INDIA – Renewable Energy Trends: Alexis Ringwald – July 2008 [Discussion Paper]

CONTENT

Preface: Malini Mehra

Foreword: V Subramanian

Introduction

Energy Overview
Current Emissions Scenario
Climate Change Scenario in India

The 7 Renewable Energy Trends in India

Renewable Energy Overview

I. Rise in Renewable Energy Investment
II. Indian States Lead the Way
III. Indian I.T. Will Help Solve Climate Change
IV. Small is big: Micro-finance and Micro-Utilities
V. “Hello” Clean Transport, Otherwise “Ta-Ta” India
VI. A Creative Approach to Carbon Credits
VII. A New Marker for Indian Corporates: Rural Renewables

Acknowledgements

Abrreviations

References

As this publication goes to press, the meeting of the G8 group of nations in Hokkaido, Japan, is drawing to a close and world leaders have issued a declaration committing themselves to reducing CO₂ emissions by 50% by 2050 to avert dangerous climate change. India was also present at the G8 Summit, as in previous years, as a member of the 0-5 (Outreach 5) group of emerging economies whose influence on global affairs has won them a place at the high-table of international institutions.

This year, as in no other, the inter-related issues of climate change, oil and food price rises dominated the agenda of the G8 Summit. This combined with the downturn in the global economy and fears of a recession in major nations, focused minds on the need to devise immediate and collective responses to curb the volatility and insecurity in global energy markets. With the price of oil projected to reach $200/ barrel by the end of the year, politicians know that we are in dangerous and uncharted waters with prospects of economic meltdown and civil unrest a real possibility – if not already a reality – in many parts of the world.

Into this scenario comes the stark warning from the Chair of the UN Intergovernmental Panel on Climate Change, Dr. R.K. Pachauri, that global emissions of green house gases need to peak by 2015 if we are to avoid even more severe impacts of climate change. According to the International Energy Agency’s (IEA) projections, Indian will become the third-largest emitter by around precisely this time.

These trends underscore the need for urgent and effective action to address climate change and energy security – and related insecurities such as food and water – in an integrated manner. As the IEA noted in its World Energy Outlook 2007, the “primary scarcity facing the planet is not of natural resources nor money, but time,” as “Investment now being made in energy-supply infrastructure will lock in technology for decades, especially in power generation. The next ten years will be crucial, as the pace of expansion in energy-supply infrastructure is expected to be particularly rapid.” The report concludes that China’s and India’s energy challenges will thus be the world’s energy challenges and call for collective responses.

Fortunately, we know the answers to many of these dilemmas – and more of them are around the corner. Among the indisputable array of solutions to lowering emissions and providing energy security is the important role to be played by renewable energy. The global energy and economic scenario has now conspired to create – and, many would argue, not a moment too soon – the conditions for a renaissance of renewable energy the likes of which we have not seen since the early-1970s. Only this time, it is likely to grow – and grow – until it becomes established as a core and unshakeable part of energy systems everywhere. The seven trends outlined in this paper explain just why this may well turn out to be the case in India.

Each of these trends is an exciting story of just how different dimensions of the energy, economy, environment and employment challenge are finally coming together to offer solutions that amount to more than just the sum of their parts.
If the potential they represent is seized with the intensity and commitment required, the future for India will be green and bright.

Private actors, aided by supportive government policy, are beginning to make a bee line in the right direction. For example, this week in Delhi sees the convening of the 2nd India Cleantech Forum (10-11 July 2008), an important industry event bringing together some of the leading innovators in this exciting emerging field.

We are delighted to have teamed up with the organisers to launch this CSM Discussion Paper on ‘INDIA Renewable Energy Trends’ at the 2nd Cleantech Forum, as the most appropriate venue for its release. Future papers under this series will cover related issues of the energy and climate challenge for India including the role of methanol, energy efficiency, nuclear, biofuels, etc.

We are grateful for the support received from the United States Educational Foundation in India (USEFI) in publishing this paper, and commend Alexis Ringwald’s research into India’s renewable energy renaissance to our readers in the hope that it both educates and inspires existing and future climate innovators.

Malini Mehra
Series Editor
Founder & Chief Executive, CSM
July 2008

This paper provides an objective analysis of present day trends in renewable energy in India. Without going unnecessarily into the history and evolution of this sector in the Indian context, the paper seeks to take stock of the current focus and initiatives. The author has avoided the temptation of giving policy prescriptions for the growth of the sector. Without being critical, she has underscored the need for more of a thrust and innovative approach to accelerating the growth of the sector.

