Why the Next Decade is Crucial for India to Fulfil Its Emission Goals

The world is in a climate emergency—decades of carbon emissions have left us all (on Earth) with just about seven and a half years before global temperatures hit a critical high and the effects of global warming become irreversible. To limit global temperature rise to 1.5° C, we need to cut emissions in half by 2030 and reach net zero by 2050. The world is acting now, and even though India is not amongst the top three carbon emitters, it has decided to take a leadership role in finding solutions.

Joining an increasing list of countries promising to achieve net zero emissions targets, India has promised to cut its carbon emissions to net zero by 2070 (albeit missing the goal of reaching the target by 2050). At the COP26 summit, India announced targets for 2030, too, which include 500 GW of non-fossil fuel-based electricity generation capacity; 50 per cent share of renewables in the energy mix; reducing carbon emissions by one billion tonnes, and reducing the country’s emission intensity (emissions per unit of Gross Domestic Product) by 45 per cent from 2005 levels. Even though India’s per capita energy use is lower than most developed nations (972 kilowatt-hours vs 12,235 kilowatt-hours in the US in 2020 as per Our World in Data, for instance), its per capita energy consumption will surge multi-fold from the current levels in the next 50 years.

Achieving the commitments makes for an arduous task ahead, and would require all the major stakeholders—government, policymakers, corporates and even citizens—to come together and collaborate. “India is known to have limited contributions to GHG inventories historically and has very pressing growth imperatives. The country is growing through rapid urbanisation and industrialisation, leading to growing demands for energy. India is aiming to nearly quadruple its economy from around $2.75 trillion today to about $10 trillion by 2030. Doing it with the desired climate change objectives will need sectoral transformations that are effective and equitable,” says Atul Bagai, Head, UN Environment Programme, Country Office, India.

As 2070 is about 50 years from now, and many uncertainties prevail on the technology innovation front and financing models for good development, to reach its net zero goal, the country will need to make significant progress in lowering emissions starting now.

Solving the net zero equation will require many critical unlocks from the government. Companies, too, will have to get into the net zero arena with some urgency. “There are five industries that contribute to the majority of our emissions—this includes power (more than 40 per cent of our emissions), iron and steel, cement, transportation, and agriculture. These are followed by other industries like refining, chemicals, etc. These are the areas where substantial investments will need to be seen over the next few years to reach our net zero targets,” says Rajat Gupta, Senior Partner, McKinsey & Company.

Energy Transformation

The energy sector accounts for ~40 per cent of the GHG emissions of the world’s fourth-largest emitter of carbon emissions. India’s energy generation depends on fossil fuel (59.8 per cent), with coal alone contributing to 51.7 per cent and renewable energy contributing to 38.5 per cent. Yet there is a pressing need to decarbonise the energy sector, which would require replacing fossil fuels with renewables, reducing fossil CO2 emissions from old power plants, and removing unavoidable carbon emissions through carbon sequestration. “Estimates show that in order to achieve net zero in 2070, installed power capacity on solar should increase to 5,630 GW, use of coal needs to peak by 2040 and go down by 99 per cent between the years 2040 and 2060, and crude oil consumption should peak by 2050,” says Bagai. India has already taken several initiatives to push for renewable energy through solar and wind. In April last year, the government announced a Production Linked Incentive Scheme—National Programme on High Efficiency Solar PV Modules—to achieve gigawatt (GW) scale in high efficiency solar PV modules. In August, it proposed a set of rules for promoting the country’s purchase and consumption of green energy. The latest is the infusion of Rs 1,500 crore in the Indian Renewable Energy Development Agency (IREDA) for helping create renewable energy capacity of 3,500-4,000 MW and enabling lending of Rs 12,000 crore to the renewable energy sector.

“India’s situation is particularly challenging since it is among the largest high-growth economies and growth is energy hungry. The second challenge is the large high-carbon installed capacity base that has economic life left and, hence, is not easy to unwind. However, new assets will necessarily have to be low carbon and existing high-carbon resources will have to be progressively retired,” explains Anish De, National Head – Energy, Natural Resources and Chemicals, KPMG in India.

Another big bet is hydrogen, which the International Energy Agency believes can help India meet different energy challenges. The clean energy sourced from hydrogen is believed to help many industries decarbonise sectors such as power, steel and oil refineries, cement factories, ports and logistics. Focussing on meeting its climate targets, Prime Minister Narendra Modi had announced the National Hydrogen Mission, and India’s big players have already entered this space.

However, just adding generation capacity isn’t going to help. “Implementation of reforms in the distribution segment remains important,” says Rohit Ahuja, Head of Research and Outreach, ICRA Limited.

Fixing Transportation

As the next decade will set the template for achieving 2070’s goals, India’s emission reduction targets for 2030 also prioritise transportation. The mobility sector contributes to almost half of India’s overall oil demand and is unsustainably inclined towards road-based transportation. There is also a need for a shift in modal mix from road to rail, and fuel diversification from biofuels, CNG, LNG to electricity and hydrogen in the medium to long term. Electric vehicle (EV) penetration, the high upfront cost of EVs, and the lack of charging infrastructure are some of the immediate steps India should focus on. In 2015, the government adopted the Faster Adoption and Manufacturing of Hybrid and EV (FAME) scheme that provided subsidies for electric two- and three-wheelers, hybrid and e-cars and buses. This policy was scaled up with FAME II that provides upfront incentives on the purchase of EVs and supports the deployment of charging infrastructure.

