Glasgow COP26: There's little risk for coal investors on road to 2070

Catching the world by surprise, Prime Minister Narendra Modi on Monday declared 2070 as the target year for India to have zero carbon emissions. While the target announced at the COP26 Summit in Glasgow is 49 years away, the fossil fuel dependent Indian economy will have to brace for a paradigm shift. In all this, investors in coal may still find hope, officials believe.

India has achieved 25 per cent of emission intensity reduction of GDP between 2005 and 2016, and is on a path to achieve more than 40 per cent by 2030, according to observations made by the Centre for Science and Environment (CSE). In effect, India will have to step up measures to reduce emissions from the transport sector as well as the energy-intensive industrial sector, especially cement, iron and steel, non-metallic minerals, and chemicals. It would also require India to reinvent its mobility systems. 

Rather than putting pressure on coal, this target actually provides certainty to investors in coal – both state owned Coal India Limited (CIL) and private captive and commercial coal miners, according to government officials. “The 1 billion tonne coal production target of CIL will get logged into the economy in this decade. For another 20-30 years, the future of coal is secure in India. The mines awarded now have a clear business case to run for their lifetime,” said an official.

The target strengthens the business case of captive mines awarded over the last five years and commercial mines awarded recently to private companies, the official said. “The lifetime (30 years) of these mines ends long before 2070. India will see a peak in coal production in this decade followed by a decline which is imminent given the rapid pace of renewable energy addition,” he pointed out.

In the electricity sector alone, the current coal-based capacity of 200 Gw and the near-term plan to add another 25 Gw is enough to meet the demand of the sector, coupled with the high growth in renewable energy, according to estimates.

“This announcement gives impetus to coal in India. Now there is no uncertainty with the 2070 deadline. The economics of the greenfield coal mines and thermal plant has been established and so is the validity of the operational ones,” said the official quoted above.

Power ministry officials said coal-based power plants are running at 60 per cent plant load factor (PLF) or operating ratio and can go up to 85 per cent. This 25 per cent increase in power generation can happen without any incremental power generation capacity.

“Then there is an additional 25 Gw under construction and similar gas-based capacity which is under-utilised. So, effectively, no new thermal plants are needed in the short term and current capacity utilisation can be increased to meet our demand, coupled with growing renewable energy sources,” said another official in the ministry of power.

The PM said India would have 500 Gw of renewable energy capacity by 2030 and that 50 per cent of the country's energy demand would be met from non-fossil fuel sources by that year.

The ministry of power officials said while there is a need to go back to the drawing board for redesigning the demand supply scenario, it is the natural growth trajectory for an economy such as India to invest more towards green sources.

For the 50 per cent non-fossil fuels meeting the energy demand of the country, officials said several sectors would need to “green” themselves – this includes mobility, domestic fuels usage, manufacturing etc. “This puts focus on programs such as the National Hydrogen Mission to give impetus to green fuels,” said the official.

According to the Intergovernmental Panel on Climate Change (IPCC), global emissions must become half by 2030 and reach net zero by 2050. "Given the enormous inequity in emissions in the world, the OECD countries must then reach net zero by 2030, China by 2040 and India and the rest of the world by 2050. However, the targets for net zero are both inequitable and unambitious. As per this, OECD countries have declared net zero target for 2050 and China for 2060," said a CSE report.