In recent years, India has emerged as a pivotal player in the global discourse on climate action. With its rapidly growing economy and population, the nation faces a dual challenge: addressing its developmental needs while mitigating the adverse impacts of climate change. Its decarbonisation journey is both urgent and complex. However, it is also marked by remarkable opportunities for climate action, innovation, collaboration, and being a climate action leader for the Global South. Amid these opportunities lie significant challenges, and understanding them is crucial for formulating effective policies that can accelerate India's transition towards a low-carbon future.
Since India’s net-zero-by-2070 announcement in Glasgow in 2021, the Centre and the states have been in mission mode to decarbonise. What are the near-term challenges to decarbonising India's energy system? Through a review of research articles and policy briefs, we break down these challenges at both the sectoral and national levels in three key sectors: power, industry, and mobility.
Power
In the power sector, solar and wind generation costs have steadily decreased in the last decade, even becoming increasingly cost-competitive to existing coal power plants. However, these renewable energy technologies are intermittent in nature, requiring additional integration costs into India’s power grids. Moreover, to keep system-level costs manageable with increasing shares of solar and wind, we need cheap batteries and a significant upgrade of our power transmission network. There is also a need for demand-side measures, such as time-of-day tariffs, to nudge people to consume more energy during the hours when solar generation is at its highest. Second, according to a report by the Council on Energy, Environment and Water (CEEW), financing costs constitute a significant share of the power auctioning price and, therefore, access to cheap finance in this sector is crucial. However, policy risks due to heavy regulation in the power sector and the poor financial performance of state electricity distribution companies (discoms) reduce the confidence of investors and raise project risk premiums. Third, with its complex legal system and fragmented ownership patterns, land acquisition for renewable energy (RE) projects in India is another hurdle for investors. A recent CEEW study found that part of the solution lies in tapping into India’s vast rooftop solar potential — over 25 crore households have the economic potential to deploy more than 100 GW of solar energy capacity on their rooftops.
Industry
In the industry sector, Indian industries still have a high share of coal use. According to CEEW analysis, there is considerable near-term scope for decarbonisation of steel and cement industries through energy and material efficiency measures, electrification of low-heat processes, and fuel switching from coal to biomass or gas. Policy instruments such as India’s Carbon Crediting and Trading Scheme (CCTS) can help industries transition by providing a financial incentive. In the longer term, the availability of cheap hydrogen, carbon capture methods, or alternative construction materials will be critical to decarbonise this sector.
Mobility
In the mobility sector, the electrification of two-wheelers and e-rickshaws represents the most promising near-term opportunity. According to CEEW analysis, these modes are the fastest-growing EV segment in India and together constitute 93.5 per cent of the total electric vehicle market. However, large-scale electrification of four-wheelers and buses remains challenging due to their higher cost compared to internal combustion engines, mainly due to battery costs. It remains to be seen how EV policies at both the central and state levels aimed at reducing the economic and non-economic barriers (such as subsidies, swappable batteries, and charging infrastructure) can successfully scale up EV adoption of private and public transport.
Addressing these challenges will need capacity building, regulatory changes, international cooperation and diplomacy.
Realigning traditional development
First, meaningful climate action will require India’s institutions to realign traditional development objectives with a focus on sustainability, redesign regulations to aid the uptake of new technologies, and ensure compliance with environmental norms. Capacity building of our institutions is crucial for this and entails an understanding of the nuances of rapidly evolving low-carbon technologies. This will also need a longer multi-sectoral, multi-decadal vision of energy transitions that go beyond state action climate plans, which look at transitions until 2030. A few states, such as Tamil Nadu, Bihar, and Rajasthan, have already taken the lead in this direction.
Step-up manufacturing of renewable energy
Second, from an energy security and geopolitical perspective, India would need to significantly step up manufacturing in the renewable energy value chain, including securing critical minerals used to make batteries and solar modules. According to CEEW analysis, India will require around USD 200 billion in average annual energy investments to reach its net-zero targets. Therefore, significant indigenisation of the RE value chain is required, similar to our coal value chain, to gain opportunities from the energy transition.
Balance climate action with climate diplomacy
Finally, India must balance climate action with climate diplomacy on international finance and the historical responsibility of emitters. Climate action ensures that India does not lose out on the opportunities of a low-carbon world and simultaneously reduces climate impacts that could threaten its developmental gains. At the same time, a stronger demand for international finance and accountability is required to make the global transition more equitable.
India has a unique opportunity to decarbonise without compromising economic growth. It is already making remarkable strides. The next phase will require a better understanding of the near-term and long-term challenges that confront us.
Aman Malik and Pallavi Das are Programme Leads at the Council on Energy, Environment and Water (CEEW). Views are personal.
This article is part of a series for Sustainability 100+ S3. Learn More: https://www.sustainability100plus.com/
Moneycontrol journalists were not involved in the creation of the article.
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