The physical manifestations of climate change are increasingly visible across the globe, and India is not untouched. More than 75 percent of India ’ s districts – home to 638 million people, or 1.4 times the population of the European Union (EU) – are categorized as hotspots for extreme climate events already. India has acknowledged this threat in multiple forums, has set ambitious targets and is taking bold measures to address the risks. A team of eminent panellists discuss McKinsey’s Report on “Decarbonising India”.
Mr Naveen Unni
Senior Partner, McKinsey & Company and Co-author of the Report
In our report on ‘Decarbonising India,’ we took a lot of very deep sector views using the insights of experts from various fields. There are five core messages that we give as part of this.
- Three quarters of India is yet to be built: This is a massive message of optimism. India is in quite a unique position. Almost no other major geography or economy has the advantage that India has, because three quarters of India is yet to be built. Even if you take a GDP growth rate anywhere between 4 to 5%, we’ll end up with an economy that is three to four times as large as now by 2050. India has a net zero target by 2070. We did in our analysis what it would take to do it by 2070 and also, if we do it sooner—before 2070. That three quarters of India is to be built means that if we build more green economy now, we have the benefit of not having to retire assets. In most developed countries, the demand has flattened. If I switch from coal based power to renewable energy, then I have to retire my coal based power plant and this has an economic impact on the country. In India, we don’t need to do that. A coal plant has a life of 40 years. The average age of our coal plants is 12 to 15 years. So, for another 25 years, we have to keep burning coal. Because there is 3x more growth, we can start building all the additional growth in green.
- Tailwinds in mobility and power: Power and mobility are the two largest sectors in terms of emissions. With a lot of good news, the likelihood of getting to decarbonisation in those sectors is quite large. But there are a few other areas where we need a big push, like, in steel and cement. In the process of making steel and cement, carbon dioxide is released and it’s very hard to replace that. In steel, at least, there is a different technology that uses green hydrogen instead of the classic blast furnace process. But in the case of cement, there is no alternate technology as such. Here, material circularity is an important dimension which we need to push.
- Challenges of capacity growth and management: The economics are favourable in many instances. The technology is also there. The challenges are in adding renewable capacity into the grid, getting enough land and financing. We are an energy import dependent economy and it makes a lot of sense to go green. There is a lot of energy security linked into energy transition and we have an opportunity to take advantage of.
- More benefits: The benefits will exceed the downside, even without factoring the climate challenge.
- Need to act now: We are already going through digital transformation. The other big transformation now is sustainability. The digital transformation is a services transformation. There is some infrastructure and capital required, but it’s a people intensive transformation. Sustainability, on the other hand, is a capital intensive transformation. The amount of capital we need, by our estimate, is something between $7 and $10 trillion. This means that 3x of current India’s GDP has to be spent over the next 30 years to decarbonize. But if we don’t invest that capital wisely, we’ll have problems later. If we don’t make it green in every investment we make from here on, there is a cost to pay.
The following five industries in India contribute to 72% of our emissions currently: power, iron and steel, cement, agriculture and automotive. If we can arrest the 72%, then we have gone a long way in getting to decarbonisation. There is a lot of demand growth expected in each of these sectors. Our current emissions are about 3 Giga tons of carbon per year. If we do nothing, this will grow to 11.8 Giga tons per year by 2070. The good news is we’re doing a lot. If we continue this and make the right set of actions, we won’t get to net zero by 2070 but we’ll get to 1.9. This, we call as a Line of Sight (LoS) scenario. Then we estimated an accelerated scenario where we put more efforts, introduce new technologies, invest more capital and shift agriculture methods. Here, we would get to 0.4 Giga tons and still we won’t get to net zero. In 20 to 30 years, human innovation will hopefully get this to zero. It is not easy, but doable.
Some of the themes like adoption of renewable energy, faster penetration of electric vehicles, use of green hydrogen, carbon capture, utilization and storage are the well understood ones. But material circularity and the whole idea of waste to wealth is a massive lever for decarbonisation. Because waste to wealth means that we don’t need to produce that much. Also, landfills generate a lot of methane, which has many times higher greenhouse gas warming effect than carbon dioxide.
Sustainable farming: Agriculture is one of the largest contributors of carbon dioxide in India, thereby contributing to greenhouse gas warming. Sustainable agriculture is thus very important. We need an additional 15% of India’s landmass for solar panels, sustainable agriculture and for urbanization. One of the biggest challenges is land availability.