Depending on the preferences and interests of the reader, the basic objectives of the renewable energy programme – energy security, economics and environment – may vary in importance. The Ministry of New and Renewable Energy, that was set up more than 25 years ago primarily from the point of view of energy security, has been playing a pioneering role in protection of environment as well as industrial growth linked to renewable energy. Though one can be quite critical of the performance in the eighties and nineties, new momentum has been provided in the recent past by concerns on climate change. This coupled with the energy shortage has attracted the attention of players in the private sector to contribute meaningfully to this vital sector.

New policy initiatives and the development of viable business models in the private sector have spurred growth during the last two years. India has reached a stage where it is admitted by all that renewable energy is one of the most essential and sustainable solutions. It is obvious from the paper that the author has not only interacted with a wide cross-section of stakeholders in the renewable energy sector, but has also brought them into focus in analyzing their points of view. I consider this a very balanced, objective and focused paper on the current trends of renewable energy in India.

V Subramanian
Secretary to the Government of India
Ministry of New and Renewable Energy
New Delhi, India.
May 2008

Introduction

The world is fascinated with India being the next clean energy “hot spot.” The reasons are manifold. Perhaps it was the announcement of plans to construct India’s first multi-megawatt solar photovoltaic (PV) power plant; or the success of India’s home-grown wind entrepreneurs; or the recent carbon market mania. Or maybe it was a combination of escalating concerns about India’s unreliable electricity infrastructure; the entrepreneurial challenge to provide electricity to India’s 400 million energy poor; or the anxiety surrounding the release of Tata Motor’s low-cost $2500 petrol car and its impact on congestion and pollution.
Whatever the reason, more than anything, it was surely the recognition that India, after China, is set to experience the greatest increase in energy and greenhouse gas (GHG) emissions globally, and must take critical steps today, at this important juncture in its development, to avoid ‘lock-in’ to an obsolete high emissions trajectory.
Until the recent momentum of the last couple years, India’s progress in renewable energy remained gradual despite it being the only country in the world with a separate Ministry of New and Renewable Energy (MNRE). In 2007 and early 2008, however, the three “E’s” of “energy security, economics and the environment,” began to resonate outside the halls of the Ministry and permeate national politics, industry and the media. With “climate change” and “growing energy demand” as the sensational headlines of the year, “clean energy” seemed poised to become an indispensable mantra for India’s future development.
“Clean energy” generally covers renewable energy, energy efficiency and clean fossil fuel technology. This discussion paper will focus on just one of these: renewable energy. While it must be acknowledged that clean coal technology may be the biggest clean energy technology in India, along with energy efficiency and conservation in buildings and transport, there is also a significant and profitable role for renewable energy technologies to play. Building on India’s tremendous drive over the past few years, the seven trends outlined in the following pages reveal exciting developments to come and suggest that with continued momentum renewable energy can be and should be one of India’s most essential sustaining and sustainable solutions.

To sustain India’s staggering 8% annual economic growth, and to support the country’s population as it expands from 1.13 billion people today to the most populous nation by 2030, India’s primary energy demand will necessarily multiply three to four times (IEA 2007). In absolute terms, this means an increase in energy demand from 542 million tons of oil equivalent (Mtoe) in 2006, to 842 Mtoe in 2016, to 1836 Mtoe in 2031 (Planning Commission 2006). An increase that will move India from being the fourth largest energy consumer in the world today to the third largest by 2030, after China and the USA (IEA 2007). To finance such a supply build-out will require $1.25 trillion invested in energy infrastructure between 2006 and 2030; with more than three-quarters of this investment in the power sector (IEA 2007).

Currently India ranks fifth globally in installed power capacity with nearly 145 GW (IEA 2007, CEA 2008). By comparison, the USA has 1076 GW, and China will approach 800 GW by the end of 2008. In India, coal-based generation contributes to 76 GW of electricity, while renewables comprise 48.6 GW including large hydro and 12.6 GW without (see Figure 1). For a country of India’s size, 145 GW is clearly not enough and, as a result, India experiences an electricity deficit of 12%, and a peak shortage of 16.7%. Technical and commercial losses from both theft and poor transmission and distribution average approximately 40% (CEA 2008). On top of this, over 400 million Indians are estimated to have no access to electricity (IEA 2007).