Tackling Emissions

While India is heavily focussed on the energy sector and transportation, industry leaders believe it will have to make significant progress in lowering emissions in manufacturing, urban transportation, agriculture and food, amongst others. Manufacturing is a major contributor to India’s GHG emission inventory. Iron, steel, cement, chemicals and fertilisers contribute dominantly to industrial CO2 emissions. But controlling carbon emissions is challenging in the backdrop of a fast-growing economy.

“However, we have seen initiatives from certain corporates targeting net zero emissions at the entity level. Corporates are setting clean energy procurement targets to achieve their sustainability goals. Government can support initiatives and spread awareness,” says Ahuja. But decarbonising these sectors will need a multi-pronged approach of demand-management; energy-efficiency improvements; shift towards electrification; carbon capture utilisation and storage; and use of low-carbon fuel-technology choices. Even the new investment decisions will have to be taken keeping decarbonisation in mind. De of KPMG says technical solutions exist in these sectors, but cost points will come down only with broader adoption.

Over the past decade, firms have been trying to reduce Scope 1 and Scope 2 emissions that are closer to the core but very few targets to reduce Scope 3 emissions— which make up 65-95 per cent of a company’s emissions, according to the Carbon Trust findings—have been made. Evidently, the impact will be limited if companies ignore Scope 3 emissions in their race to net zero. “Measuring emissions from direct (from a company’s own activities), and indirect (from the generation of purchased electricity and along the value-chain) sources, implementation of strategy for reducing and finally eliminating these emissions and execution will be key to controlling emissions at entity level. For example, a company may find it simple to replace its cars with electric vehicles or to sign a contract for solar electricity or have its own captive RE plant,” explains Ahuja of ICRA.

Other factors contributing to GHG are cities and agriculture. The former contribute heavily to India’s GHG inventories, and the top 25 cities are estimated to have a share of more than 15 per cent in overall GHG emissions. Urban planning needs to account for transit-oriented urban development, reducing travel demands, intelligent transport infrastructure, and low-carbon buildings, construction and operations. While agriculture is not a major contributor to CO2, it is a large contributor to nitrous oxide and methane emissions. There is a need to spread awareness on the issue, enabling farmers to adopt practices to reduce emissions of these GHGs. The use of solar pumps, precision agriculture, and sustainable animal husbandry are some options. Last but not least, Bagai says halting deforestation and restoring degraded ecosystems can reduce emissions.

Need for Big Bucks

The success of interventions in these sectors will depend on the availability of finances. “Some estimates are now available. For example, the Centre for Energy Finance estimates that for achieving net zero, India will need about $10 trillion (Rs 700 lakh crore),” says Bagai. “About $8.4 trillion will be to scale up renewable energy generation and relevant infrastructure; and about $1.5 trillion for setting up green hydrogen production for industrial decarbonisation.” While this is an opportunity for India to unlock the huge potential of domestic investments through innovation in green finance instruments, there is also a need for the developed nations to meet their commitments and boost climate finance to developing countries.

Sunil Duggal, Group CEO of Vedanta Ltd, explains “A big chunk has to come from advanced countries who are responsible for creating the problem of climate change. Only a limited amount can come from the [Indian] government as the budget is limited and has so many competing claims. A significant portion can come from multilateral institutions in the form of concessional loans. The biggest part must come from the private sector, from banks, equity investors, as they shift focus from business as usual to the new, emerging sectors and technologies.” He says at least $100 billion a year will be required to achieve this goal.

India will also need to adopt a clear and consistent taxonomy for green finance, which can reduce transaction costs, and develop a pipeline of green projects. The country must also explore a formal carbon pricing and trading framework to ensure that costs of climate change become a criterion for fuel and technological choices, and investment and lending decisions.

Gupta of McKinsey says most of the technologies required will be developed and will mature over the next 10 years or so. If India wants to take the lead in becoming a global green manufacturing hub, this decade is the time to do it. In view of growing energy demands and serious environmental concerns, the next decade will be crucial for India, to ensure delinking economic growth with carbon emissions. The government will have to continuously draw and redraw the overall policy framework for the energy transition. Industry must voluntarily and sensibly make operations sustainable, even if it means a compromise with profitability in the short run. Similarly, every stakeholder needs to ask itself if its every action is leading to making this world a better place to live or not. “Achieving net zero by 2070 will depend upon progress made by 2030. A total mindset change from all stakeholders has to take place in the next 10 years. After that, we will move to auto pilot,” says Duggal of Vedanta.

The government would need to monitor the progress closely, on an ongoing basis. If things go right, this could be the biggest global story of the next decade—India rising as an economic powerhouse with sustainability and climate mitigation inextricably linked to it. No other country has attempted this so far.

@nidhisingal