Venugopal Mothkoor, Rajnath Ram


The economic growth of India is among the highest in the world, the scale of transformation happening is stunning that has lifted millions of people out of poverty. As India aspires to become a developed nation by 2047, this calls for significant buildup of infrastructure and expansion of manufacturing base which in turn gives as rise the energy demand by 2-2.5 times from the existing level. India is among the few countries which have been successfully managing the emerging trilemma (energy affordability, energy security and sustainability) despite global economic turbulence and rising energy costs. Renewables and Nuclear power will play critical role in energy transition but we cannot wish away using coal sustainably to meet the energy demand.

BROKEN RECORD

2023 World Emissions Gap report, titled “Broken Record,” highlights that temperature records are continually being broken, while emissions also continue to increase. The report emphasizes that the emissions gap is as large as 24 Giga tonne (under a 2°C scenario) and 36 Giga tonne (under a 1.5°C scenario) in 2050, even when unconditional Nationally Determined Contributions (NDCs) and Net Zero pledges are taken into account. The first Global Stock Take (GST), undertaken in 2023 during the Conference of Parties COP28, clearly notes that there are pre2020 gaps among the developed economies.

The GST minces no words when it states that 4/5th of the total carbon budget (with a 50% probability of limiting the temperature rise to 1.5°C) is already consumed. Furthermore, most developed nations have peaked in the past (USA: 2007, Germany: 1990, and France: 1991), and their NDCs currently call for net zero by 2050.

India is a climate action leader and is effectively managing energy trilemma: Contrary to fossil-fuel-led economic growth witnessed in developed economies, India’s development is largely low-carbon and inclusive. Until 2021, India’s contribution to cumulative global Greenhouse Gas (GHG) emissions is less than 4%, and India’s per-capita emissions are 1.9 tons in 2021, which is less than half of the world average of 4.7 tons, 1/4th of China, and 1/7th of the percapita emissions of the United States.

India is among the best-performing countries in the Climate Change Performance Index (CCPI 2023) and is rated the best among G-20 countries. India ranks 3rd in the world in terms of installed renewable energy capacity. India has raised its ambition by submitting revised NDCs, which include: i) increasing the non-fossil share to 50% by 2030, ii) reducing the emission intensity of GDP by 45% by 2030 over 2005 levels, and iii) increasing the carbon sink to 2.5-3 billion tons by 2030. Against these targets, India has already achieved a non-fossil-based capacity of 43.7%, an emission intensity reduction of 33%, and an additional carbon sink of 1.97 billion tons. The Government of India has announced several policy measures to decarbonize the economy, including Renewable Purchase Obligations, Green Hydrogen Mission, Solarization of the agriculture sector, Viability Gap funding for energy storage, PLI scheme for highefficiency solar cells and modules, PLI scheme for Advanced Chemistry Cell Manufacturing, etc.

India is among the few countries that have successfully managed the emerging trilemma (energy affordability, energy security, and sustainability) despite global economic turbulence and rising energy costs. Some of the major achievements include:

  • While ensuring energy access and affordability, the government has provided last-mile connectivity and electricity connections to all households. The electricity tariffs in India are kept stable by the government, especially when prices rose worldwide, particularly in Europe due to the Russia-Ukraine conflict. The residential electricity tariffs in India are kept reasonably low at $0.07/KWh, compared to $0.52/KWh in Germany and $0.18/ KWh in the United States, to meet the huge developmental aspirations of a growing economy. Access to clean cooking fuels for the poor population is heavily subsidized through government programs. Under Pradhan Mantri’s Ujjwala Yojana (PMUY), the government has provided clean cooking access to 98 million targeted households through LPG connections. Due to such pro-poor measures, India has successfully lifted 135 million people out of multi-dimensional poverty during 2015-16 to 2019- 20.
  • To address the issue of energy security, India has been making consistent efforts to diversify its resources through increased adoption of renewables/clean fuels, mandates such as ethanol blending and Compressed BioGas (CBG) blending, increased domestic exploration and production of oil and gas resources, increased demand for electrification, and the promotion of various energy efficiency measures. India has also increased the number of crude suppliers to the country from 27 countries in 2006-07 to 39 in 2021-22.

INDIA’S DEVELOPMENTAL ASPIRATIONS

Today, India is the fifth-largest economy and the third-largest energy consumer in the world. According to IMF 2023 estimates, India’s per capita income is about $2.6 thousand USD, compared to countries like Japan with a per capita income of $33.95 thousand USD, South Korea with $33.15 thousand USD, and the USA with $80.41 thousand USD. India’s per capita primary energy consumption, which is 1/5th of China’s and 1/10th of the US, will increase considerably as India aspires to become a developed nation by 2047. While the goal of a developed economy implies significant growth in urban, industrial, and infrastructural services, and consequently energy requirements, the goal of energy independence means reducing and diversifying energy imports, ensuring stable and affordable energy prices, and maintaining a reliable supply of energy.