Looking ahead, India’s 11th Five Year Plan calls for 80 GW of new electric power to be built between 2007 and 2012; a figure which includes 14 GW from renewable energy (CEA 2008). This signifies a massive build-up in comparison to the 27 GW of electric power constructed during the previous 10th Five Year Plan; approximately 25% of which came from renewables (ibid). For comparison, China, installed 90 GW of power in the year 2007 alone (Graham-Harrison 2008). By 2030, the Government of India (GoI) expects to possess 800 GW, an expansion nearly six times above today’s levels (ibid).

With regard to oil, India relies heavily on imports to meet 75% of its needs; a dependence that would rise to above 90% by 2030, if alternatives were not promoted. On top of the clear potential threat to energy security, the economic costs of this oil dependence are high with the GoI expecting to pay as much as $57.8 billion in subsidies in 2008 – an amount more than 3% of the country’s GDP (Financial Times 2008). Natural gas, meanwhile, an increasingly popular choice for both power and transport represents additional challenges concerning import dependence and rising prices. India’s energy situation is, therefore, precarious and all top-level decision-makers recognize the important role that alternative energy must play.

In 2007, in a moving speech about global warming, Jairam Ramesh, then Minister of State for Power, asserted, “If India wants to be a global super power, it must also take on global super responsibilities” (Ramesh 2007). Reconciling India’s emerging global ambitions with its growing obligation to protect a planet on which one out of every six people will be Indian has proved to be a complex matter. While it must certainly be acknowledged that India is not an historical emitter, unlike the USA or Europe, the numbers on future sources of emissions from the emerging “global super power” are extremely compelling with India set to become the third-largest emitter of energy-related CO2 by 2015 (IEA 2007).

Out of India’s annual 1.2 Gigatons (Gt) of CO2 emissions, the power sector is responsible for just over half (see Figure 2). This is due to the fact that India relies on many low efficiency power plants, which on average produce 0.94 kg of CO2 per kWh – more than 50% higher than the world average (IEA 2007).

In an effort to understand the implications of several possible future energy paths, India’s Planning Commission assessed CO2 emissions generated from energy use in eleven different scenarios varying from a coal-dominant scenario to a scenario with significant efficiency, demand-side management measures and renewables. According to the study, the difference between the best and worst scenarios was nearly 35% (Planning Commission 2006: 50). Overall emissions would escalate from today’s low 1.2 Gigatons (Gt) per year to as high as 5.5 Gt per year by 2031-32 in the business-as-usual scenario, and 3.9 Gt in a more clean energy focused path (ibid). The Planning Commission, mindful of the gravity of these decisions, concluded: “The carbon emission implications of our scenarios are, therefore, significant” (Planning Commission 2006: 50).

Despite the high-level of awareness of this issue, however, Indian decision-makers find it difficult to take a unified stance on climate change, especially due to issues surrounding enduring inequities between rich and poor. Pointing out India’s low national average per capita carbon dioxide (CO2) emissions of 1.67 tonnes (significantly below the USA’s 23 tonnes or Europe’s 11 tonnes), many say that India has a large allowance within which emissions may grow. It may, however, be that “Indian climate politics fall short if it only refers to national per capita CO2 levels” (Greenpeace India 2007: 13). According to the Greenpeace India report “Hiding Behind the Poor,” the highest income group in India earning above $750 (Rs 30,000) per month emits 4.97 tonnes of CO2 per capita, nearly equivalent to the world average of 5.03 tonnes (see Figure 3). More startling, the average CO2 emissions of an individual from this high income group, consisting of 1% of the country’s population, are estimated to be 3.7 times more than 73% of the population earning less than $125 (Rs 5000).
Thus, asserts G. Ananthapadmanabhan, Executive Director of Greenpeace India, “The government continues to point at low average per capita emissions to justify non-reduction of India’s CO2 emissions… [However,] India’s low average per capita emissions is due to the over 800 million poor population whose emissions are negligible” (Times of India 2007). As at the international level, where there is common but differentiated responsibility, the report suggests that there perhaps should also be an “intra-national common but differentiated responsibility” that distinguishes both the carbon footprint and responsibilities of the various income classes within a country (Greenpeace India 2007).

