CHAPTER-6: CLIMATE CHANGE AND ENERGY TRANSITION: DEALING WITH TRADE OFFS
Economy Survey 2023-2024: Revision Notes
INTRODUCTION
Climate Change and Policy Trade-offs: Key Points
Global Conferences and Summits
- Numerous global events dedicated to climate change since the last Economic Survey.
- Dominates policy discourse globally, but current approaches ignore trade-offs.
Policy Challenges and Trade-offs
- UK: Delayed ban on petrol/diesel vehicles to 2035 from 2030.
- Germany: Diluted fossil fuel boiler bans due to public resistance and high energy costs driving businesses out.
- Alternative political parties rise due to unfair climate rules impacting the poor.
Economic and Fiscal Constraints
- Alternative energy sources need fiscal subsidies; governments are fiscally stretched post-pandemic.
- Heavy taxation on fossil fuels; reducing their use cuts government revenue.
- Geopolitical race for critical minerals and rare earths for renewable energy and EVs, with China as a key supplier.
- Nuclear energy faces public fear despite being clean and safe.
Resource Scarcity and Energy Needs
- Metals like copper and nickel will become scarcer.
- Ed Conway: World needs more copper in the next few decades than ever used before.
- Energy transition will require significant energy and emit considerable CO2.
Energy Transition Timelines
- Energy transitions historically take 50-60 years (Vaclav Smil).
- Short-term energy transitions are unrealistic.
- Effective solution: reduce overall energy use, challenging for developing countries.
Paris Agreement and Development Goals
- Paris Agreement (Dec 2015) prioritized climate goals over Sustainable Development Goals.
- Climate policies’ focus on global temperature is flawed (Mike Hulme).
- Developed countries push for emissions cuts, threatening economic growth in developing nations.
- Carbon taxes at borders contradict the principle of common but differentiated responsibilities.
AI and Energy Demand
- Developed nations’ AI obsession increases energy demand.
- Net Zero commitments conflict with rising emissions due to AI and data centers.
- AI-driven energy demand growth in the US (Goldman Sachs).
Impact on Developing Countries
- Disproportionate climate change impacts on vulnerable developing nations.
- Developing countries need ambitious emissions reductions but require financial and technological support.
- Estimated resource needs: USD 5.8-11.5 trillion by 2030 for low-carbon development pathways.
Recognizing Trade-offs
- Critical to ask honest questions about climate goals’ feasibility and acceptability.
- Weigh benefits of avoiding climate change against transition costs.
- Mike Hulme: Future worlds with higher global temperatures could still be better for human well-being.
India’s Approach
- Balancing climate impact management with developmental priorities.
- Reviews India’s climate initiatives, energy transition issues, and multilateral negotiations.
- Explores options and the way forward for India’s growth strategy.
Facts
- UK Postponement: Petrol/diesel ban delayed from 2030 to 2035.
- Germany: Diluted fossil fuel boiler rules, high energy costs causing business relocations.
- China’s Role: Major supplier of critical minerals and rare earths for renewable energy.
- Energy Transition Costs: 10EJ of energy needed for wind/solar capacities (2024-30), 1,450 mn tonnes of CO2 emissions.
- Historical Transitions: Each major energy transition has taken 50-60 years (Vaclav Smil, 2014).
- Resource Needs: USD 5.8-11.5 trillion required for developing countries’ low-carbon pathways by 2030.
- AI and Energy Demand: AI increases emissions; US power demand growth driven by AI (Goldman Sachs, April report).
PRESENT STATUS OF INDIA’S CLIMATE ACTION
India’s Climate Action
- National Action Plan on Climate Change (NAPCC): Nine national missions covering solar, water, energy efficiency, forests, sustainable habitat, sustainable agriculture, Himalayan ecosystem, strategic knowledge, and human health.
- Progress on Climate Action:
- Solar power capacity: 15.03 GW added in 2023-24, reaching 82.64 GW by April 2024.
- PAT scheme: Eighth cycle notified for 2023-24 to 2025-26, targeting 0.3370 MTOE energy savings.
- NDC targets achieved: 40% non-fossil fuel power capacity in 2021, 33% emission intensity reduction in 2019.