INDIA’S GREEN GROWTH STRATEGY

The Indian government has identified Green Growth as one of its priorities. Compared to the limited extent of decoupling emissions from growth seen in developed countries, India’s developmental trajectory reflects low energy consumption and low emissions. The key elements of Green Growth, as outlined in India’s LongTerm Low Emissions Development strategy, include:

i) Increase in non-fossil-based electricity installation systems

ii) Develop an integrated, efficient, inclusive low-carbon transport system

iii) Promote adaptation in urban design, energy, and material efficiency in buildings, and sustainable urbanization

iv) Promote economy-wide decoupling of growth from emissions and the development of an efficient, innovative low-emission industrial system

v) CO2 abatement and related engineering solutions

vi) Enhancing forest and vegetation cover consistent with socio-economic and ecological considerations.

The green growth model also aims to be inclusive (with affordable tariffs) by promoting access to modern clean energy for all, leaving no one behind. Technologies should not only be lowcarbon/green but also capable of delivering energy at affordable prices.

It is often argued that electricity prices will come down with a higher share of renewables, as they have zero or low operational costs. However, these arguments ignore the fact that there is a significant capital cost in the setup of Renewable Energy (RE) and also large grid costs. A recent study by McKinsey finds that the delivered cost of electricity will be 20% higher in 2050 than in 2020 due to an increase in costs associated with grid flexibility, transmission, and distribution. A recent study by the Forum of Regulators in India finds the total tariff cost of delivering RE-based energy is Rs 4.11 per unit, which is more expensive than the average tariff of a nuclear plant at Rs 3.43 in 2019. Intermittency will be the main factor that pushes costs up as we approach closer to net zero. The rising electricity prices can place an enormous burden on an economy with huge developmental aspirations.

ROADMAP FOR FUTURE ENERGY TRANSITION

The Green Development Pact negotiated during India’s G20 Presidency outlines the need for the development of clear national pathways that align long-term ambition with short- and medium-term goals. NITI Aayog has released the India Energy Security Scenarios (IESS) 2047, a scenario-building tool that can be leveraged to develop decarbonization pathways for the country until 2047. As India has embarked on achieving Net Zero by 2070, the following changes are observed in the energy mix until 2047 under Business as Usual (BAU) and Net Zero scenarios:

  • Growing Energy Demand: Energy needs will grow by 2-2.5 times to meet the developmental aspirations of a growing economy. India’s percapita primary energy consumption will almost double from 7,017 kWh in 2022 to 12,547-13,477 kWh by 2047.
  • Doubling of Demand Electrification: Demand electrification is expected to more than double by 2047 and reach 40% from current levels of 19%. The electricity sector, which accounts for almost 40% of total greenhouse gases (GHGs), is critical for India to decarbonize. According to many research studies, decarbonization of the electricity sector should be the primary focus for India to reach net zero by 2070.
  • Increase in Non-Fossil Capacity: India’s installed capacity of nonfossil is expected to increase from 43.7% to 61%-65% by 2030 and 85%-90% by 2047. Renewable Energy (RE) capacity is expected to grow from 177 GW in 2023 to 512 GW by 2030 and 1819 GW in 2047 in the Net Zero scenario.
  • Share of Coal in Primary Energy Mix: Coal, which accounts for almost 50% of the primary energy in 2022, will see its share decline to 29%-37% by 2047 due to a shift towards clean fuels. However, coal continues to play a critical role despite the rapid growth of RE due to the high cost of energy storage. To maintain electricity tariffs within an affordable range for addressing energy poverty and meeting the growing energy demand, India will continue to rely on coal. Coal adoption, however, will tilt towards clean coal technologies such as Coal Gasification with Carbon Capture Storage (CCS), Carbon Capture Utilization and Storage (CCUS), and Coal to Chemicals.
  • Role of Nuclear Energy: Being among the lowest life cycle emission fuels, nuclear will play a major role in the decarbonization of the electricity sector. The share of nuclear power is expected to increase from 1.6% in primary energy to 12.5% in 2047.
  • Lower Emissions: India’s per-capita GHG emissions will reach only 3-4 tons by 2047, still below the world average of 4.7 tons witnessed in 2022. India has already reduced its emission intensity of GDP by 33% in 2019 over the 2005 level. Furthermore, India can achieve the ambitious target of reducing emission intensity of GDP by 45% by 2030 from the 2005 level with the successful implementation of several announced policies, including the Green Hydrogen Mission. Emission intensity to GDP will fall by ~80% over the 2005 level in 2047, indicating that India will successfully decouple economic growth from emissions as it embraces Green Growth strategies.

