Climate change is a serious issue. Even though India’s emissions stand at a mere 1.8 tons of CO2e per capita (versus the United States at 14.7 and China at 7.6), it is still the world’s third largest emitter at 2.9 gigatonnes of CO2 equivalent (GtCO2e), which is only 4.9% of annual global emissions. Yet India has pledged to net zero emissions by 2070.
Pegged to play a critical role in the global war on climate change, India has to take immediate action to lay the foundation for transitioning to a low-carbon economy. For this, an estimated amount of $12.1 trillion (5.9% of GDP) of green investments are required until 2050 for decarbonizing India in an accelerated scenario, says McKinsey & Company. The accelerated scenario includes more far-reaching policies like carbon prices and accelerated technology adoption (including of emerging technologies like carbon capture and storage).
According to the report, India will need an estimated $7.2 trillion of green investments until 2050 to decarbonise in the line-of-sight scenario with current (and announced) policies and foreseeable technology adoption. An additional $4.9 trillion for the `Accelerated’ scenario (about 3.5% and 2.4% of India’s GDP through this period, respectively).
50% of the investment required for decarbonisation is economically viable, particularly across renewable energy, auto, and agriculture; others would need policy support. The net spending (CAPEX minus OPEX associated with this investment) is front-loaded – as an illustration, net of operational savings, $1.8 trillion would be needed in the decade of the 2030s and $0.6 trillion in the 2040s between the two scenarios.
India currently emits a net of 2.9 GTCO2e every year, of which 70% is contributed from power, transportation, steel, cement, and agriculture. Fossil-fuel sources of power (coal, oil, gas) account for 34% of the total carbon emission. Cement, steel, iron, mining, lime, and refineries account for 28%. Agriculture accounts for 18% of total emissions, primary methane from cattle and rice cultivation.
Creating carbon space
The report also states that India also has the potential to create 287 Gt of carbon space for the world (in the ‘Accelerated’ scenario). This amounts to almost half of the global carbon budget, for an even chance at limiting warming to 1.5 degrees Celsius. Carbon space refers to the amount of carbon that can be released into the atmosphere by 2100 so that the rise in global temperature can be capped at 2 degree Celsius. The current pace of emissions intensity reduction is insufficient for India’s emissions curve to bend, with the expected growth outlook.
Next decade to be crucial
Growth would multiply demand across sectors by 2070: power (eightfold), steel (eightfold), cement (triple), automotive (triple) and food (double). If policies to create the right demand signals are set in place within this decade, India can add low carbon capacity in the next two decades thereafter.
Benefits of timely transition
Of the many benefits, an orderly transition to renewable energy (RE) can help India save a cumulative $1.7 trillion in forex, which would otherwise be spent on energy imports (oil and coking coal) till 2070. India’s transition from thermal power to renewables is expected to decrease the average cost of power from Rs 6.15/kWh in FY20 to Rs 5.25/kWh and Rs 5.4/kWh by 2050 in the LoS and Accelerated scenarios, respectively.
India needs thoughtful and urgent action in this decade to lay the foundation for an accelerated and orderly transition to a low-carbon economy.
Rajat Gupta, Senior Partner and Asia leader of the Sustainability Practice, McKinsey & Company, says, “The benefits of a well-planned, orderly, accelerated transition would outweigh the downsides, given India’s growth outlook. But it would require the nation to act within this decade, using its growth momentum to build India right for the decades thereafter. While actions needed are challenging, most of them are economically viable, and hence the journey is doable.”
