Fight against pollution: India set to achieve Paris targets

By Amish Shah

The Paris agreement that India signed in 2015, was India’s inflexion point in its fight against pollution, almost similar to the inflexions seen in the UK post the London Smog in the 1950s or the Clean Air/Water Acts seen in the US in 1970s.

Over the next decade, India would continue to cut its diesel consumption, step-up natural gas and renewable power in the energy mix, upgrade emission and energy efficiency norms across sectors, and clean its water bodies.

What makes the push more forceful is the private sector participation with 19 large corporates already announcing plans to go carbon neutral by 2030-50.

The difference today is that we now plan to take a leap instead of eyeing incremental improvements. This is already visible in many ways: a) LPG penetration is at 97.5% vs 56% in 2015, on back of over 8 million new connections, to replace highly polluting alternative cooking fuels, b) city gas penetration is set to reach 70% of the population from less than 10% currently, c) auto norms upgrade straight from BSIV to BSVI, skipping BSV, d) aim to achieve 100% electrified rail network within three years to cut diesel use, e) plans to step-up rail freight capacity by five times to curtail freight movement by roads, f) plans to implement world’s largest renewable capacity addition programme: India’s renewable capacity doubled in past five years; specifically solar capacity is up nine times, albeit on a low base, g) norms to curtail emissions from existing coal power plants or face risk of shutdown, h) overtime, rising taxes for diesel cars and cess on coal.

Specifically, under the Paris agreement, India committed to meet three targets by 2030: a) cut greenhouse gas emissions intensity of its GDP by 33-35% (vs 2005 levels), b) increase non-fossil fuel-based power capacity to 40%, and c) create an additional ‘carbon sink’ of 2.5-3 billion tonnes CO2 (higher than its emissions currently), by an increase in forest/tree cover.

Basis current progress, India would achieve these targets much before 2030: emissions are down 21% vs 2005 levels, non-fossil capacity at 33%. We see scope for India to increase targets over time, aligning itself with other large global economies’ plans to go carbon neutral by 2050/60.

In fact, in certain cases, India’s pace of execution or the stringency of pollution norms is now better than the world. For instance, India leapt from BSIV to BSVI auto emission norms, within just three years compared to 5-10 years taken by Europe, China, Hong Kong and Singapore. Similarly, India is already at par with global norms for emissions from power gensets and energy efficiency for ACs and is planning to implement the most stringent norms globally.

Towards this journey, we estimate India would incur a capital expenditure of $401 billion, cumulatively over 2015-30, $84 billion of which has already been spent. As a result, India could save over 106GW of energy and cut 1.1 billion tonnes of annual CO2 emissions by 2030 or over 45% of current its emissions.

Interestingly, most capex towards pollution curtailment also makes economic sense. For instance, waste heat recovery based power projects being implemented by cement companies could achieve payback in less than three years, because they generate power at one-tenth the cost of captive coal-based projects.

Similarly, we see scope to curtail logistics costs by 37% for freight cargo that shifts to rail vs by road: would be possible once Railways’ rail freight capacity increases five times, likely by 2024 in our view. Also, cost of renewable power is now cheaper than fossil fuel-based power, operating cost for electrified rail is cheaper than diesel, power cost for solar-powered agriculture pumps is cheaper than diesel-powered pumps, etc.

The strong government resolve, rising global focus on climate change issues, investors penalising corporates with poor Environment, Social and Governance (ESG) scores through lower valuations – all of these imply that fighting pollution would be a multi-decade theme. India is well aligned, with the rest of the globe on this important issue and is also making great progress.

Printed by permission. Copyright © 2020 Bank of America Corporation