The transition towards a low carbon economy and to adhere to the Paris Climate Goals commitments, India as a nation has to play a central and leading role. Being the nation with one of the fastest growth rates, and rising population would lead to India beating the entire European Union in the total carbon emissions within the next 2 years, and thereby becoming the 3rd nation after China and United States to be responsible for the most emissions. Given the high population, the carbon emissions per capita is quite low in both China and India.
Absolute carbon emissions and carbon emissions per capita are both not necessarily the right metrics for comparison, looking at from a perspective from an inclusive energy transition. Growth at the cost of environment is not the right thing, but at the same time, the western nations those who have contributed to the carbon intensive industrialization in the first place are not in position to dictate terms on what should happen and how.
Irrespective of the definitions, an inclusive energy transition towards a low carbon economy should be among the top 3 policy imperatives and priorities for the Indian government. The definition of the inclusive transition should include, carbon emissions, bio-diversity, poverty, inequality, resource scarcity, air pollution, water pollution, and right to a just growth. Without a holistic view, it will be very difficult to achieve a sustainable change that will last for a longer term. Although the will and intention exists at a central government level, there are several challenges that impedes the timely transition to the low carbon economy. These challenges are across, technology, manufacturing, access to capital, definition of bankability, shortage of skills, urge to focus on exports, financial health of state owned enterprises, and overall bureaucracy and ease of doing business. I will focus on the first four challenges as part of this article, and the others will follow in a subsequent article later.
Traditionally, the Indian ecosystem has been far behind on R&D and technology. We as a nation have consistently been dependent on other nations on the technology, and only after a couple years are able to reverse engineer and replicate the technologies. Across various industries in the climate space, from solar, wind, electric vehicles, battery technology, hydrogen electrolyzers, fuel cells, and several years, we as a nation have not produced any pioneering technology. Although there is some shift with new age start-ups in the EV and batteries space developing 100% indigenous technologies, this is unfortunately just a drop in the ocean. There has to be a structural shift in the mindset, where bottom-up R&D is the key focus areas of academic institutions and research labs, rather than just publishing in journals or running after placements. Only if we start now, we will be in a position to lead the technology development which will be required beyond 2035.
Manufacturing ecosystem in India is quite advanced and developed. This holds true specifically for automobile, textile, pharmaceuticals, and heavy engineering. However in the climate space, China is leaps and bounds ahead of India in almost all the technologies. At the moment of writing this article, the solar panels manufactured in India and mostly exported to the US, and those installed in India are imported from China. This doesn’t make any sense from multiple perspectives. The Indian business mentality is still very much focussed on squeezing out every last paisa, at the cost of long term development in the country. There has to be a mindset shift, which is slowly but steadily taking place. But we need to accelerate this, if not, we will continue to be dependent on China and other nations.
Access to low cost capital, and definition of bankability are two things which have to be addressed with immediate priority as well. Unless there is a 10-15% equity IRR, most of the projects are not considered bankable. Unlike several other new industries, right from software to semiconductors, where high margins were the flavour of the day in the initial few years; the climate space is very different. Most of the new technologies, right from battery energy storage to offshore wind, and hydrogen electrolyzers to carbon capture, are expensive and high margins are almost impossible. The private equity firms and the major fund houses have to revise their definition of bankability, and accept low IRRs and margins. It is still difficult to get low cost of capital in India, unless one has the holding company registered abroad. There has to be a mechanism devised by the government to enable this.
Shortage of skills, especially in the high-tech and deep-tech space is something that is still very scarce in India. There is minimum focus on such skills at an academia level. The focus is either on leaving the country to pursue higher education, or enrolling in business schools in India. Developing and honing these skills locally should be another priority focus. As this is directly linked to the technology development, there should be focus on improving the visibility and profile of technical masters programmes within the country.
A mission-mode approach to make India a leader in all these aspects should be followed. Unless we do this, the inclusive energy transition towards a low carbon economy will take much longer. The probability of this happening is very high given the current state of affairs, and thereby posing a risk to the entire world. Without India stepping up on these aspects, averting climate change seems unrealistic both for India and the globe.
The article is authored by Mr. Santosh and all of the views are his personal