Opinion | Structural reforms for decarbonising India

Opinion | Structural reforms for decarbonising India

Article:

Vaibhav Chaturvedi is a research fellow at the Council on Energy, Environment and Water has discussed about need of structural reforms for decarbonising India.

Important Analysis:

• India is one of the world’s fastest-growing economies, poised to become the third-largest by 2028. Rapid economic growth is often driven by an increase in energy demand and consequently higher carbon dioxide emissions.
• In Paris climate deal India committed to cut its emissions intensity of GDP by 33% to 35% below 2005 levels by 2030, and to achieving 40% of its electricity-generation capacity from non-fossil sources by the same year.
• Research by the Council on Energy, Environment and Water (CEEW) finds that in the business-as-usual scenario, the industrial sector would account for one-third of India’s carbon dioxide emissions in 2050.
• But to achieve the targets the structural reforms are needed to facilitate India’s decarbonisation, similar to structural reforms that are critical for achieving higher and equitable economic growth.

Four key Structural Reforms.

• India’s electricity pricing policy
  • Current policy subsidizes electricity prices for agricultural and residential consumers, while penalising commercial and industrial consumers.
  • However, how pricing reforms could help decarbonise India’s industrial sector has been ignored. Electricity is expensive for industrial users compared with the cost of fossil fuels, especially coal. Hence, more than 80% of India’s energy use is based on fossil energy.
  • Mitigating the emissions via renewable and other low-carbon electricity sources would be an effective strategy.
• Revamping the market design of India’s electricity – For absorbing a greater percentage of variable renewable energy (VRE), i.e. solar and wind, into the grid, conventional power plants, especially those running on coal, would need to operate differently.
• Banking sector reforms – The banking sector has been plagued by the issue of non-performing assets.
  • A risk-averse banking sector means less capital and high interest rates for unconventional energy businesses, invariably the renewable energy sector.
• Need for strong India’s bond market – Experts have highlighted that while green bonds are being issued for supporting renewable energy, India ironically does not have a well-functioning larger bond market.
  • Proceeds from green bonds provide critical financial support for environment-friendly investments. Already, over $6 billion has been raised via green bonds in India.
  • Market reforms at a larger scale for deepening of capital markets in India will have immense potential which is largely untapped.

Deep Decarbonization Pathways Project

• The Deep Decarbonization Pathways Project (DDPP), an initiative of the Sustainable Development Solutions Network (SDSN) and the Institute for Sustainable Development and International Relations (IDDRI), aims to demonstrate how countries can transform their energy systems by 2050 in order to achieve a low-carbon economy and significantly reduce the global risk of catastrophic climate change.

Other Reforms:

• Under a changing climate, extreme weather events like the floods in Kerala are becoming more common across the country. India needs to meet its decarbonisation goals not only for meeting its climate commitments and economic targets, but also for fulfilling its human development objectives.
• Governments will need to utilise other public policy levers as well, including power market and tariff redesign, to encourage renewables, adoption of technical standards and other regulations to drive energy efficiency improvements, and a comprehensive approach to urban and transport planning.
• The role of policymakers will be crucial in enabling strategies. A critical ask of developing countries like India has been for financial support for appropriate research and development.
• Governments will also need to recast their spending priorities and incentive schemes in ways that support higher investments in renewables, low-carbon technologies.
• India will need to look at all flexibility options, including an increasingly interconnected grid, storage and demand side measures. An integrated approach would help enable the transition to a low carbon power system, but also requires addressing considerable regulatory challenges, such as the pricing of electricity.