India's goal of transitioning to a net-zero carbon-emitting country by 2070 will be challenging to achieve at the current pace of transformation and requires a well-planned, orderly and accelerated transition strategy, say experts with global consultancy McKinsey.

Six sectors - power, automotive, aviation, steel, cement and agriculture -now contribute roughly 70% of India’s overall emissions. India is the world’s third-largest emitter at 2.9 GtCO2e (GtCO2=one billion tonnes of carbon dioxide) contributing 4.9% of global emissions, though India’s carbon emissions currently stand at a mere 1.8 tons CO2e per capita, compared to the United States at 14.7 and China at 7.6. India's Nationally Determined Contribution (NDC) goals for 2030 commit to using half of the power-installed capacity from non-fossil fuel-based energy resources and to achieving a 45% reduction in emissions intensity from its 2005 levels.

Talking about a recent study done by McKinsey on India's net zero plans - "Decarbonising India: Charting a pathway for sustainable growth", Naveen Unni, managing partner and leader for Sustainability Practice in India, says their study was based on a 'Line of Sight (LoS) scenario' with current and announced policies and foreseeable technology adoption and an 'Accelerated scenario' with further reaching policies like carbon prices and accelerated technology adoption, including those of technologies like carbon capture.

"Though India has moved in several sectors with rapid pace like renewables, energy efficiency, EVs, and hydrogen and several sectors are poised for scale up to reduce carbon footprint, four cross-cutting enablers which can help decarbonise multiple sectors will be carbon-capture usage and storage (CCUS), natural climate solutions (NCS), material circularity and green hydrogen," says Naveen Unni. If India is to have an orderly and accelerated decarbonisation, the transition process has to be set up within this decade, he says.

India needs to plan its development strategies, eyeing a long scenario, as the country will likely become a $22 trillion economy, about seven times its current GDP, with a population of 1.7 billion by 2070. Over three-fourths of India in 2050 (and over 80% of India in 2070) is yet to be built. This growth could multiply demand across sectors - power (eightfold), steel (eightfold), cement(triple), automotive (triple) and food (double), says McKinsey.

Challenges

There are multiple challenges in achieving the planned goals. For example, renewable (wind and solar) capacity addition will likely increase from 10-12 GW per year today to 50 GW per year in 2030 and to 90 GW per year in 2040. Ten times as much land as is used today would need to be identified and made available. Panels and corresponding raw material manufacturing may need to be scaled up, given 80% to 90% of the solar panels are imported currently.

In automotive, 100% of two-wheelers, three-wheelers and light truck sales may need to be electric early in the next decade. All car sales would have to be electric by 2035 and trucks by 2050. For this, battery costs may need to decline by 40% in 2030 relative to today. Charging stations would need to increase 13 times by 2030 and 40 times by 2040 relative to today. Consumer financing, given higher upfront EV costs and raw materials for batteries, will need to be found.

A key fuel of the future, Green hydrogen, is not going to be economical versus other alternatives until 2030. It would need a subsidy of $60-80/KW for electrolyser manufacturing and carbon prices (within this decade) to support uptake for its largest use case of green steel making. About 29 GW of electrolysers may need to be installed by 2030 (relative to the current deployment of about 1.4 GW, globally16) and almost 400 GW by 2040.

Across other industries, steel would need growth in hydrogen green steel capacity from nil today to 152 Mt by 2040 while blast furnace–basic oxygen furnace (BF-BOF) capacity would need to see an increase from 55 Mt today to 119 Mt by 2030 and then a decrease to 85 Mt by 2040. Coal-based power generation would have to transition from 211 GW today to 120 GW by 2040 and nil by 2050. Refining capacities would need to decrease from 213 Mt per annum today to 114 Mt per annum by 2040 and 105 Mt per annum by 2050.

Additional land would be needed to meet India’s land requirements. This may be needed for agriculture (12 million hectares (ha) by 2040), solar plants (5 million ha by 2040), forest densification (4 million ha by 2040), etc. However, sufficient volumes of suitable land will not be readily available unless efficient land-use practices are implemented.

