Business At Oxford | Competing needs: clean coal is key

Is it possible for India to make a significant contribution towards mitigating climate change without undermining its growth and poverty-reduction imperatives?

Indian policymakers view calls for reducing India’s greenhouse gas emissions as both illegitimate and a threat. They are illegitimate because rich countries are primarily responsible for the historic stock of emissions. The calls are a threat because curbing emissions could undermine growth, necessary to lift millions out of poverty.

But the fact remains that despite historically low per capita emissions, India will increasingly become a major source of emissions. Developing countries (led by China and India) will account for three quarters of the projected increase in emissions up to 2050. Unless developing countries’ emissions are also stabilized by 2020-25, any meaningful action by rich countries would be negated.

The transfer of cleaner coal technologies to India holds one of the keys to reconciling these competing concerns.

Why cleaner coal? In India, power generation must go hand-in-hand with poverty reduction. Half of rural households and 12% of urban ones do not have access to electricity. Compared to 2004-05, electricity consumption is expected to increase six-seven times by 2030. Coal plays a central role, accounting for 71% of generated electricity and 70% of current emissions, which are rising at 5.5% each year. Hydro, nuclear and renewables-based power will contribute 10.9-14.6% to India’s energy mix.

If India has to maintain economic growth rates and also shift to a sustainable development trajectory, raising the efficiency of its coal-power infrastructure should be a priority. And this should be the primary aim of multilateral technology transfer arrangements.

Most Indian power plants that rely on sub-critical pulverized coal, or PC, technology, are small in size and operate at only 29% efficiency on average. The best thermal plants in the world, by contrast, reach 47% efficiency levels. Over the next 20 years, India can significantly upgrade its coal-power infrastructure by experimenting with many higher efficiency options: super-critical PC; fluidized bed combustion; and Integrated Gasification Combined Cycle, or IGCC, technologies, either with imported coal or those suited to high-ash content Indian coal.

The gains could be enormous. Raising efficiency levels to 45% would reduce India’s carbon dioxide, or CO2, emissions by 184 million tonnes against business-as-usual scenarios for 2030. If India built only super-critical PC plants from now on, its CO2 emissions could fall by 1 billion tonnes during 2005-25. To put this in perspective, India emitted 1.3 billion tonnes in 2004.

India’s experience with accessing technologies, however, has been poor. By June, it had approved more Clean Development Mechanism, or CDM, projects than any other country (the CDM is the only mechanism under the Kyoto Protocol that draws in developing countries and offers the potential for technology transfer). But less than a fifth of the projects involved a technology transfer component (by contrast, 55% of Chinese projects incorporated such provisions).

The global climate regime has largely failed to facilitate the transfer of climate-friendly technologies to poorer countries. A new multilateral low carbon technology fund, or MLCTF, would offer a win-win situation: It would be good for equity (by shifting the burden to rich countries) and good for the global environment (by reducing emissions from fast-growing, poorer ones). Such a fund would have four constituent elements.

First, it would cover the incremental cost of upgrading thermal plant technology. If India’s coal-power capacity has to increase to at least 400GW as planned for 2032 (end of the 15th Plan), it would need almost 900 more 500MW-sized plants. The incremental capital cost alone would be $104-159 billion (around Rs5.22-7.98 trillion), depending on the technology chosen, with annualized investments in the range of $4-8 billion. The fund would cover incremental capital and operational costs so long as the cost of electricity exceeds those determined by current energy strategies.

Second, an institutional arrangement is needed to guarantee associated project risks. Most CDM projects in India have had limited participation of rich country firms in project risk. A multilateral fund would offer loan guarantees and insurance for private investment in the energy sectors of middle-income developing countries.

Third, the fund would cover intellectual property royalties and licence fees. Indian firms have struggled to access cutting-edge technologies in cleaner coal power generation (such as IGCC). A joint UK-India study found that Indian firms are also concerned about limited access to the underlying know-how embedded in new technologies. Public funding for licences would both intensify the deployment of low carbon technologies and also increase developing countries’ capacities to innovate further.

Finally, the technology transfer mechanism would be governed by equal representation of developed and developing countries on the MLCTF board. Proposals to the board would be “demand-driven”, reflecting nationally-defined priorities, with an independent expert committee reviewing technical feasibility and emissions reduction potential of projects and programmes.

Citizens of poor countries have the right to aspire to better standards of living. Emerging economies such as India have to do their bit to increase energy efficiency. Reconciling the competing needs of poverty reduction and lower emissions ultimately depends on a more credible multilateral mechanism for technology transfer. It would make the response to climate change both more efficient and more just.

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Arunabha Ghosh is Oxford-Princeton Global Leaders fellow at the Global Economic Governance Programme, Oxford.