Oil PSUs on the long road to net zero: Can India achieve the goal by 2070?

With India burning more fossil fuel to grow, state-owned refiners are likely to struggle to meet their targets

Today, Prime Minister Narendra Modi will inaugurate India Energy Week 2023, the country’s biggest energy event, in Bengaluru — by launching uniforms made of recycled plastic, dedicating refiner IOC’s solar cooker to the nation, launching a petrol pump laden with 20 per cent blended ethanol, and flagging off an e-vehicle (EV) race.

Optics apart, in a state going to the polls this year, such symbolic gestures to reduce emissions will need a lot more reinforcement — especially for a country that recorded the highest growth rate in carbon emissions last year. The Global Carbon Budget said India’s emissions grew 6 per cent last year to around 3 billion tonnes CO2e (carbon dioxide equivalent) compared to a reduction of 0.9 and 0.8 per cent by China and the European Union respectively. India grew emissions faster than any major economy in the last 10 years.

The transport sector is the fourth biggest emitter after power, industry and agriculture, McKinsey says, accounting for around a tenth of emissions. That makes state oil companies responsible for containing them.

This will be tough, especially with India growing at over 6 per cent annually by burning more fossil fuels. Diesel and gasoline consumption surged around 18 per cent in January from a year earlier, led by state oil companies. For the first time, the Modi government earmarked around Rs 30,000 crore as capital expenditure for state refiners. But there were no details on where or how those funds would be spent.

What is, however, clear, is that India will grow its refining capacity to 300-400 million tonnes (MT) from 250 MT now by 2030, said Ranjit Rath, chairman, Oil India. Therefore, crude oil demand would always trend upward, he added. Rath has set a 2040 net zero date for the state explorer by deploying a mix of renewables, plantations and carbon capture.

IOC, BPCL and HPCL together emit a combined 40 MT of CO2e in Scope 1 and Scope 2 emissions, which may grow by at least 50 per cent by 2030 as India’s oil use expands in line with GDP growth, according to data by CRISIL Research and state oil companies. IOC, the country’s biggest refiner and marketer of fuels, accounts for over half the emissions, which are expected to double by 2030, as it expands refineries and adds chemical units.

Scope 1 covers emissions generated by a company’s facilities; Scope 2 are indirect emissions from consumption of power, heat or steam; and Scope 3 damages the planet the most, being emissions generated by consumers or other third parties from use of the company’s products and services — in case of oil companies it is petrol, diesel, jet fuel and LPG you burn to cook, heat and travel, releasing carbon in the process.

“Oil companies have planned their activities to meet this specific goal of net zero by 2040 (2046 for IOCL),” said Rahul Prithiani, senior director – consulting, CRISIL Market Intelligence and Analytics. “Key activities include enhancing energy efficiency, raising renewable production, and investments in CBG (compressed biogas) and green hydrogen, as technologies mature.”

The focus, said M K Surana, CEO, Ratnagiri Refinery & Petrochemicals, is to “eliminate, reduce or replace”. During his previous stint as HPCL’s chairman, Surana kick-started the refiner’s environment, social and governance (ESG) strategy.

At BPCL, the focus is to “replace all the (fossil fuel) power that we are consuming in our refineries and in our processes with renewables,” said Shelly Abraham, head of renewable energy at the Mumbai-based refiner. BPCL’s three refineries and other facilities consume around 500 megawatt (Mw) hours, and the company has agreed with the Rajasthan government to build 1 gigawatt (Gw) of renewables in phases by 2026, eventually aiming for 10 Gw by 2040, the year BPCL plans to achieve net zero.

“A more cost-effective solution would be to enhance energy efficiency,” Surana said. For instance, HPCL combined two vacuum distillation units at its Mumbai plant into one, and commissioned a large distillation unit for its Vizag expansion programme. HPCL accelerated the construction of product pipelines to evacuate transport fuels, generating fewer emissions compared to road transportation. “Our idea was not to burn but to transport fuel,” he added.

Abraham explained that there are four to five ways of offsetting emissions for any oil company. For the Shells and Glencores of the world, buying plantation or forestry offsets is an easy way out, though some scientists allege this practice is a huge scam to greenwash businesses. Not so, for Indian refiners, Abraham said. “We are trying to not increase offsets beyond 10 per cent, if at all.”

Refineries are large consumers of hydrogen, currently extracted from fossil fuels. BPCL’s facilities, for instance, consume around 1,000 tonnes a day of hydrogen, and after excluding nearly half generated by production processes, it still needs to separately produce around 550 tonnes. BPCL is setting up a 20-Mw electrolyser unit at its Bina refinery in Madhya Pradesh, which will produce around 9 tonnes a day of green hydrogen. “Nearly 60 per cent of abatement or emission reduction will come from renewables and green hydrogen”, and around 30 per cent will come from carbon capture and storage technologies, he added.

“Today, carbon capture is in the first position in terms of producing lower-cost electricity,” said Deepesh Nanda, CEO, GE Gas Power, South Asia. “It is possible to integrate carbon capture technology at the exhaust of a gas-based power plant, aim a shower of amine at the exhaust fuel and convert 90 per cent of carbon coming out into liquid.” The CO2 is removed from the liquid, compressed, transported or stored.

But just as today’s green hydrogen costs three times that of the grey variety, making it unviable for refiners, so does carbon capture. The technology requires a lot of space, and increases total capital expenditure in a combined cycle gas power plant by 60-70 per cent. Plant efficiencies drop. But the levelised cost of electricity (LCOE) increases only 30 per cent, Nanda said, which is cheaper than burning green hydrogen in a gas turbine at today’s prices. The LCOE is the lifetime cost of an electricity plant, divided by the amount of electricity it is expected to generate over its lifetime. By calculating the cost of generating electricity throughout the lifespan of the plant, the LCOE tells you the average cost per unit generated.

Meanwhile, IOC has announced investments of Rs 2 trillion to reach net zero by 2046, expanding on business lines related to green hydrogen, biofuels, renewables and carbon capture; HPCL is installing a 2.6-Mw electrolyser to produce 370 tonnes a year of hydrogen at its Vizag refinery; BPCL aims to have 7,000 EV charging stations. And all three refiners are building advanced waste-to-ethanol plants, to double blending ratios to 20 per cent, the kind that Modi is launching today.

But these are baby steps towards abatement of Scope 1 and Scope 2 emissions. The real challenge comes with tackling Scope 3, something refiners are yet to ascertain, let alone come to terms with.

Charting the emissions path

• India grew emissions faster than any major economy in the last 10 years
• The transport sector is the biggest emitter after power, industry and agriculture, accounting for around a tenth of emissions
• For the first time, the Modi government has earmarked around Rs 30,000 crore, but no details of how the money will be spent
• Nearly 60% of emission reduction will come from renewables and green hydrogen, and around 30 per cent will come from carbon capture and storage
• IOC has announced investments of Rs 2 trillion to reach net zero by 2046, expanding on business lines related to green hydrogen, biofuels, renewables, and carbon capture