India’s Energy Policies and the Paris Agreement Commitments: Economic Growth and Environmental Constraints
As we approach the UN climate body’s Conference of Parties (COP26), to be held in Glasgow in November, the drive by the UN’s climate body to push the world’s major developing countries to adopt increasingly ambitious “decarbonization” policies as part of the Paris Agreement has intensified. U.S. climate envoy John Kerry called on China—the world’s largest emitter of greenhouse gases (GHGs), by far—to do more. Referring to China’s “staggering amount of fossil fuel use,” China’s Nationally Determined Commitments (NDC) to peak its carbon dioxide (CO2) emissions by 2030 under the Paris Agreement and its more recent promise of “carbon neutrality” by 2060 are not enough, according to Kerry.
As the world’s third-largest emitter of GHGs, India is under similar diplomatic and political pressure in international forums dominated by the EU, as well as the U.S. Biden administration, which have made climate policy a centerpiece in their international relations. Despite having the sixth-largest economy in the world—with a burgeoning middle class and world-leading industries, ranging from software services to pharmaceuticals—India still remains a poor country.
With a gross national income per capita of $1,900 in 2020, India is in the group of countries ranked as “lower middle income.” For comparison, the world average is $11,550; China’s is somewhat lower than the world average, at $10,610; and the high-income countries earned a per-capita GNI of $46,040. India’s per-capita consumption of electricity was estimated at just over 850 KWh at the beginning of 2020, or just 7.3% of U.S. per-capita consumption and 20% of China’s average. A recent survey found that 13% of India’s households lack access to grid electricity.
India’s economy is heavily dependent on fossil fuels—particularly coal. In 2020, fossil fuels accounted for almost 90% of the country’s primary energy consumption, and coal alone accounted for almost 55%. Coal is the mainstay of India’s power sector, accounting for just over 72% of total power generation in 2020. Renewable energy (which includes solar, wind, and modern biofuels but excludes hydro) accounted for less than 10%.
Wind and solar power generation have grown rapidly but from small bases. Solar generation grew in during 2009–19 by an impressive 90% compound annual rate, with an absolute increase of 46 terawatt hours (TWh). Wind grew by almost 15% annually, with an increase of 44 TWh over the same period; coal, accounting for the bulk of power generation, as already noted, grew by an annual 6.3%. Given the size of its contribution to total power generation, however, it accounted for an increase of 514 TWh. Unsurprisingly, coal will continue to play a major role in India’s rapid electrification to support robust economic growth. Indeed, while India plans significant renewable energy investments, its mainstay will include a major push in coal, oil, and natural gas utilization to support continued economic growth ambitions.
India’s ambitions for expanding the role of renewable energy have been a staple in the mass media, and recent headlines hailed the country’s achievement in having reached renewable energy capacity of 100 GW, making it the world’s fourth-largest in installed “green” capacity. On India’s 75th Independence Day (August 15), Prime Minister Modi tweeted in caps: “INDIA HAS SET THE GOAL OF 450 GW OF RENEWABLE ENERGY FOR 2030. OUT OF THIS, WE HAVE ALREADY ACHIEVED 100 GW TARGET WELL WITHIN SCHEDULE.” Big business in India also announced plans for large investments in the sector. Reliance Industries pledged to invest ₹75,000 crore (approximately US$10 billion) in “clean energy,” becoming the latest Indian oil company to announce a major push into renewable projects, including solar cells, hydrogen, fuel cells, and battery grids.
Yet glowing headlines about India’s achievements and ambitions to leapfrog into a new age of clean energy while being a “fair participant” in the Paris Agreement say little about the country’s dismal state of affairs in its power sector. A recent ratings agency report noted the massive and soaring losses of power-distribution companies due to limited tariff hikes and high interest payments on ballooning debt. This week, for instance, Rajasthan’s power utility company ran out of cash to pay for coal and to keep the state’s power plants running. It shut down 1,200 MW of capacity in mid-August, and another 1,500-MW power station faces a shutdown.
India’s power sector has long suffered multiple constraints on cash flow, facing political compulsion to accommodate subsidized power (often free) for agriculture, labor unions blocking privatization efforts, inability to hike tariffs to reflect input cost increases, and theft and line losses aggravated by poorly maintained infrastructure and deficient “last-mile” metering. Additionally, the costs of integrating intermittent solar and wind power into India’s creaky power sector have come under little scrutiny. In particular, the exemption for solar and wind power to access the grid without reference to merit-order dispatch rules, giving renewable energy a “must-run” preference, has further undermined the economics of state utility companies.
Global demand for fossil fuels shows no indication of slowing and will continue to grow for decades as developing countries aim to grow as rapidly as possible to meet the aspirations of their citizens. This view was perhaps most forthrightly articulated by Raj Kumar Singh, India’ s electric power minister. He called the “net-zero by 2050” mantra pushed by the EU and the U.S. under the Biden administration as “pie in the sky” and commented: “You have 800 million people who don’t have access to electricity. You can’t say that they have to go to net-zero. They have the right to develop—they want to build skyscrapers and have a higher standard of living; you can’t stop it.” Despite the widespread hype on renewable energy and electric vehicles, it is highly unlikely that energy policies in the major developing countries such as China, India, Brazil, South Africa, and Indonesia will be determined by the climate zealots in Washington, London, Paris, or Berlin.
Only eight of the G20 countries have submitted more ambitious climate targets (as they are required to do every five years, under the 2015 Paris Agreement). India, along with China, Brazil, South Africa, Saudi Arabia, Russia, and Australia, is among the countries yet to do so. In its first (and, to date, only) NDC, India committed to reduce the emissions intensity of its GDP by 33%–35% by 2030, from a 2005 baseline, and to achieve about 40% cumulative electric power installed capacity from nonfossil fuel–based energy resources by 2030. These commitments are not legally binding on signatories except for those countries (such as the UK) that have further legislated such targets within their own countries. India registered its NDC on the assumption that low-cost international finance and grants from the developed countries would be forthcoming at a scale deemed adequate for such “decarbonization” commitments.
India and China, along with other major developing countries such as Brazil and Indonesia, have consistently argued that industrialized nations were able to become wealthy before CO2 reductions were called for and that developing economies cannot be expected to make sacrifices that would put their legitimate aspirations for economic development at risk. India’s environment minister, Bhupender Yadav, said that “given the legitimate need of developing countries to grow, we urge G20 countries to commit to bring down per capita emissions to global average by 2030.”
Further complicating India’s participation, as well as that of other developing countries, in the upcoming COP26 conference is the threat of carbon content–based import tariffs by the EU and the U.S. Carbon tariffs risk contravening WTO rules and may lead to the further unraveling of a liberal trading order that has been in place since World War II.
In a stirring speech at the plenary session of the UN Conference on Human Environment in Stockholm in 1972, India’s prime minister Indira Gandhi famously said that “poverty is the worst form of pollution.” It would seem that India’s policymakers would be remiss if their ambitions to help their citizens achieve higher standards of living were to be sacrificed for alarmist arguments of an alleged “climate crisis.” Climate change models that purport to predict an impending apocalypse lack credibility in the eyes of many in the developing countries, where the real environmental problems are inherently associated with poverty and the lack of economic development.
Tilak K. Doshi is an energy economist and a Forbes contributor.
C. S. Krishnadev is an energy consultant based in New Delhi.