In automotive, there are a few ideas worth putting on the table. Is there a subsidy potential for electric vehicles? Is there a localization that we can do? In the tax we pay per litre of fuel, there is already an implicit carbon tax. In power, the biggest issue is not economics but it’s all the supply side stuff. We need more infrastructure and we must strengthen our grids—both distribution and transmission. To accelerate the power market and discom reforms, we need stronger distribution companies.
India’s Panchamrit: Prime Minister Modi, in the previous COP, had spoken about Panchamrit (Five Point Agenda) as India’s gift. The number one was that renewable energy will go to 500 GW by 2030. We have not done more than 10 GW a year of renewable energy build. We now have to do 40 to 50 GW for the next eight years. We also need to focus on localized manufacturing capability. Most of the photovoltaic cells we buy come from China, which has 80 to 90% of the global share. We must have indigenous capacity and capability to put up these plants ourselves. In the energy mix, coal continues to be a big part of the mix, even in our accelerated scenario. We can have a battery car but a battery plane is a big challenge. So we need sustainable aviation fuel. We must incentivize people to invest and innovate and do research around sustainable aviation fuel. There are other fuel sources, like municipal solid waste, which can be converted to fuel. We must do the right targeting. For example, there’s a lot of sugar distillation. We do ethanol distillation from sugar plants. Is ethanol the right fuel? Or is it sustainable aviation fuel, which is a much harder problem to solve? This is a real question and we must set the right incentives to get to the right solution.
We need a lot more new capacity in electrolysers and batteries in electric vehicles. We saw that the benefits of decarbonisation exceed the downside and challenges. In electrolysers, solar panels and battery cells, we have an opportunity to leapfrog. In some sectors, we have a natural endowment. The sun is a natural endowment. We can do something on green hydrogen and be the green hydrogen leader, which is hopefully what the green hydrogen mission will start to catalyse. There are some spaces where India has an advantage if we invest right and now.
Inflation: Are we, as a household, going to spend more or less in the future, in a decarbonized world? Housing costs will go up, because steel and cement will cost a little bit more, but fuel and mobility costs will go down. So on the whole, we’re about the same. So from a household spend standpoint, going green in India is not a bad thing to do unlike in the West. It’s very important to keep that context in mind.
5 action points
We have a 10 point agenda in our report but I want to list out five things that are important:
- National plan: We don’t have a national plan and a roadmap to give us the markers, like how much green hydrogen we should be going for or what do we do as an alternate for cement. We need that at a macro level and sectoral level.
- Compliance carbon markets: There are several market mechanisms and technologies that need to be accelerated for compliance carbon markets. India is the largest issuer of carbon credits globally. But we’ve only scratched the surface and there’s a lot more that we can do in this space and more so, for industries that are hard to evade like cement, aviation and steel.
- Green bank: Because of the capital requirement that we have, we can create a Green Bank. A few countries are experimenting with this. Some have created a Green Bank and a Transition Bank, which are built for green financing and transition financing.
- Land use policy & circularity: We must create certain policies or missions that are very much driven around the challenges like land use policy. We are short of 45 million hectares. India’s total landmass is about 350 million hectares. We have to find ways of incentivizing people to do the right thing with land. We need to plant crops for feeding people. We need renewable energy and we need to house all. Everything is important and we must make the right choices. The circularity mission is very important. We must focus on the hydrogen mission and also on carbon capture, utilization and storage mission. We’ve identified five potential industrial hubs where we can have carbon capture, utilization and storage.
- Accelerate renewables and an enhanced hydrogen mission. Our optimism comes from the demographic dividend and growth opportunity that India has. Now, it is ours to use or lose this dividend. Whether we like it or not, the next decade will see how much of this we can get right and how much we can decarbonize.
Mr Ravichandran P
President, Danfoss Industries Pvt Ltd
Energy Efficiency: One of the key pillars of decarbonisation is energy efficiency. On the demand side, there have been tremendous initiatives done by the Bureau of Energy Efficiency. One of the biggest examples is the use of LED bulbs, which has cut down the energy footprint in cities and houses. Energy efficiency is less understood and it needs to be fully harvested. Today, India has got 500 GW of connected load. I believe that 30% of this energy can still be harvested and we already have technologies for that.
Leadership: We need a leadership direction, not just at a national level, but at a state level too. When Denmark had the oil crisis in the 1970s, they decoupled GDP growth and energy intensity. That’s how wind energy was born. Every state government must be made to think about a carbon neutral journey plan. A state like Tamil Nadu which has 40% renewable in the mix, can lead the way. We need visionary leadership at the grassroots level for fully harnessing the decarbonisation opportunity.