As India debates the appropriate climate strategy, it has come across a number of challenging issues, particularly concerning equitable actions that distinguish between those who contribute to climate change and those who are merely impacted by it. Ambivalence, and consequently, inaction, however, is not in India’s own interest. As Indian climate activist, Malini Mehra, points out, “Our emissions now – at a time when the implications of our actions are crystal clear – are not without consequence.” (Mehra 2007: 11). With new infrastructure being constructed every day, the decisions made today will last throughout this century.
In an effort to break through the impasse, the Prime Minister unveiled India’s first National Action Plan on Climate Change in June 2008, which promotes eight national “missions” representing long-term integrated strategies for advancing India’s development simultaneously with its climate change objectives. Though it does not commit to specific emissions reductions targets, the Plan does have a defined approach for tackling some of India’s largest adaptation and mitigation issues. Such initiatives are a good start and it remains to be seen over time how effective they are in shifting India away from lock-in to its current projected energy path, and instead towards a path that secures its superpower aspirations.

Due to the unique confluence of India’s geography, population characteristics and high-carbon energy dependence, climate change may have a greater impact on India than on other countries. Not only are the economic costs of fossil fuel dependence high, but when India accounts for the additional environmental, social and regulatory costs from climate change over the next century, the sums become exorbitant. According to calculations by the Carbon Disclosure Project (CDP), “the cost of climate change in India could even be as high as a 9-13% loss in GDP by 2100 compared to a ‘no climate change’ scenario” (CDP 2007: 12).
The greatest environmental impacts to India will manifest in a variety of ways:
• Temperature increases in India that are higher than the average global temperature rise predicted by the United Nations Intergovernmental Panel on Climate Change (UNIPCC)
• Changing and increasingly unpredictable monsoon patterns
• Declines in crop yields of up to 30% in South Asia by 2080
• Sea level rise, which may submerge land, infuse saltwater into freshwater sources, and create climate change refugees
• Retreating Himalayan glaciers that reduce India’s freshwater source
• Shifting and exacerbated vector-borne diseases
• Increased frequency and unpredictability of extreme weather events (e.g. droughts and floods).

India may be especially vulnerable to high social costs as well due to the instability that could result for the 700 million people (about 60% of the population) who directly depend on climate sensitive sectors like agriculture, forestry and fisheries for their livelihoods. Furthermore, “Climate change, at a most profound level, disempowers by rendering traditional knowledge useless… bring[ing] confusion and helplessness as people lose their traditional capacity to ‘read’ the weather and adjust accordingly” (Mehra 2007: 6).

Threats to national security may also arise in the form of conflicts with neighboring nations like China, Bangladesh, and Pakistan over energy, water or migrating climate refugees. The costs of aggressive action on this front would certainly be enormous.
Finally, because of its heavy dependence on coal, India may be more susceptible to the impact of future changes in international climate change treaties. “As a result, future regulatory processes and carbon emission control policies such as carbon and tax penalties would have greater implications for India compared to other nations which are less dependent on coal” (CDP 2007: 6). These factors combine to reveal the vulnerable and even unstable future that India could face due to climate change.

To date, India has 12.6 GW of renewable energy excluding large hydro (MNRE 2008a), representing about 9% of total electricity capacity (see Figure 4). For the current 11th Five Year Plan period from 2007 to 2012, the GoI has outlined a target of 14 GW to 20 GW of additional renewable capacity, a very feasible goal given its previous achievements. In the 10th Five Year period from 2002 to 2007, in comparison, approximately 25% of total new power installations consisted of renewables, i.e. 6.5 GW out of the total 27 GW of new power (mainly due to additions in grid-connected wind power, CEA 2008).

As a result, India is today ranked fourth globally for installed wind capacity as well as second for biogas generation. At the same time, there are immense untapped small hydro resources in the north of the country, and excellent insolation and favorable new policies, which could make India a world leader in solar as well.
India’s recent success in clean energy is just a beginning. The seven trends outlined in the following pages provide a glimpse of exciting developments to come, and reveal that with continued policy support, investment, and technological innovation, India could become a global leader in renewable energy.

