India's Low Carbon Transition

India’s low carbon transition

This report is part of the Observer Research Foundation’s “Financing Green Transitions” series which aims to find potential linkages between private capital, in all its forms, and climate action projects. The series will primarily examine domestic and international barriers to private capital entry for mitigation oriented climate projects, while also examining potential avenues for private capital flow entry towards adaptation and resilience projects.

Over the past year, the world has been subject to a number of tumultuous events. The most significant of these has undoubtedly been the election of Donald Trump as the President of the United States. There are many far reaching implications to the unexpected proceedings of November 8, 2016, but perhaps the most concerning are Mr. Trump’s views on climate change. The 45th US president has unequivocally stated his belief that climate change is not caused by human actions. He has also reiterated a number of times that he intends to withdraw the United States from the Paris Accords.

As the United States vacates its leadership position on climate change, new players are stepping up to take its place. China and India have emerged as the best hope for the world to meet the goals set forth in the Paris Agreement, with both nations currently over performing on their promises to cut carbon emissions [i].

India, in particular, has made a significant push towards ensuring that its economic transition is not reliant on fossil fuels. India’s renewable energy capacity has grown from 27 GW in 2000 to about 93 GW in December 2016 [ii] It is expected that the capacity will grow to 175 GWs by 2022 [iii]. If successful, India will have increased its renewable energy capacity by 600 percent in the span of two decades.

Despite these successes, India’s low carbon transition remains a complex matter with many moving parts. There are several issues that need to be addressed if India wishes to successfully meet its future energy demands while continuing to hold to the promise of a low carbon economic transition.

The majority of these issues are related to India’s power sector. In order to successfully complete a low carbon transition, India must address the financing of renewable energy projects, inefficiencies in the coal sector, and the incorporation of alternative fuel sources. India’s urban transitions must also be addressed, including limiting its urban sprawl, solving its haphazard approach to the transportation sector, and addressing its inadequate waste management processes.

India’s economic and demographic transition

India is in the midst of several transformations which are expected to directly impact its power sector and urban areas. Already home to 1.25 billion people, India will soon overtake China as the most populous nation in the world [iv]. Half of the country’s population is under the age of 26 and by 2020, India will be the youngest country in the world, with an expected median age of 29 [v].

The economic structure of the country is changing as well, with a concerted attempt being made to shift away from India’s traditional dependence on the agricultural and services sectors. The current Indian government has implemented specific policies – such as the ‘Make in India’ and ‘Skill India’ initiatives, designed to aid in the development of the manufacturing sector. Intended to shift low-skill jobs away from the agricultural sector and bring India’s sizeable informal economy into the fold [vi], the initiatives have been widely lauded.

The policies are expected to have significant consequences for India’s energy future, however. The amount of energy demanded by the industrial sector is expected to rise annually by 4.4 percent and make up more than 50 percent of all energy consumption in India by 2040 [vii].

India’s urban population is expected to more than double by 2030. Its cities will be asked to hold more than 300 million more people [ix], which will accelerate the use of modern fuels, lead to a rise in appliance and vehicle ownership, and provide an uptick in demand for construction materials, all of which are expected to increase greenhouse gas (GHG) emissions.

A younger populace, in conjunction with a shift away from the agricultural sector, has understandably led to an increase in India’s urbanisation rate. India’s urban population is expected to more than double by 2030 [viii]. Its cities will be asked to hold more than 300 million more people [ix], which will accelerate the use of modern fuels, lead to a rise in appliance and vehicle ownership, and provide an uptick in demand for construction materials, all of which are expected to increase greenhouse gas (GHG) emissions.

The urban transition also means that there will be a move away from the use of biomass fuels, currently being used for heating and cooking fuel in almost 65 percent of Indian households as of 2013. Electricity and oil are expected to make up more than 60 percent of the energy used in these households by 2040 [x].

As of 2013, India made up only 5.7 percent of the world’s energy demand, despite having 18 percent of the world’s population. The upcoming shifts in India’s demographics, economic structure and urban makeup are guaranteed to increase India’s energy consumption rapidly, however. Already below the world average with an electrification rate of 78.7 percent [xi], it is estimated that the country’s power system needs to quadruple in size to keep pace with the 600 million new electricity consumers that will be added by 2040. This will require India to add an additional 900 GW of new capacity, as projected by the International Energy Agency (IEA) under its New Policies Scenario [xii].

In order to meet projected energy demands, India has set ambitious targets to expand its capacity. Having outperformed its 5-year capacity targets by 15 percent, it seems that India is on its way to meeting short term demands [xiii]. India has also reiterated its commitment to a low carbon path towards energy with plans to expand its renewable energy capacity to 175 GW in the medium term.

The challenge of an Indian low carbon transition

India’s power sector – A brief overview

Indian electricity is powered by four sources – coal, renewable energy, natural gas and nuclear energy. Close to 60 percent of India’s power generating capacity comes from coal. Renewable energy accounts for approximately 30 percent of capacity with natural gas and nuclear energy making up the remaining 10 percent.

Incorporating nuclear power into the energy mix has long been an ambition for the Indian government and it is easy to see why given its emission-free nature and consistent output [xlv]. The current administration has reiterated its commitment to nuclear power with plans to grow capacity to 63 GW by 2032 and supply 25 percent of all of India’s electricity through nuclear power by 2050 [xlvi].

These ambitions stand in stark contrast with India’s current nuclear power capabilities, however. With 22 reactors providing an installed capacity of 6.7 GW, nuclear power makes up little more than 2 percent of India’s electricity capacity [xlvii]. The amount of energy generated from nuclear power happens to be marginally higher, making up 3.20 percent of total electricity generated in 2016. [xlviii] There have been a number of barriers that have prevented India from scaling up its nuclear power capabilities.

