COP27: To decarbonise by 2050, India needs investments of at least $7 trn

Even as the latest edition of the United Nations Climate Change Conference draws to a close in Egypt, India’s quest to decarbonise its economy rests on a “trishul” (trident) strategy — power, industry and agriculture are the three prongs that together accounted for 80 per cent of the country’s 3,274 million tonnes of carbon dioxide equivalent (MtCo2e) in emissions in pre-pandemic 2019.

And India’s progress towards net zero by 2070 will depend on how successful it is in facilitating an orderly transition to a clean economy by addressing these key areas, said management consultant McKinsey in its latest report.

Cleaning up the country’s air does not come cheap. India needs investments of $7-12 trillion until 2050 to decarbonise its economy, around 6 per cent of GDP through this period, in an accelerated transition, according to McKinsey estimates. Arthur D Little and Teri experts anticipate expenditure of $300-400 billion to meet 2030’s renewable targets.

Though one can argue with the numbers, the need for clean energy is indisputable. Though India’s emissions currently stand at a mere 1.8 MtCo2e per capita (versus the US at 14.7 and China at 7.6), it is still the world’s third-largest emitter at 2.9 GTCO2e or gigatonnes CO2 equivalent (4.9 per cent of global emissions), said McKinsey, in its latest report on “Decarbonizing India”.

India will likely be a $22-trillion economy in real 2010 dollar terms, about seven times its current GDP, by 2070, according to EIU estimates, while greenhouse gas (GHG) emissions may increase to 11.8 GtCO2e, four-fold extant levels, at current reduction rates. Over three-fourths of the India of 2050 is yet to be built, and this growth could multiply demand across power and steel sectors eightfold. An accelerated approach cuts emissions to 0.4 GtCO2e, leading to a 98 per cent reduction in emissions intensity by 2070 versus 2019 by creating 287 GtCO2e of carbon space, McKinsey said.

“To achieve net zero, we must focus on our target of creating 500 Gw of non-fossil fuel fired capacity,” said Ajay Shankar, distinguished fellow at Teri and a former senior bureaucrat in the power ministry. “It’s achievable, affordable, and is the least cost of meeting additional electricity goals. We achieve that and we can achieve everything.”

In that context, electric vehicles (EVs) are effective only if they are powered by renewables, and not coal, said Pankaj Gupta, CEO, Mufin Green Finance, an EV financier. “The thought process has to start with clean electricity,” he added.

The key to net zero lies in identifying the sectors that are the biggest emitters rather than focusing on areas that are politically convenient to tackle, industry officials said. Public opinion is clouded by what it sees. For instance, one would blame toxic fumes from tailpipes of vehicles in India’s densely packed cities for pollution; even some experts do.

But transport is the least of our problems, McKinsey’s report shows. Vehicular pollution accounts for just 9 per cent of total emissions. The more intractable polluters lie in the politically sensitive sectors of power and agriculture, which together account for over half the emissions for which the government has no answers yet. For instance, farmers continue to burn stubble with impunity, and are reluctant to adopt new practices for rice cultivation. Corporate lobbies have forced New Delhi to postpone installing sulphur mitigating equipment at coal-fired generators, the world’s biggest polluters, by a decade. Coal Minister Pralhad Joshi told <Business Standard> that the focus is now to capture, not halt carbon emissions — an about-turn from a year back when the government wanted to retire a quarter of the coal-fired capacity.

“India’s main focus remains clean energy, where coal as a resource will be needed for sustainable planning of the power ecosystem,” said Hetal Gandhi, director, research, CRISIL. “In our view, over fiscals 2023-2032 an estimated 350-360 Gw of non-fossil fuel including storage (solar, wind, other RE, hydro, PSP, battery, nuclear) is expected to be added as compared to 30-40 Gw of fossil fuel additions,” she added.

India announced its goal to become a net-zero emitter by 2070 last year at COP26. It will be the last major economy to get there. Besides committing to using half of power-installed capacity from non-fossil fuel-based energy by 2030, it seeks to achieve a 45 per cent reduction in emissions intensity from 2005 levels. About 70 per cent of India’s emissions are driven by six sectors: power, steel, automotive, aviation, cement and agriculture. Electricity generation contributes 34 per cent, followed by industry at 28 per cent and agriculture at 18 per cent.

India has reduced the emissions intensity of GDP by 1.3 per cent per year over the last decade. However, this pace of intensity reduction is not quick enough, McKinsey said, because it will not cause India’s emissions curve to bend, given the fast growth expected. India has the second highest emissions intensity or volume of emissions per unit of GDP, at 1.5, after Russia. The US and Japan by comparison are at 0.3 and 0.4 respectively.

“Although the government has rolled out many policies and incentives, there is a requirement to accelerate the adoption of existing policies and incentives and implement them with greater urgency,” said Jyoti Kumar Bansal, chief, sustainability, CSR, Tata Power. “Climate action must match its pace to the crisis.” Tata Power is pursuing 2 Gw of solar and hybrid capacities annually to be carbon net-zero before 2045.

Taming emissions while accommodating growth will require much more aggressive actions, policies and scale, and if India is to have an orderly and accelerated decarbonisation, the transition has to be set up within this decade, McKinsey said. Investment, currently at $44 billion a year, may need to increase 3.6 times by 2030 and 10 times by 2040.

Renewable capacity addition has to increase fivefold to 50 Gw per year in 2030, and ninefold a year in 2040, according to the report. Early imposition of a carbon price could lead to 200 MT of steel capacity being built on the green hydrogen route instead of coal by 2050. All two-wheelers, three-wheelers and light truck sales may need to be electric early in the next decade, and all car sales electric by 2035. For this, battery costs may need to decline by 40 per cent in 2030. Charging stations would need to increase 40 times by 2040. Green hydrogen would need a subsidy of $60-80 per Kw for electrolyser manufacturing, and carbon prices (within this decade) to support uptake in steelmaking; 29 Gw of electrolysers may need to be installed by 2030 (relative to the current deployment of about 1.4 Gw, globally) and almost 400 Gw by 2040, McKinsey said. 

McKinsey’s accelerated approach towards cutting emissions that meshes with the Modi government’s ambitions has its benefits. But there can be harsh consequences for huge national assets in refining, power and mining, and for the millions employed in them. Over 60 per cent of India’s refining capacity, 90 per cent of its coal-mining capacity, and all its coal power generation would be infructuous by 2050 in an accelerated transition. Tax collections from automotive fuel, which at $85 billion comprise 18 per cent of the annual central government income, could decline to $36 billion by 2050. Ten times as much land, a politically sensitive issue in India, as is used today would need to be identified and made available, which is not possible without efficient land use practices.