India eyes clean energy sources to tackle tariffs | Mint
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Business News/ Industry / Energy/  India eyes clean energy sources to tackle tariffs
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India eyes clean energy sources to tackle tariffs

The move comes as the steel and aluminium sectors, which predominantly use gas and captive coal-based power plants, will need to shift to cleaner fuels like green hydrogen to align with India’s net-zero goals and global mandates like the European Union’s Carbon Border Adjustment Mechanism (CBAM).

The government plans to develop a long-term strategy to transition industries that use fossil fuels to cleaner energy sources. (Mint)Premium
The government plans to develop a long-term strategy to transition industries that use fossil fuels to cleaner energy sources. (Mint)

NEW DELHI : The government is considering revising its industrial electrification strategy to prioritize adopting cleaner energy sources, such as green hydrogen and battery storage, over fossil fuels amid the need to meet net-zero targets and the potential imposition of taxes on products based on their carbon emissions by developed nations.

The government plans to develop a long-term strategy to transition industries that use fossil fuels to cleaner energy sources. The move comes as the steel and aluminium sectors, which predominantly use gas and captive coal-based power plants, will need to shift to cleaner fuels like green hydrogen to align with India’s net-zero goals and global mandates like the European Union’s Carbon Border Adjustment Mechanism (CBAM).

“The strategy is being looked at, as round-the-clock reliable power cannot be assured for all the industries, and industries like steel need 24/7 power. Further, even if they get connected to the grid, most of the supply would be through coal-based power, and only some of it would be through solar, which does not help these businesses on the decarbonization front. When storage comes up, they will be able to take it from open access, but storage cost would come down only gradually," said one of the people aware of the developments.

The focus on electrification may now be further narrowed down to renewable energy.

Given the increasing investments in green hydrogen, industries will be provided with more alternatives to transition away from using fossil fuels, another person aware of the development said.

“Green hydrogen would be a different play; both electrification and hydrogen would be competitive with each other," said the second person.

The government is also considering establishing a timeline to transition to cleaner fuels to avoid business disruptions.

“Industries have just recovered from the pandemic’s effect. Therefore, there is no intention to cause a disruption," the person added.

Iron and steel consume the highest amount of electricity at 24% of the total industrial electricity consumption in India, followed by chemical and petrochemical (17%), non-metallic minerals (9%), and other industries (48%), according to data from the ministry of statistics and programme implementation (Mospi). The MSME sector has a high penetration of electrification, with approximately 76% of the energy demand.

The consumption of electricity by the industry sector has doubled in the past decade. Mospi data showed that consumption of electricity by the industrial sector rose to 5,51,362 GWh in 2019-20 from 2,72,589 GWh in 2010-11. In 2020, the Indian manufacturing sector’s primary sources of energy was coal (29%), followed by oil (20%), electricity (22%), natural gas (19%), renewables (6%) and heat (4%), data from International Energy Agency shows.

The review of the strategy is significant given that Indian producers of carbon-intensive products such as steel are expected to be heavily impacted by the EU’s proposed carbon tariffs.

India is also likely to counter the EU’s carbon tariff as well as prepare the domestic industry to conform with the new mechanism that comes into force in its transitional phase on 1 October. The permanent system will take effect in 2026.

A person familiar with the development said that India is in talks with Europe to recognize carbon trading certificates that companies in the country would get under the newly planned carbon market.

“Energy transition is key for steel companies both from the domestic and international perspectives. Along with working in tandem with India’s net zero target, they would also need to move towards greener options due to European Union’s Carbon Border Adjustment Mechanism (CBAM). The emission of carbon dioxide per tonne of steel produced in India is higher than in several other countries. So, Indian steel companies, given their significant exports to Europe, may be among the affected players due to CBAM," said Jayanta Roy, group head of corporate sector ratings at ICRA Ltd.

Indian companies need to cope with the energy transition requirements as other developed countries and blocs might also follow the EU’s path and come up with similar tariffs on carbon-intensive products, he said.

Queries sent to the spokespeople for the ministries of power and commerce remained unanswered.

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ABOUT THE AUTHOR
Rituraj Baruah
Rituraj Baruah is a senior correspondent at Mint, reporting on housing, urban affairs, small businesses and energy. He has reported on diverse sectors over the last six years including, commodities and stocks market, insolvency and real estate. He has previous stints at Cogencis Information Services, Indo-Asian News Service (IANS) and Inc42.
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Published: 07 May 2023, 11:44 PM IST
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