One of barriers for the nuclear sector is the cost of electricity generated by nuclear power plants in India. A unit of nuclear power currently costs 45 percent more than solar power and close to 100 percent more than coal[xlix], leaving it an economically unviable alternative for consumers. While the nuclear power sector in India is currently publicly owned, the higher consumer prices associated with nuclear power continue to act as a deterrent for private sector entry into the market.

Another barrier of entry into the Indian nuclear energy sector stems from the lack of domestic manufacturing capability. The inherent complexity and stringent safety requirements in the building of nuclear power plants requires a reliable supply chain of components, as well as stability in the capacity and costs of materials. India’s current manufacturing capabilities only allow for construction of reactors with a capacity of 700 MWs, leading to a reliance on foreign suppliers for any large-scale projects [l].

A third issue affecting the nuclear energy sector world-wide, ties into the issue of safety and the perceived risks that are associated with nuclear power plants. Large scale disasters such as Fukushima and Chernobyl have eroded public confidence in nuclear power plant safety mechanisms. While the perceived public risk is often much higher than the objective risks that are calculated [li], the political ramifications associated with the building of nuclear power plants tend to act as a disincentive for both nuclear energy corporations and regulators.

The chief barrier to the scaling up of nuclear power, however, is the start-up costs associated with nuclear power plant construction and the resulting financing requirements. With cost estimates for new power plant construction ranging anywhere from $2 billion to $9 billion [lii], nuclear power faces many of the same investment barriers associated with renewable energy, as well as additional nuances specific to the sector. One such disincentive comes in the form of stringent legal clauses in India which hold investors liable for all costs associated in a disaster scenario.

Large construction delays, cost overruns, the possibility of a large-scale catastrophe, and extensive start-up costs have made nuclear a high-risk proposition for any investor regardless of the country.

Issues within the electrical grid structure

The inefficiencies that are prevalent within other parts of the India power sector, can also been seen in India’s electrical infrastructure. In 2012, India generated 1130 TWh of electricity, making it the third-largest electricity producer in the world after China and the United States. India’s electricity consumption during that period, however, was only 870 TWh, which meant that 23 percent of the electricity that was generated during the year was lost [liii]. This served to further exacerbate the coal and natural gas sectors inefficiency issues leading to increased levels of GHG emissions.

The major reason for these inefficiencies in power delivery is power theft. This is often accomplished by the illegal tapping of existing lines, through meter fraud and unmetered usage by end-consumers. The consequences of power theft include increased usage of coal and natural gas for power generation resulting in increased carbon emissions.

Managing India’s urban transition

India’s rapid urbanisation gives the country an excellent opportunity to mitigate transportation and solid waste related emissions through careful planning. One solution aimed at managing future urban sprawl that has been implemented by the Indian government has been the use of urban master plans for all Indian cities. The central government has made it a legal requirement for all Indian cities and towns to file a legal document mapping the growth of the urban centre over the next 20 to 25 years on a Geographic Information System (GIS) platform.

While this is an important step in managing urban sprawl, there are more concrete steps that can be taken. One possibility could include the passing of legislature requiring urban centres to obtain construction approval from an urban climate committee. Another policy solution aimed at reducing the urban sprawl could be the commissioning of architects and urban planners familiar with green strategies to manage future urban centre construction.

The government has also put forth ambitious plans for the expansion of its public transport systems. Studies regarding the viability of shifting the current public transport systems to an electricity-driven system are currently underway by the Indian government, although further work needs to be done on the impact this will have on reducing emissions. Additionally, a regional rapid rail transit spanning almost 100 kilometres across the states of Delhi and Uttar Pradesh, as well as a city-based light rail transit system in Delhi, are in their beginning stages. A possible fantastical solution that has been proposed to the Indian government has been the construction of a national hyper loop rail.

Although these solutions will help in mitigating future carbon emissions, further solutions are required. Stricter road code polices and the enforcement of said road code policies could help with transport related emissions while also providing co-benefits in the form of air pollution reduction. The capture and use of the methane gas produced by sewage plants and landfills can significantly reduce GHG emissions while also providing the co-benefit of generating electricity [lxxvi]. In order to fund these projects, matchmaking services between growing cities and investors seeking climate friendly infrastructure projects could be built.

Conclusion

As can be seen, there are several challenges that India still faces as it attempts to conduct its low carbon transition. These challenges include, but are not limited to, obtaining funding for renewable energy projects, resolving inefficiencies in the coal sector, building capacity and infrastructure in the natural gas and renewable energy sectors and proper management of India’s upcoming urban transition.

It should be acknowledged that India has many opportunities to help conduct the transition as well. Policy shifts designed to increase private capital funding for renewable energy projects, technological shifts aimed at solving the inefficiencies in the coal sector, and updated methodologies for the management of urban sprawl in India’s growing cities could be the key to ensuring that India is the first emerging economy in the world to manage a successful low carbon economic transition.

In acknowledging the complexities associated with India’s low carbon transition, it is also important to contextualize the transition against India’s broader development goals. India, with a GDP per capita of $1,598 [lxxvii] and 12.8 percent of its population living in extreme poverty [lxxviii] is still very much an emerging economy and as such, should prioritise social development and economic growth.

Despite the importance of meeting broader development goals, an impending demographic shift, rapid urbanisation and a shifting economic makeup, India has made a substantial commitment to upholding its global moral obligations. As of 2016, India generates a higher percentage of its power from renewable energy than the United States. According to the IEA’s New Policies Scenario[lxxix], India will continue to remain below the world average in carbon emissions per capita for the next 35 years. Through both its actions and words, India has shown that it remains committed to a low carbon transition despite its development and economic needs. It remains to be seen whether the rest of the world will follow in India’s footsteps.