In 2007, the Planning Commission announced that the energy sector would require $125 billion dollars worth of investments during the current 11th Five Year Plan period up to 2012. With an increasingly favorable regulatory and policy environment, along with a growing number of enterprising entrepreneurs and project developers, Ernst and Young’s Country Attractiveness Index ranked India as the third most attractive country to invest in renewable energy, after the US and Germany, in 2007 (see Figure 5). Clean energy investors and entrepreneurs heard the call, and throughout the year a spate of announcements indicated that India, along with China, indeed was on the path to becoming one of the largest markets for renewable energy in the world by 2012 (Environmental Finance 2007).
Among the news bytes from the venture capital (VC) and private equity (PE) community came announcements about a number of new funds investing in the clean energy space. According to Jaswinder Kaur, Executive Director of the India Venture Capital Association, “There are 10 to 15 active funds in this space but many are fundraising in 2008 for their next round with a specific cleantech mandate” (Kaur 2008). The funds are expected to close over the next six months to two years and would be deployed over the next one to five years. Not to be outdone by the private sector, Prime Minister Manmohan Singh announced in early 2008 that even the Indian government would set up a “venture capital fund” to invest in green technologies, energy efficiency and adaptation (PM Singh 2008).
Surveying the past few years of data, a YEAR report by UNEP and New Energy Finance shows an upward trend in investment in renewable energy since 2004 (see Figure 6). In 2006, VC/PE was extremely active with approximately $197 million invested, nearly half of which was private equity for expanding wind manufacturing capacity (UNEP 2007: 45). At the same time, asset financing in India was quite vigorous with 79 deals executed, mostly for wind projects, totaling over $2 billion dollars of investment (ibid).

In 2007, meanwhile, VC/PE investment escalated to $267 million, amounting to 25% of the total energy PE deals in India (Cleantech Group 2008a). The top three clean energy deals of the year included Moser Baer’s raising of $100 million to partially finance the increase in its solar photovoltaic (PV) thin film manufacturing line from 40 MW to 600 MW by 2010; two wind companies Vestas RRB India Ltd., and Regen Powertech Private Ltd., who raised $55.6 million and $25 million, respectively (Cleantech Group 2008b).

Other planned investments included: Suzlon’s three-year expansion plan to invest nearly USD $1.4 billion to triple its wind turbine production capacity by 2009; General Electric’s (GE) intentions to set up a green-field facility in India to manufacture 1.5 MW to 2.5 MW wind turbines; US-based Signet Solar’s goal to invest $2 billion over 10 years to set up three plants in India starting with a 60 MW annual production line and expanding to 1 GW; activity by Tata BP Solar to expand their existing plant to 180MW of solar cells and 125 MW of solar modules with an additional investment of $100 million; and Reliance Industries’ announcement for a 1 GW solar PV module manufacturing plant in India at a cost of nearly $3 billion. Strong incentives for the manufacturing of solar cells and panels were, in part, responsible for the flurry of activity in that space.

In addition to incentives for manufacturing, a number of stimulating government policies in 2007 and early 2008 are playing a role promoting renewable energy generation as well. To welcome in the new year in 2008, MNRE proudly announced incentives (via a favorable generation-based tariff) to encourage installers and project developers to make use of the growing domestic supply of solar cells and modules to set up grid-connected solar power plants in India. As a result, in 2008, India will have its first MW-scale solar PV plants.

In the wind sector, meanwhile, exceptionally favorable tax policies for accelerated depreciation as well as the proven status of the technology were the main drivers for investment. The wind tax incentive, however, is expected to soon be replaced by a generation-based incentive, similar to that available for solar. With 8.76 GW of wind developed so far, MNRE hopes the incentives will encourage the exploitation of 45 GW of additional wind potential; confident corporate players, meanwhile, insist that India has up to 100 GW potential. Small hydro as well, like solar and wind, will be another very promising technology for 2008 with significant untapped resources in northern India and developers observing attractive returns.

At the same time, recent approvals by the GoI in 2007 of several renewable energy special economic zones (SEZs) located near ports in Tamil Nadu and other southern states will further facilitate investment. The zones will focus on manufacturing, technology development, and supplementary products for the renewable energy sector, while offering special incentives for investment and streamlining administrative procedures for renewable energy companies.
An assessment of the numbers and headlines above shows that these are significant commitments on behalf of both foreign and domestic players in the clean energy sector. To capitalize on the growing interest and potential deal flow, certain strategic investment banks and other firms in the financial services sector are actively building expertise in mentoring, placement, fund advisory and capital-raising in the clean energy area. Financial service firms targeting such deals include the newly established Cleantech India, New Ventures India, Cleantech AustralAsia, and Yes Bank Ltd.

