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Business News/ Opinion / Views/  We may have to recalibrate the country’s decarbonization effort
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We may have to recalibrate the country’s decarbonization effort

It will be quite a challenge to strike a balance between reducing emissions and achieving a structurally higher growth path

Photo: MintPremium
Photo: Mint

From the CoP-26 pledges in November 2021 to the updated Nationally Determined Contributions (NDCs), submitted to the United Nations Framework Convention on Climate Change last month, India’s march towards ‘net zero’ is being persuaded by what is a generational balancing act—of raising economic growth structurally, achieving decent living standards for all, and lowering carbon emissions simultaneously.

In the latest NDCs announced on 3 August, India altered one of its CoP-26 pledges to increase non-fossil-fuel-based capacity to 50% of overall installed capacity by 2030. Notably, we already reached 40% last fiscal year.

More significantly, while this is a commitment on total installed capacity, it would have been helpful to have the details on energy use and requirement as well. The difference is crucial because emissions depend on the energy generated, not installed capacity. Targeting 50% generation would have been eminently more desirable, even if tougher to achieve (because our challenges of land and infrastructure availability and grid stability continue).

The CoP-26 pledge incorporated without any change in our NDCs is the one to cut the country’s emission intensity of gross domestic product (GDP) by 45% from its 2005 level—a target enhanced from 40% committed earlier.

This would mean lowering emissions across all polluting sectors, especially energy (thermal power and transportation), which accounts for the highest share (about 60%) of India’s total greenhouse gas emissions, and manufacturing, which is next at about 20%. The efficiency of our coal-based plants is way below global standards as well.

The change in focus to ‘non-fossil-fuel-based’ energy—solar, wind, hydro and biogas—versus only ‘renewables’ (mainly solar and wind) means the journey ahead will not be easy. At the crux of the ambition is a set of enduring challenges—domestic availability of raw materials, cost competitiveness, access to technology and scalability. The manufacturing sector is a case in point.

Geopolitical conflicts, unresolved supply-chain nightmares unleashed by the pandemic, and food and fuel crises in emerging economies have all underscored the need for countries to have resilient, homegrown manufacturing bases, especially the green kind with scalability and cost-competitiveness.

On its part, the government wants to incentivize green manufacturing, which it expects would create jobs as well. This would typically mean a sharper focus on new sectors such as solar modules, batteries and cell manufacturing.

While we are seeing a good uptake in electric two-, three- and four-wheel passenger vehicles, there is a big question mark over the feasibility of e-trucks. The availability of green hydrogen, indigenous raw material for batteries and technology remain steep hills to climb.

Decarbonizing conventional smokestacks will be no cakewalk either.

Crisil’s analysis shows that only five sectors—iron and steel, cement, refining, non-ferrous metals, and chemicals—account for about 70% of all industrial emissions. They also emit a higher intensity of non-CO2 gases (such as SOx, NOx, mercury and methane) and, hence, are hard-to-abate sectors. Greater consolidation in the top two sectors — steel and cement (about 45% of the total industrial emissions, excluding grid-supplied power)—implies commitments from a few players can make a difference.

Three of the country’s top five cement makers have announced green capital expenditure of 3,000 crore over the next 3-5 years. Much of this would be invested to meet 100% of their power requirements through renewables. Continued increase in the blending factor using materials such as slag and fly ash can also help meet short-term targets. But it is the shift towards green hydrogen-based direct reduced iron (DRI) processes in the steel industry along with the use of renewable energy that will ultimately eliminate production of blast furnace slag and fly ash, respectively.

India’s top three steel-makers (which account for about 43% of production) have committed to spend 22,000 crore over the next five years to cut emissions, as per Crisil Research estimates. The refrain is that a meaningful reduction can happen only on large-scale use of green hydrogen as a key reductant, and the shift to more DRI-based plants. In the meantime, major oil refiners and renewable energy generators in India are also focusing on green hydrogen production.

While green hydrogen is an exciting new technology and its production, along with ammonia, is being hugely incentivized and promoted by the government, its viability from both business case and funding perspectives still needs to be better established.

Hydrogen is green only if produced from solar, wind or biofuel sources of energy. The problem is that India’s cumulative solar and wind capacity, at about 114GW currently, is too little to meet the goal of 5 million tonnes per annum of green hydrogen generation by 2030 announced in the country’s Green Hydrogen Policy.

So continued efforts on indigenous green technology enablement are critical to cut cost, improve scalability and ensure faster adoption. As would be financial support from government, whether through public investment, facilitation of private investment or negotiations with advanced economies for climate action funds.

Another crucial need is for a holistic, national decarbonization vision that lays out pragmatic goals and guides implementation, essentially by leveraging our local technological prowess.

The hour is ripe for such transformational moves that can ensure a reasonable balance between sustainability and structurally strong economic growth.

Amish Mehta is managing director and chief executive officer of Crisil

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Published: 05 Sep 2022, 10:58 PM IST
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