- Updated NDC: 45% emission intensity reduction and 50% non-fossil fuel power capacity by 2030.
- Carbon sink: 1.97 billion tonnes of CO2 equivalent created from 2005 to 2019.
- Third National Communication (TNC): Energy sector as major contributor to emissions (75.81%), followed by agriculture (13.44%), IPPU (8.41%), and waste (2.34%). LULUCF sector remained a net sink.
- Emissions Growth:56% increase in total national emissions since 2016, lower than GDP growth rate (7%).
- Financing Needs: USD 2.5 trillion estimated for meeting NDC targets till 2030, access to finance and technology crucial.
Key Points
- India’s climate action focused on adaptation and mitigation, including demand-side management.
- States encouraged to prepare State Action Plans on Climate Change (SAPCC).
- Significant progress in solar power and energy efficiency under NAPCC.
- NDC targets achieved ahead of schedule.
- Energy sector as major contributor to emissions.
- LULUCF sector acted as a carbon sink.
- Decoupling economic growth from emissions.
- India recognized as G20 nation aligned with 2-degree centigrade warming.
- Primarily domestic financing for climate action.
- Need for access to finance and technology for meeting NDC targets.
ADAPTATION IS CRITICAL FOR INDIA
Climate Change Adaptation
- Vulnerability to Climate Change: Lower-income countries more vulnerable due to lack of resources.
- India’s Vulnerability: One of the most climate-vulnerable countries.
- Adaptation Initiatives: NAPCC focusing on adaptation, PMKSY, NICRA, flood forecasting and early warning systems.
- Adaptation Expenditure:60% of GDP in 2021-22, increased from 3.7% in 2015-16.
- Coastal Region Vulnerability: Wetland conservation as an adaptation measure.
- Wetland Conservation: 56 new Ramsar sites since 2014, Amrit Dharohar initiative for nature tourism, Mission Sahbhagita for participatory conservation.
Key Points
- Climate change adaptation crucial for lower-income countries.
- India’s focus on adaptation through NAPCC and various initiatives.
- Increased adaptation expenditure indicates government’s priority.
- Wetland conservation as a key adaptation strategy for coastal regions.
- Government initiatives for wetland conservation and community involvement.
Case Study: Navanagar Village, Gujarat
Problem
- Declining water table (500-600 ft)
- High TDS in water (900-1100 mg/l)
- Unsuitable for agriculture
- Low crop yield (cotton, castor)
Solution
- Community-led water management
- Rejuvenated village pond using canal water
- Constructed sump for water storage
- Individual electricity connections and pumps
- Mandatory drip irrigation (PDMC)
Outcomes
- Increased agricultural productivity (30%)
- Reduced fertilizer and power consumption
- Crop diversification (fruits, vegetables)
- Improved water sufficiency
- Equitable water distribution
LOW CARBON DEVELOPMENT AND ENERGY COMPOSITION
Energy Demand and Transition
- India’s energy demand to double by 2047.
- Balanced energy transition considering climate change and development.
- Net Zero target by 2070 with diversified energy mix.
- Increased focus on renewable energy.
Energy Mix in India
- Fossil fuels dominate (84% in 2022-23): coal, oil, natural gas.
- Electricity sector shift: 45.4% non-fossil capacity (May 2024) from 32% (April 2014).
- Renewable energy initiatives:
- PM-Surya Ghar Yojana: 30 GW solar capacity, 720 million tonnes CO2 reduction.
- National offshore wind energy policy.
- Green Hydrogen Mission: 5 MMT green hydrogen by 2030.
Challenges in Green Hydrogen Production
- High production and delivery costs.
- Limited demand in industries.
- Dependence on renewable energy with intermittency issues.
- Land requirements for solar and wind energy.
Energy Consumption Patterns
- High biomass use (changing with solar, LPG).
- Heavy reliance on imported petroleum (85%).
- Coal dominance in electricity generation (70%) and industries.
Clean Coal Initiatives
- Coal Gasification Mission: 100 million tonnes coal gasification by 2030.
- Reducing reliance on imports, emissions.