In spite of all the enthusiasm and activity by early movers, however, the sector is still at a nascent stage. One of the most significant issues today is the “capital barrier”: a gap between the Indian cleantech entrepreneurs who require anywhere between $100,000 and $2 million to fund the early stages of research and development, and the majority of investors in this space who are looking to finance bigger deals (see Figure 7). At least a few of the new funds planning to invest in this area recognize the gap and are seeking to find ways to obtain attractive returns from early stage and smaller-scale investments. In addition to this “capital barrier,” other investment barriers include “novelty to the concept of cleantech, lack of information, multiple stakeholders with opposing views, policy constraints and lack of enforcement, and lack of technical know-how” (Cleantech Group 2008a).

Given these issues, “this is a fragile time when plans can change drastically or reverse, particularly… [when] putting large sums of money to work in a nascent, riskier sector,” such as clean energy in India (Rosen 2007). Nevertheless, despite the early difficulties in closing investments, many expect the pace to pick up in the next few years. Lucrative exits by investors over the coming years will be the true test of success. While wind energy until now has captured the attention of most clean energy investors in India, many are seeing new opportunities evolving—some of which stem from the following dynamic trends presented below.

In the last two years, renewable energy installations up to gigawatts, particularly in wind, initiated a sort of competition and sense of pride among progressive Indian states on renewable energy. Despite the strong presence of a national Ministry of New and Renewable Energy (MNRE) to guide policies that facilitate investment, it is really state-led initiatives that determine the increasingly rapid pace of renewable energy development in India.

For example, MNRE is currently deliberating a Draft National Renewable Energy Policy for India, which proposes a national renewable portfolio standard (RPS) requiring 10% of Indian electricity to come from renewables by 2010 and 20% by 2020. However, it is up to the individual states – via the state Electricity Regulatory Commissions (ERCs) – to implement. In anticipation, twelve pro-active states have already done so with renewables requirements ranging from 0.5% to 10%, including Andhra Pradesh, Gujarat, Haryana, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Orissa, Rajasthan, Tamil Nadu, Uttar Pradesh and West Bengal (MNRE 2008b). Some states such as Karnataka are even considering an increase in targets from the existing 10% to 20%.

In addition to the RPS, which stipulates the quantity of clean energy that utilities in each state must purchase, the national government has promoted incentives to set the price that utilities must pay for that source. Again, the individual state-level ERCs must stipulate these tariffs (usually on a “cost-plus basis”) and the utilities must apply them. Until recently, the utilities in India had a notorious reputation for insolvency due to poor management, power theft, etc. Only lately have select states begun to apply commercial principles to their previously bankrupt utilities, and some have taken positive steps towards unbundling power generation, transmission and distribution.

To date, the wind industry has experienced success in many states with little difficulty in payment from the utilities. This year solar developers are trying their luck since MNRE announced a new generation based tariff granting up to $0.30/kWh (INR 12/kWh) for solar PV and $0.25/kWh (INR 10/kWh) for solar thermal electricity. As Debashish Majumdar, Chairman and Managing Director of the India Renewable Energy Development Agency (IREDA), cautioned however, “Winning the opportunity to receive the national subsidy is one thing, selecting a winning state is another” (Majumdar 2008).

Thus, the lesson to investors, according to renewable energy lawyer, Mark Riedy, is to “choose your states wisely” with each demonstrating “different levels of development and market–friendliness,” and the scenario constantly changing (Riedy 2007). In general, renewable energy experts perceive some of the most favorable states to date to be Karnataka, Tamil Nadu, Maharashtra, West Bengal, Punjab, Gujarat and Rajasthan. An enlightened model for investors, then, is not unlike the model pursued by clean energy investors and developers in the U.S., viz. to focus on particularly pro-active states that provide supportive policies from the ERCs, financially reliable utilities, and a secure investment environment.

“What isn’t measured, can’t be managed,” asserts the carbon mantra. In the near future, there will an unprecedented demand for individuals and technologies that can measure, analyze and manage tremendous amounts of data on energy and emissions and help integrate smart, clean energy sources. With escalating pressure globally on companies and individuals to think about their carbon footprints, someone will have to provide the services and the products to help clients compete in an increasingly carbon constrained world. Who else but India, with its sophisticated IT sector, massive pool of highly intelligent and technically skilled people, strong ties to Indians in Silicon Valley, and its own domestic energy shortages, to develop the will power and skill power to do this?

