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Most experts agree that the consensus achieved at COP21 in Paris, like most global agreements, produced a sub-optimal outcome, and by itself, is unlikely to limit global average temperature rise to two degrees centigrade (much less 1.5 degrees). The real work will happen within nations, as countries begin to roll out the implementation of their Nationally Determined Contributions (NDCs).
Going forward, India’s climate policy and energy policies are likely to be shaped by three documents: the Paris Agreement, the Sustainable Development Goals (SDGs) Agenda and the Indian NDC submitted to the United Nations Framework Convention on Climate Change (UNFCCC). All three have implications for India’s national ambitions to grow infrastructure, ensure inclusive development and maintain sustained economic growth. The agreements also raise questions around financing, namely whether the global financial architecture can respond to the needs of this new development paradigm.
India requires in excess of $1 trillion in the next five years for meeting its stated national goals. Besides the domestic mobilisation of resources, there are two fundamental challenges that need to be resolved if the country is to meet its climate and energy goals. The first is to ensure steady global funding for its traditional infrastructure and energy projects in a carbon-constrained world. That will be difficult. The World Bank has already restricted loans for building coal-fired power plants since 2013; and in November 2015, the Organization for Economic Cooperation and Development (OECD) agreed to limit most state financing to ‘ultra-supercritical plants,’ which burn less coal to produce the same amount of electricity.
The second challenge is to reform the structural bias in the global financial architecture, which, since the global crisis, pays more attention to ‘credit adequacy’ rather than the ‘credit enhancement’ that India and other developing countries so urgently require. Aligning those banking needs and the global banking mood is an imperative for traditional, renewable and low-carbon projects.
Understanding India’s energy options is also a crucial task. On the mitigation front, the Indian NDC commits to reducing the emissions intensity of its economy by 33–35% by 2030 from 2005 levels and achieving 40% of its installed electrical capacity from non-fossil fuel sources by 2030. The latter commitment is conditional on receiving adequate technological and financial support. The NDC also signals that India’s per capita energy consumption may grow up to more than six times beyond 2015 levels.
As of the end of 2015, the installed capacity of clean energy sources (renewables, hydro and nuclear) in India was 30% of the total installed capacity. Therefore, even if that were to be scaled up to 40% by 2030, 60% of capacity would still be based on fossil fuels. The real room for India to maneuver is in this large block of base-load conventional generation, which will account for a majority of the actual power generation, given the low capacity factors of renewable sources of power.
According to analysis done by the Centre for Policy Research, India could have something between 600–800 GW of total electrical capacity by 2030. Taking the median figure of 700 GW, 60% of fossil fuel capacity would add up to 420 GW. The current fossil fuel capacity stands at 198 GW with 173 GW of coal and just over 24 GW gas. India is therefore likely to more than double its fossil fuel capacity by 2030, alongside the impressive commitment on increasing renewable installations.
To ensure that India’s path to development doesn’t compromise its climate action, India has a few options. First, it can ensure that the additional 200 GW of fossil fuel capacity that’s to be added up to 2030 is significantly fueled by gas. Gas-based power has roughly half the emissions of coal fired power plants. 24 GW of current gas capacity points to the limited presence of gas in India’s current energy mix and also to the potential to dramatically scale that up.
Two market conditions allow India to pursue that policy path aggressively. First, the slump in global gas prices following the restart of Japanese nuclear reactors and an oversupply in the market means that it’s the perfect time for India to negotiate new gas deals and secure long term supply at competitive prices. In fact, a lot of Indian gas plants were idle in 2015 as the prices of importing gas was more expensive than the cost of selling power. The Indian government has had to recently renegotiate the price with Qatar, its main supplier, and achieved a price reduction of about 50%. The second follows from the Iran nuclear deal, which could see Iranian gas becoming available as a viable source. Just last month, it emerged that India and Iran are considering a US$4.5 billion undersea pipeline that would connect Iran to India’s west coast via the Oman Sea. Iran has the largest gas reserves in the world and the availability of Iranian gas changes India’s energy calculus significantly.
India’s second option is to significantly scale-up nuclear power. Nuclear energy has the advantage of being both carbon free and, like gas power, available all the time. It’s therefore the only clean energy option to substitute coal in the electricity grid. However, India’s tardy rate of growth in the nuclear sector so far, with only 5.8 GW of current capacity, as well as issues with the liability law, procurement of technology and long construction times, mean that gas remains the only viable and cleaner option over the short term.
However, to make this shift to gas India needs to work on three key areas. First, the country’s gas infrastructure needs to be scaled-up so that it can link to transnational pipelines, draw from regasification terminals of Liquefied Natural Gas (LNG) and develop last-mile connectivity to consumers.
Second and more importantly, the political will to allow for the development of an integrated gas market is needed. The difficult decision to remove direct and quasi control over pricing and end-use needs to be taken. Such a move will create conditions where benefits and costs are accrued through market operations and will help attract interest from investors, producers and distributors.
Finally, India’s geopolitical overtures need to support this new energy agenda. Financing and infrastructure development require strong global support and partnerships. India’s relationships with Iran, Qatar and Turkmenistan among others also needs to be re-energized and must be seen as part of the national imperative of seeking energy security and more robust climate action.