Investment, currently at $44 billion per annum, will likely need to increase 3.6 times by 2030 and 10 times by 2040. This is doable so long as early action is taken to facilitate the transition within this decade, given that a very large proportion of the decarbonisation levers are in the money, observes the McKinsey study.

Levers for change

India's emission intensity reduction, if continued at the same rate, annual emissions would still rise to 11.8 GtCO2e by 2070 (from 2.9 GtCO2e in 2019). While there are emerging tailwinds in the form of falling costs of renewables and electrical vehicles (EVs) and some policies are beginning to be implemented (e.g., Faster Adoption and Manufacturing of hybrid & electric vehicles in India {FAME} for EVs, an imputed $140-240 per ton of CO2e tax on motor fuels and several other actions, with significant scale-up are needed.

A carbon price has to be put in place to make green steel competitive, battery costs have to decline by 80% by 2050, hydrogen by two-thirds by 2035, a nationwide rollout of charging infrastructure has to happen, farmers have to adopt new practices for rice cultivation and targets for circularity have to be met and higher targets have to be set. "Agriculture and food habits have to change as crops like rice are high emitters of methane gas. The same is the huge cattle population. Unless ways are found to mitigate such challenges, net zero will not be a reality", says Naveen Unni.

Fossil fuels, which comprise 75% of India’s commercial energy mix today, will decline to half in the LoS scenario and one-sixth in the Accelerated scenario by 2050. In the Accelerated scenario, over 60% of India’s refining capacity, 90% of its coal-mining capacity, and 100% of its coal power generation would not be needed. The government also will suffer. Tax collections from automotive fuel, which at $85 billion comprise 18% of the annual central government income, could decline to $36 billion by 2050.

Another issue will be to ease the pressure on land systems. Growth and decarbonisation combined may require 45 million ha more land than is available. Almost 10 million ha of this would be needed for renewable power and 8 million ha for carbon sinks and forests. Innovative land optimisation techniques such as maximising barren land use for renewable power, vertical urbanisation, improved agricultural productivity, and higher forest density would all be needed to ensure there is sufficient land to use for decarbonisation.

McKinsey says the energy transition plans will also affect the jobs and income of the Indians. They estimate accelerated decarbonisation could transform over 30 million jobs (24 million new jobs could be created while six million of the existing jobs could be lost) by 2050. However, this number is relatively small in the context of the macro trends affecting India’s workforce (e.g., 60 million joining the workforce by 2030, 30 million needed to come off farms into non-farm jobs). Specific communities (e.g., coal mining and associated enterprises in Eastern India) could be adversely impacted, requiring reskilling and alternative industrial development in particular areas.

Another big issue to tackle is funding for the transition. India may need an estimated $7.2 trillion of green investments until 2050 to decarbonise in the LoS scenario and an additional $4.9 trillion for the Accelerated scenario. Investment, currently at $44 billion per annum, will likely need to increase 3.6 times by 2030 and 10 times by 2040.

Early mover advantages

The report says early transition can also bring many benefits to India. In steel, the early imposition of a carbon price could lead to 200 Mt of steel capacity being built on the low-carbon hydrogen route instead of the coal route by 2050. India’s transition from thermal power to renewables is expected to decrease the average cost of power supply from Rs 6.15/kWh in FY20 to Rs 5.25/kWh and Rs 5.4/kWh by 2050. Sustainable farming practices could help generate additional farmer income of Rs 3400-4800/hectares. India may save a cumulative $1.7 trillion in forex which may otherwise be spent on energy imports till 2070. In addition, India can minimise asset stranding in this transition, like coal plants, which currently have a young fleet of an average of 12-15 years. Finally, if India can get manufacturing in newer technologies going, it can be a world leader in batteries, electrolysers, green steel and many other areas.

India's net-zero plans

India's net-zero goals challenging, need long-term planning: McKinsey