In the buildings sector, Information Technology-based smart homes and buildings can empower individuals and building managers to act with informed purchases and changes in demand. Information on energy consumption in kWh, the cost of the consumption at that moment (“real-time pricing”), the source of that energy (whether from coal or solar, for example), and the amount of CO2 emitted per unit of energy consumed could be embedded in, and presented visually, on everyday products or buildings. These could be further integrated with a “smart grid” based on advanced meter infrastructure.

“Unlike traditional systems in which energy flows from utility to consumer, smart grid systems allow both information and energy to flow in either direction” (ACEEE 2007). These data can then serve as inputs into automated energy management systems or be sent wirelessly to customers, enabling them to remotely manage, and thereby optimize, energy demand, choose cleaner energy providers, or schedule energy use for off-peak periods.

One smart homes township in Hyderabad, “Palm Meadows,” has already incorporated an IT system in each house. This allows residents to manage their energy consumption based on a set of pre-fixed levels, either from the house or remotely by internet. The developer NAME? wanted homeowners to be able to make informed energy choices and later plans to build totally solar powered homes in combination with the IT platform. As other developers and architects incorporate these innovations into new property developments, data on average energy consumption and environmental impact of these homes and buildings could be presented standard to every buyer, just as the mpg or km/L rating is provided for new car sales. With an educated and informed Indian homebuyer, this trend could hopefully help reduce CO2 emissions in this sector.

In transport, meanwhile, another innovative Indian entrepreneur in Calcutta NAME?, has developed a unique Radio Frequency Identification (RFID) based IT emissions monitoring system for measuring GHG emissions from vehicles. Sensors applied to the vehicle collect emissions data and transfer it via RFID technology to data readers at petrol/diesel pumping stations. These stations serve as a common platform for data collection and monitoring since everyone must go there for refueling. In a world with individual caps on emissions (according to the entrepreneur’s eager expectations for the post-Kyoto scenario), this technology may prove essential for the accurate measure of emissions from road transport, the one emissions source that today most carbon calculators merely estimate with “best guesses.”

Coinciding with the opportunity for green IT solutions in physical structures and transport, will be an emerging demand for carbon and environmental services, particularly in corporate activities. This could entail IT applications to measure carbon footprints, conduct product life cycle analyses, or assist in global green supply chain management. With Europe debating legislation in 2007 that would place a carbon tax on imported goods, it is not impossible that any company in the world that sells to the European market would soon have to keep track of the environmental footprint of every product produced.

Already debates have begun within progressive corporates in the U.S. and Europe over requirements that energy and carbon information (including production, transport, use, or all three, i.e. the full lifecycle) be printed on labels for manufactured goods, like clothes or furniture, and food products. Just as consumers compare market costs, so too will they be able to compare sustainability costs. With so much data needing to be tracked and managed, it is clear that IT technology such as digital controllers, smart sensors, and adaptive software and operating systems will play a critical role in addressing such needs.

These concepts are not new, but what is unrealized to date is the role that India is uniquely positioned to play. Infosys, India’s leading IT company, conducted its first “carbon footprint” analysis in 2007 and found that 49% of its energy demand came from air conditioning (Parikh 2008). Recognizing it could be much smarter, the company decided to work towards a new goal of “carbon neutrality” with plans for green buildings, clean electricity purchases, and energy conservation measures within the company. In the future, they may soon see client business in this area as well. Wipro, another top Indian IT firm, already offers renewable energy services to customers and is currently developing a suite of IT-enabled solutions to assist clients in achieving carbon neutrality.

Even if a client is not looking for “green IT” services per se, for IT companies “it’s a great market differentiator that may sway a potential client considering different vendors when all other factors are equal” (Overby 2007). According to a study by the Brown Wilson Group on the outsourcing industry in general, “More than 21 percent of publicly traded companies that outsource have added ‘green policies and performance’ demands to their vendor contracts in 2007, and 94 percent plan on adding such clauses during renegotiations… [At the same time], 36 percent of private companies are now contemplating green policies for 2008 outsourcing contracts” (Brown 2007). As this trend continues, Infosys, Wipro, and other forward-thinking Indian IT firms will be strategically placed to take advantage of a very good business opportunity as individuals and organizations all over the world seek to operate cleanly and effectively in a carbon-constrained market.