- Coal Bed Methane (CBM), coal to hydrogen, CCS, coal beneficiation.
- Super-critical and ultra-super-critical technologies for efficiency.
Energy Efficiency
- Crucial for clean energy transition and energy security.
- Global target: double energy efficiency improvement by 2030.
- India’s efforts include various energy efficiency measures .
Challenges of Energy Transition
- Intermittency and Dispatchability: Renewable energy’s impact on grid stability, need for battery storage.
- Levelised Cost of Electricity (LCOE): While LCOE for renewables has fallen, it doesn’t reflect total cost including intermittency and dispatchability.
- RTC Renewable Energy Supply Contracts: Internalizing risks related to intermittency and dispatchability.
- Technology Gaps: Many technologies for Net Zero are commercially unavailable, need for R&D cooperation.
- Land and Water Requirements: Renewable energy is land-intensive, India has low land availability per capita.
- Renewable Waste: Solar PV waste management challenge, need for comprehensive policy.
- Critical Minerals: Geographic concentration of critical minerals, India’s efforts to build domestic capacity, joining MSP.
- Financing Challenges: Trillions of dollars needed for energy system transformation, NITI’s IESS 2047 model estimates USD 250 billion per year investment.
Key Points
- Renewable energy faces challenges of intermittency and dispatchability.
- LCOE doesn’t reflect total cost, need for RTC contracts.
- Technology gaps for Net Zero, need for R&D cooperation.
- Land and water constraints for renewable energy expansion.
- Renewable waste management challenge, India’s efforts to address.
- Critical minerals supply chain risks, India’s focus on domestic capacity and international partnerships.
- Significant financing needs for energy transition.
Finance for Sustainable Development
Government Initiatives
- Sovereign Green Bonds: ₹16,000 crore in Jan-Feb 2023, ₹20,000 crore in Oct-Dec 2023.
- CICERO rated framework as ‘Medium Green’ with ‘Good’ governance.
SEBI Initiatives
- Mandatory ESG disclosures for top 100 listed entities since 2012.
- Expanded to top 500 and then top 1000 entities.
- BRSR for more granular ESG reporting with quantifiable metrics.
- BRSR mandatory for top 1000 listed entities from 2022-23.
- BRSR core for value chain disclosures introduced in July 2023.
RBI Initiatives
- Framework for Acceptance of Green Deposits.
- Renewable energy under Priority Sector Lending (PSL).
- Concessional credit for solar, biomass, wind, micro-hydel projects.
- Support for non-conventional energy-based public utilities.
PUTTING IN PLACE A MARKET FRAMEWORK TO PRICE CARBON: INDIAN CARBON MARKET (ICM)
Carbon Credit Trading Scheme (CCTS)
- Notified by Ministry of Power on 28 June 2023.
- Aims to put a price on carbon emissions.
- Replaces the Performance Achievement Trade (PAT) scheme.
- Sets GHG emission intensity targets for obligated entities.
- Allows trading of Carbon Credit Certificates (CCC).
- Entities exceeding targets earn CCCs.
- Entities falling short must buy CCCs.
- CCCs can be banked for future use.
- Key institutions involved (Table 1).
Voluntary Carbon Market (VCM)
Carbon Markets
- Types of Carbon Markets: Compliance markets (regulated) and voluntary carbon markets (VCM).
- VCM: Global value of over USD 1.2 billion, India is second-largest supplier.
- Carbon Offsetting: Compensating emissions through reduction/removal/avoidance projects elsewhere.
- Concerns: Double counting of carbon reductions, uncertainty about foreign credit claims.
- India’s Position: Domestic compliance market essential, avoiding subsidizing other countries’ transitions.
- Mission LiFE: Encourages sustainable living, includes Green Credit Program (GCP) for rewarding environmental actions.
INTERNATIONAL COMMITMENTS ON CLIMATE FINANCE: THE DEVELOPMENTS
Finance for Climate Action
Global Perspective
- Developing countries face financial constraints for climate action.
- Estimated USD 5.8-11.5 trillion needed till 2030 for NDC targets.
- Adaptation costs in developing countries far exceed current finance.
- Developed countries obligated to provide finance and technology.