Ecosystem: We need to build the ecosystem. Decarbonizing has to be part of a social transformation. It has to start with the entire population of India. India needs quite a lot of water, if it aspirationally wants to be in the semiconductor business, data centre business and battery business. Today, we are starved of water. We don’t have clean water across India. We must first disrupt water in every urban city of India. Water and energy have a close nexus. If you want to pump water, you need electricity, for which we depend on coal. In 2023, we will be overtaking China in population and water becomes a very important per capita consumption story.
Agriculture: There is a nexus between food, water and energy. In agriculture, we need to mandate what to grow, how much to grow and where to grow. The biggest disease in India is diabetes and we still grow a lot of sugar which consumes a lot of fresh water. We need a policy regulation and a lot of education and directional shifts in agriculture.
Digital: If we want to decarbonize anything, digital is the core of it, because we need to measure carbon consumption. India has a very strong position in digital and IT sectors. We can use this as an opportunity to pivot and lead the world in what I call as the digital decarbonisation. We can create digital twins of a building or a factory. Using digital, we can go down to the smallest element where leakages happen and fix them using technology. As an ecosystem in India, we can create 3 to 5 million jobs, only on decarbonisation.
Dr Arunkumar M Sampath
Principal Consultant, Tata Consultancy Services
- Every country has its own growth path and it peaks differently for different countries. We have to take independent decisions and strategies that work for us and we have to look at things from our perspective.
- The biggest impact on energy efficiency will come from human behavioural change rather than technology.
- About a month ago, on the sidelines of COP27 in Sharm el Sheikh in Egypt, about seven companies came together—GE, GM, Bechtel and a few others—to work on cross industry, cross sector collaboration and open innovation. What they said is that just because I did a fantastic engine or car, it doesn’t mean that I am going to do a fantastic job; because if the roads are bad, you cannot drive beyond the second or third gear. So innovation in one sector can be leveraged by the others through collaboration.
- The next one is the triangulation of three things: one is open innovation; second, the energy intensive industries like cement, power and steel; and the third, carbon capture, utilization and storage. If you draw a Venn diagram with three circles representing these three areas, we must operate at the intersection of the three circles to get the best results.
- The data must be reliable and auditable. Unfortunately, there is no global standard and template for data gathering.
- During Covid, India took the lead of not only producing the vaccine but also giving it to over 150 countries literally free of charge, even though we had challenges in getting a license or patent. Similarly, we must have an agreement to help the poor countries to reach the emission standards by providing them with technology or footing their bills for developing/acquiring technology.
Dr Kanakasabapathy Subramaniam
Sr Vice President, Ashok Leyland Ltd
Human body is an engine that burns carbon. We exhale CO2 and inhale O2. This is exactly what an internal combustion engine does, and this tells me that there is probably nothing wrong with carbon based fuel. To me, it sounds like nature has honed in on carbon based fuels for all life forms. Converting carbon to carbon dioxide may be the most efficient way to use a fuel and convert it to energy. There is nothing comparable to petrol or diesel even today. What nature does is it reverses carbon dioxide back to carbon. We can call it carbon capture or sequestration. To convert carbon dioxide back into carbon and oxygen, we have to give exactly the same amount of energy that we used to burn it in the first place. Nature does that using solar energy and we call it photosynthesis, which is the process by which plants use sunlight, water, and carbon dioxide to create oxygen and energy. The leaf inhales carbon dioxide and gives out oxygen and keeps the carbon to grow the plant. To me, the answer to decarbonisation lies in finding a way to extensively use solar energy to capture carbon. A carbon based fuel has many advantages. It gives the highest amount of energy density. This is one part.
The second part lies in the concept of keeping things simple. The automotive sector is one of the culprits for emissions. By saying that petrol and diesel are the culprits, we may be using a brute force solution. The process of making green hydrogen is expensive. With battery vehicles, we are worried about the environmental cost of mining lithium, making batteries and disposing them at the end of life.
We know from Newton’s law that F = ma (force equals mass x acceleration). You consume energy only when you accelerate. If acceleration is zero, there is no force and no energy consumption, provided the road is good and you don’t brake. So the problem of fuel consumption is a problem of traffic management and it’s not changing the fuel. This can be a right idea for a traffic management startup. Can you manage the traffic so nicely that you optimize the flow and don’t brake? Then you will literally have a free ride without fuel. Even with electric vehicles, you will keep braking if the road is bad. Changing the fuel is the wrong way. The correct approach is go back to the fundamentals and getting close to ideal driving conditions.
