6 Past studies
markets for improved cookstoves across India. TERI worked in 19 states of India, on improved cookstoves dissemination have emphasized
experimenting with a variety of technologies and business models. The programme that distributors, manufacturers, non-governmental
succeeded in developing 31 local business models for dissemination of cookstoves, organizations (NGOs), rural entrepreneurs, and financial
involving six manufacturers, ten distributors, 220 rural retailers, 29 NGOs, and institutions play crucial roles in invigorating and sustaining
11 financial institutions. the market.7 TERI recognized the inextricable role of each
of these stakeholders in improved cookstoves value chain,
It seeks to suggest mechanisms that may be employed apportioning subsidies to all involved stakeholders for
to make improved cookstoves subsidies market-friendly, supporting their value-chain specific activities. The table
maintaining the pro-poor approach of the Unnat Chulha (see page 3) shows the role of each stakeholder in the value
Abhiyan (UCA). chain, and the intent of subsidization.
Defining the Role of Subsidies for Owing to lack of organization of the market and
Improved Cookstoves low demand for improved cookstoves, stakeholders in
the value chain incur high costs and face heavy risks in
The primary role of subsidies in the National Programme the business. Providing performance-based subsidies to
for Improved Cookstoves was to bring down the cost of diverse stakeholders playing critical roles in the improved
the cookstoves, and thus enhance adoption. The UCA, on cookstoves value chain enables holistic development of the
the other hand, intends to develop local markets for sale of market. Instead of providing a direct subsidy to a single
improved cookstoves, using subsidies as a tool to achieve entity in the entire value chain, government-run improved
this end. However, the current design of subsidies in the cookstoves programmes such as the UCA must aim at
UCA continues to employ subsidies as a means to reduce dividing the subsidies across the value chain. Not only will
cost of improved cookstoves for end-users. If subsidies it strengthen the value chain in its entirety, it will encourage
are to achieve their desired intent, they must ideally be higher participation of all value chain actors in the improved
utilized for seeding the market and strengthening market cookstoves market.
value chains. There is still not much clarity on how subsidies
can actually be utilized to strengthen the market, beyond How much to subsidize?
serving as a means to reduce the cost of the product.
Excessive subsidies on improved cookstoves have been
Targeting subsidies across the improved cookstoves known to render large-scale cookstove programmes
value chain unsuccessful in the long run.8 TERI allowed considerable
flexibility in the amount of subsidies given to value chain
The UCA aims to ‘develop business models for actors across business models and technology types.
commercialization’ of improved cookstoves through However, the focus was on subsidizing the supply chain
‘delivery models leveraging public–private partnerships’. costs of improved cookstoves (other than the manufacturing
However, it does not distinctly mention the type of market costs) in order to build the capacities of market actors.
or non-market actors who will be eligible for subsidy In each case, the following cost heads were subsidized
under the programme. Subsequent notifications by State under the programme:
Nodal Agencies implementing the UCA, have issued Cost of awareness generation
notifications inviting approved5 improved cookstove Transport costs from manufacturer to retailer
manufacturers to apply for subsidy under the programme. Commercial taxes
In its current mode of implementation, subsidies are
directed only to ‘manufacturers’ or ‘developers’ of 6 Dorward, Andrew, et al. Institutions, markets and economic
improved biomass cookstoves, leaving out a range of co-ordination: Linking development policy to theory and
market and non-market stakeholders that play crucial praxis. Development and Change 36.1(2005): 1–25.
5 41 models approved by the Ministry of New and Renewable Energy, 7 Bailis, Rob, et al. Arresting the killer in the kitchen: The
Government of India, as on July 1, 2015. promises and pitfalls of commercializing improved cookstoves.
World Development 37.10(2009): 1694–1705.
8 Barnes, Douglas F., et al. What makes people cook with improved
biomass stoves?. Banco Mundial, 1994.
2 APRIL 2015