- Limited finance flows from developed countries, mostly loans.
India’s Perspective
- India needs USD 2.5 trillion for NDC targets till 2030.
- LT-LEDS estimates tens of trillions of dollars needed by 2050.
- Adaptation costs estimated at ₹68 trillion by 2030.
- Most climate action financed through domestic resources.
Challenges in Financing Climate Action
- Limited and inaccessible finance for developing countries.
- Predominance of loans over grants.
- Reliance on private finance questioned.
- Macroeconomic stability concerns with private capital.
- Developing countries face challenges in attracting private capital.
- MDBs mobilize less than a dollar of private finance per dollar of committed finance.
- Need for government leadership and finance from developed countries.
CoP 28 and the Global Stocktake
COP 28 was held in Dubai, UAE.
- First Global Stocktake: A decision was made to enhance global climate ambition by the end of the decade.
- Loss and Damage Fund: An agreement was reached on its operationalization.
- Global Goal on Adaptation (GGA): The Emirates Framework for Global Climate Resilience was finalized. All countries agreed to develop adaptation plans by 2030.
- Finance: Developed countries were urged to provide financial resources for both adaptation and mitigation. There was a consensus on the need to increase adaptation finance.
- Mitigation: There was a call to triple global renewable energy capacity, phase out inefficient coal power, and phase down inefficient fossil fuel subsidies.
- National-level Implementation: Decisions will be implemented at the national level.
- Trade: There should be no unnecessary barriers to international trade due to climate change mitigation measures.
New Collective Quantified Goal (NCQG)
- New annual climate finance goal for developed countries to support developing countries.
- Minimum target of USD 100 billion per year from 2025.
- Addresses developing country needs and priorities.
- Focus on grant-based or highly concessional finance.
- Balance between mitigation and adaptation funding.
- Aligned with G20 Delhi Declaration.
INDIA’S INTERNATIONAL INITIATIVES TO ADDRESS CLIMATE CHANGE ISSUES
International Solar Alliance (ISA)
- Joint initiative with France in 2015.
- Aims for USD 1 trillion investment in solar by 2030.
- 119 member and signatory countries.
- Solar energy demonstration projects in LDCs and SIDS.
- Capacity building through STAR-C centers.
One World, One Sun, One Grid (OSOWOG)
- Joint initiative with UK.
- Interconnecting solar energy systems globally.
- Three-phase implementation: India-Middle East-South Asia, Africa, global interconnection.
- Target of 2,600 GW interconnection by 2050.
Coalition for Disaster Resilient Infrastructure (CDRI)
- Launched in 2019.
- Global partnership for infrastructure resilience.
- Capacity building, policy, planning, and management.
- First Biennial Report on Global Infrastructure Resilience in 2023.
- Financial support for peer learning and sectoral programs.
- DRI Connect platform for knowledge exchange.
- IRAX program for academic collaboration.
Infrastructure for Resilient Island States (IRIS)
- Flagship CDRI initiative for SIDS.
- Aims for resilience and climate adaptation solutions.
- Launched in 2021 with USD 35 million support.
- Target of USD 50 million by 2030.
Leadership Group for Industry Transition (LeadIT)
- Joint initiative with Sweden in 2019.
- Brings together countries and companies for climate action.
- LeadIT 2.0 launched at COP 28.
- Focus on inclusive industry transition, technology transfer, and financial support.
CONCLUSION
Challenges
- Balancing energy demand and emissions reduction.
- Renewable energy challenges: intermittency, waste management.
- Import dependency on petroleum and critical minerals.
- Technology gaps for Net Zero.
- Financial constraints.
Strategies
- Diversified energy mix: renewables, nuclear, biofuels, thermal power.
- Clean coal technologies: gasification, extraction of CBM.
- Renewable energy focus with necessary backup.
- International R&D cooperation for new technologies.
- Mobilization of finance from developed countries.
- Balanced approach to climate change, considering human welfare.
Key Points
- India needs a balanced energy mix for security and sustainability.
- Renewable energy focus with necessary backup from other sources.
- Technology development and international cooperation crucial.
- Financial resources essential for transition.
- Balanced approach to climate change required.
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