While the country is taking every step to transition, the key challenges impacting the energy transition include:

  • Availability of FinanceScale: Various research studies put investment requirements for net-zero in the range of USD 10-14 trillion by 2070 (or an average of over USD 200- 250 billion annually) in comparison to current investment levels, which stand at ~USD 44 billion per annum, leaving a significant financing gap. Bridging this gap poses challenges, such as the potential impact on other developmental priorities. Additionally, transitioning away from fossil fuels, which contribute substantially to government revenue, could result in a huge loss to the exchequer. Premature retirement of fossil assets may also increase stranded costs.
  • Availability of Finance – Quality: Most of the finance available is in the form of loans rather than grants. Secondly, interest rates are high at 9-10.5% in India compared to 3-5% in developed economies. India’s Green Bond market is still underdeveloped ($21.6 billion USD Vs USA is $380 billion and China is $287 billion) with issues concerning liquidity, low yields, and greenwashing.
  • Fairer credit rating system: The current credit rating does not truly reflect the size of the economy and its ability to pay back. India, the fifth-largest economy in the world, is rated BBB-/Baa3, the lowest rung of investment grade. Such a low rating negatively impacts private finance flow. Therefore, there is a need for fairer credit rating systems.
  • Role of Multilateral Development Banks (MDBs): Multilateral Development Banks (MDBs) need to triple their annual sustainable lending to $390 billion USD per year ($300 billion in non-concessional form and $90 billion in concessional form) to support growth in emerging economies.
  • Technology transfer: One also has to be cognizant of the fact that many technologies required for global net zero are not available at scale today, such as Hydrogen-based Steel/Cement, Steel and Aluminum production with CCUS, etc. Global collaboration and technology transfer will be crucial for accelerating innovation and adoption. Technology transfer should be on mutually agreed terms, including concessional and preferential terms for developing countries.
  • Need for a diverse, resilient, and robust supply chain in critical minerals: IEA estimates that the demand for critical minerals will quadruple by 2050. Critical mineral extraction is heavily concentrated, notably Graphite (China, 79%), Cobalt (DRC, 70%), rare earths (China, 60%), and Lithium (Australia, 55%). The level of concentration is even higher for processing, with China dominating across the board. According to IESS 2047, RE capacity is expected to grow from 177 GW in 2023 to 512 GW by 2030 and 1819 GW in 2047 in the Net Zero scenario. Such an increase in RE demand will increase the demand for critical minerals even in the Indian context.
  • Global developments: Recent developments such as the Inflation Reduction Act (IRA), Carbon Border Adjustment Mechanism (CBAM), and Climate Club stoke fears of protectionism. IRA local content requirements may result in a shift in investment away from developing economies. Further, compliance costs are bound to rise due to the need for monitoring, calculating, reporting, and verifying emissions under CBAM. Unilateral enforcement of standards/measures by the Climate Club may negatively impact developing countries.

INDIA’S LEADERSHIP ROLE IN SHAPING THE GLOBAL CLIMATE AGENDA

Climate change is a global collective action problem that can only be tackled through multilateralism and international cooperation. As a responsible international actor, India has recently developed several forward-looking and participatory global initiatives, partnerships, and coalitions. These include:

  • International Solar Alliance (ISA): ISA aims to increase the use and quality of solar energy to meet energy needs in an affordable manner. India is providing financial, capacity-building, and organizational assistance to ISA. ISA is recognized as one of the fastestgrowing international organizations. At COP26 in Glasgow, India and the United Kingdom also announced the first international network of interconnected transnational solar grids, called the Green Grids Initiative – One Sun, One World, One Grid.
  • Coalition for Disaster-Resilient Infrastructure (CDRI): CDRI aims to promote the resilience of new and existing infrastructure systems to growing climate risks and disasters.
  • Leadership Group on Industry Transition (LeadIT): LeadIT aims to identify low-carbon business opportunities, cooperate on net-zero technology innovation, and exchange knowledge on sectoral roadmaps for hard-to-abate sectors.
  • In the spirit of South-South cooperation, the India-UN Development Partnership Fund established in 2017 aims to support countries in the Pacific Islands, Africa, and the Caribbean with climate early warning systems, solar home systems, solar pumps, and projects to repair damage due to climate-induced weather events.
  • Global Biofuels Alliance (GBA): GBA is an India-led initiative to develop an alliance of governments, international organizations, and industry to facilitate the adoption of biofuels. The initiative aims to position biofuels as a key to the energy transition and contribute to jobs and economic growth.

In conclusion, it is to state that India is already leading the clean energy transition agenda. While the country today is effectively managing the energy trilemma of affordability, access, security and sustainability, the future demand of energy by 2047 is expected to increase by 2-2.5 times. The sustainable use of coal and nuclear power will play a crucial role in meeting this rising energy demand and addressing the trilemma in the future. The access to low-cost finance will be critical for clean energy adoption. The responsibility of pursuing clean energy transition agenda falls on both Centre and State Governments. To foster the spirit of cooperative federalism, NITI Aayog has already started engaging with states for developing state specific energy transition roadmaps.

Authors: – Venugopal Mothkoor – Senior Specialist, NITI Aayog – Rajnath Ram, Advisor (Energy), NITI Aayog


Disclaimer: The views expressed by authors are personal

 

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