Naveen Unni: What is India’s leadership in this space? How do we take the suggestions to action, over a 10 to 20 year period?
Ravichandran: When we build a future, it has to be a full ecosystem approach. In the last four or five decades, we have not tried to solve the problem. We need a holistic approach to problem solving. We need to build India centric solutions with deep value chain where we don’t rely on imports and build open source technologies, which can be easily scaled. The speed at which you can scale using digital platforms is more cost efficient. For example, Amul is a company which is almost decarbonizing the dairy industry. Amul was built using a circularity model embedded in everything they did. Amul is an ecosystem play. They can measure the temperature of the cow. They are online and in digital. The farmer gets money in digital. The quality of milk measured is digital. The technologies and the solutions have been done indigenously. So if India wants to lead, we need an ecosystem approach.
Dr Arunkumar M Sampath: Technology can only take you so far. The behavioural change is very important. Sustainability must have inclusive growth. If you want technology or solutions to succeed, there must be a community buy in.
Dr Subramaniam: You can learn technology on YouTube. We have the brains. All we need is to realize that if we have the confidence, we can do it. We just need to bring the people together and focus the brains with the right degree of confidence.
Q: With our roads, it’s impossible to drive without frequent braking. How do we get over this problem? How do you see the adoption of hydrogen as a fuel?
Dr Subramaniam: With regenerative braking, you can recover 20% of the energy. There’s a lot of technology that’s coming up with which you can recover up to 70 or 80%. Of course, it will take a little longer. Hydrogen is a very nebulous sort of thing. To me, hydrogen is not a fuel because a fuel has to have an inherent energy content. There are many ways to make hydrogen but let’s take splitting water. You have to put in energy from somewhere and get hydrogen. Hydrogen can be a storage medium like a battery. It’s better than a lithium battery. We can convert water into hydrogen and store that energy for later use.
Q: In energy efficiency, we had the LED revolution. Why is it that the concept of energy efficient fans has not caught up in a big way in India?
Ravichandran: Initially, the focus was on heavy industries that were guzzling up energy like steel, cement, mining and paper. In phase one, they came up with a PAT scheme—Perform, Achieve and Trade, thanks to which, we have one of the world-class cement plants in India and in terms of the energy that we consume to produce a ton of cement, we are the world leaders. EESL is now providing energy solutions for the government. Multiple products have been looked at including fans, grinders, etc. We also have the energy labelling program for appliances. There are great initiatives already in place. Technology agnostic thought process must also be there.
Q: Coal is a major source of power in India and it is available in abundance. Why should India avoid it?
Naveen: We still are going to burn a lot of coal. We need a lot of power and we don’t have sufficient renewable energy. It is going to be a coal driven economy, even in our accelerated scenario. By 2040, quarter of our energy is still coming from coal. This is not to say that coal is bad or good. There’s no judgment here. All we’re saying is decarbonisation is good. Just as much as we have abundant coal, that coal is not the best quality. The idea is to get a mix of energy so that we are more resilient, going forward. Coal continues to be a part of the mix.
Q: Do we look at nuclear power as an option, considering issues like safety?
Ravichandran: There are so many different technologies and nuclear is certainly not rolled out. If we shut down coal plants, there will be a big NPA in the banks and joblessness in mining. We need to craft our choices carefully.
Q: Will G20 leadership give us leverage to gain leadership position on sustainability?
Ravichandran: It is a great opportunity to position India. After the Paris Agreement and Glasgow, it is India that has actually met quite a lot of climate commitments. This is exactly where we need to lead the discussions. India needs more funding. Technology is not an issue. Our Prime Minister should use this as a great opportunity to reposition India as a superpower in decarbonisation.
Naveen: Indonesia was the previous host country of G20. Right at the end, they managed to get a $20 billion in funding through four years for decarbonisation and sustainability. So there is a real opportunity to put something concrete, especially around technology transfer. A lot of commitments have been made on capital transfer but they haven’t materialized. So we can use this as an opportunity to canvass for the Global South, not just for India.
Q: What are the solutions we are looking at to minimise transmission losses?
Naveen: We need more copper and more transmission capacity. The bigger issue than transmission losses right now is lack of transmission.
Ravichandran: We can also have more and more micro grids, especially in remote parts.
Naveen: It’s a good idea for remote places where the cost of getting a transmission line is so high. But everywhere else where there’s some reasonable density, micro grid is not the best option.
Dr Subramanian: We also have HVDC transmission to reduce transmission losses.