A bridge too far | India’s climate action plan: When symbolism trumps reality

One thing the Modi government cannot be accused of is lack of showmanship and symbolism. Last year, ahead of the Paris conference, it announced a series of intended actions on climate change on Gandhi Jayanti. On the same day this year (after many flip flops), it ratified the Paris agreement which will soon come into force, but implementation will commence only in 2020.

The agreement is a collection of voluntary actions by countries. Even if implemented, (and that is a big if), it will not succeed in containing rise in global temperatures to 2 degrees above pre-industrial levels. This ‘shortfall in ambition’ in UN-speak is to be tackled by an ‘ambition cycle,’ — a stocktaking of goals, time frames and commitments every five years — which will ensure countries strengthen their commitments. But the pledges are voluntary and there is no binding enforcement mechanism.

A country can simply walk away as Canada did from the Kyoto Protocol. It is entirely possible that a new US President could walk out by an executive order. Indeed one candidate has said he will do so. The same problem applies to another key element of the agreement — voluntary contributions by rich countries to the Green Climate Fund. There are serious doubts whether even a small fraction of the US$100 billion envisaged annually will materialise. The elaborate structure of Paris is a house built on sand which could collapse if one the key players renege (and also possibly set off a domino effect).

Turning to symbolism, the tone of India’s 38-page climate plan released last Gandhi Jayanti is preachy and clichéd. It starts with a shloka from the Vedas, talks about yoga and Mahatma Gandhi and the ‘Indian way’ of harmonious coexistence between ‘man and nature’ (the current state of our environment notwithstanding). The meat, or paneer (depending on your dietary preferences) is at the very end where intended actions (Intended Nationally Determined Contributions or INDCs in UN jargon) are spelled out. Thus, by 2030, India will: reduce emissions intensity of GDP by 33-35 per cent compared to 2005; produce 40 per cent of electricity from non-fossil sources (wind, solar, hydro and nuclear); and create a sink of 2.5-3 billion tonnes of CO2 through afforestation. However, there is no explicit commitment to cut greenhouse gas emissions nor a peaking year by when emissions will stop growing.

At the core of India’s strategy is energy efficiency and a major push on renewable energy, especially solar. But both the ends and means are vague and unrealistic. With regard to reducing emissions per rupee of GDP there is no quantification of this figure for 2005 nor of the expected GDP in 2030. Thus, neither the start nor the endpoint is known. Neither is there any sense of the contribution of different sectors to this goal. Reading between the lines it seems clean coal will play a big role. At present, coal-based power accounts for two-thirds of installed capacity. The action plan vaguely talks of ultra-supercritical technology for new plants and improving energy efficiency for 144 old plants, but is fuzzy on details. The 33-35 per cent figure seems to be pulled out of thin air.

Renewables currently account for 13 per cent (approximately 36GW) of grid-based electricity. In June 2015, PM Modi announced a sharp ramping up of India’s solar power target from 20GW to 100GW by 2022 at an expected investment of Rs7 lakh crores ($100 billion). Of this, 40GW each will be from decentralised rooftop solar and from utility-scale solar plants while another 20GW will be from ultra-mega solar parks. This means 15GW are to be added each year over the next 6 years. The target for wind power has been set at 60GW. To top it, the climate plan now calls for 340-350 GW of electricity from renewables by 2030 (of an anticipated total of 850-875 GW). Thus, the revised targets are 250GW for solar and 100 GW for wind. Given current levels of generation—8 GW for solar and 25 GW for wind the Herculean effort required becomes clear. It will take more than solar pumps and solarisation of petrol pumps and toll plazas to achieve the target. In fact, rooftop solar has lagged and there is now diminished appetite for it.

Most importantly, it is not clear how all this will be funded. Even with the ‘conservative’ 100GW target, since large projects are funded at a debt-equity ratio of 70:30 banks (mainly public sector banks), India will have to find Rs5 lakh crore over the next 5-6 years to finance the massive expansion in solar power. This is unlikely since the banks’ financial position is precarious, given the huge amount of stressed assets amounting to Rs13 lakh crore (about a fifth of total loans). Of this, the power sector alone accounts for 16.1 per cent bad loans. Low demand for power and oversupply have ruined thermal power companies whose growth was fuelled by cheap credit. In this scenario it will be hard for the solar power sector to do well.

Beyond these numbers does it make sense to go full tilt in an industry where technology and prices are still to stabilize. In terms of project finance, the picture is worrying. While solar power tariffs have fallen below Rs5 per unit due to aggressive bidding in reverse auctions (lowest bidder wins) projects are in trouble. Several companies that won projects at competitively bid tariffs are yet to start construction due to financing constraints. Banks are cautious about funding projects that offer low returns or look unviable since they would be left holding the baby if promoters abandoned the projects. SunEdison, which was the world’s largest renewable energy firm and an aggressive player in the Indian solar market, went bankrupt this April. So it may be wise to move cautiously till we figure out the finance and economics of solar power than plunge headlong — fools rush in where angels fear to tread.
The author is at the Department of Economics, University of Delhi​