IV. Small is big: Micro-finance and Micro-Utilities

It is widely acknowledged that a key to lifting millions out of poverty in India is the development of rural economies. As not everyone can move to the cities for a ‘better life’, income generating activities and markets must be nurtured in small towns and villages. Two critical components for fostering such economic enterprises, whether in urban or rural areas, are financing and energy.

In low-income areas, microfinance institutions (MFIs) are already taking care of financing needs with unique loan products customized to individuals without collateral or previous credit history. Increasingly, these same MFIs are also seeking clean, distributed energy products or services for their clients. At the same time, renewable energy companies are looking for opportunities to access untapped markets for their off-grid energy products. This new trend towards partnerships between MFIs and clean energy companies in India can help loan clients expand existing businesses, start clean energy shops, or set up new “distributed utilities” in areas where there is no grid or grid unreliability hinders growth.

MFIs, more so than traditional financial institutions, have the potential to offer creative financing that makes clean energy systems more accessible and affordable, especially to the poor. They are able to provide flexible loans and structure their lending schemes and financial products in accordance with the needs of their low-income clients. For example, these MFIs are binding loan repayment rates to seasonal variations in energy expenditures or incomes in a way that reduces the impact of the often expensive energy technology.

In India a few MFIs, including Sewa Bank, Basix and SKS Microfinance, are especially proactive in developing various lending models for clean energy. In one model, money is lent towards the purchase of a clean energy technology for individual use. An example of this is Bangalore-based solar company SELCO’s partnership with Sewa Bank to provide home lighting systems at affordable prices to poor customers using microfinance.

A second loan product, resembling a small business loan, involves lending to an entrepreneur who sets up a micro-dealership or retail shop to sell clean energy products to local customers. In addition, micro-assembly lines for assembling clean energy technologies from component parts could be developed as a new industry in villages. Grameen Shakti in Bangladesh envisions the creation of 100,000 rural “cleantech” jobs based on such models (Barua 2008). The most common technologies sold or assembled are solar home systems and lanterns using compact fluorescent lights (CFL) or light emitting diode (LED) lights, hand-crank lanterns, micro-wind turbines, biogas digesters, or biomass gasifiers.

A third, and perhaps the most interesting if challenging, model involves lending to an entrepreneur to create a “micro-utility” that provides energy services to local, off-grid customers based on their usage. Grameen Shakti has found this model to be quite successful, with support for over 10,000 micro-utility entrepreneurs who sell solar electricity generated by panels on their roofs directly to neighboring shops. In India, meanwhile, TERI, through its ‘Light a Billion Lives’ campaign, is creating a different kind of solar utility entrepreneur who rents out charged lanterns and batteries on a daily basis to customers for a fee. At the same time, other groups like DESI power are nurturing entrepreneurs to create larger scale, community-size utilities using biomass gasification technology; while S3IDF, a different non-profit, has developed a model based on biogas entrepreneurs who sell clean cooking gas to customers. These micro-utility models combined with microfinance represent a powerful opportunity for local communities to take charge of their own energy provision in ways that empower the poor and promote economic growth.

To facilitate the financial feasibility of such models, SKS Microfinance is also considering establishing a Micro Carbon Credit Exchange with the goal of bringing carbon revenues generated by these projects directly to the villagers using clean energy. To understand the implications of this, a 40-Watt solar panel used to replace a diesel generator saves about 0.25 tons of CO2 per year; the emissions savings from which could then be monetized and sold to buyers around the world (Richards 2007). Taking advantage of carbon revenues from such technologies could make a difference to low-income consumers by lowering the payback period, and thereby further helping to disseminate the technology.
For renewable energy companies seeking to tap the 412 million individuals in India without access to electricity (IEA 2007), linking with an active MFI can prove quite strategic with benefits in supply chain management, network outreach, established infrastructure, logistics, marketing, and consumer finance to poor and often remote markets.

Before proceeding too quickly, however, many financial risks may need to be mitigated through appropriate instruments such as escrow accounts, security deposits, credit enhancements, payroll deductions, etc. Particularly for companies with business models relying on technologies with high up-front costs, servicing requirements, and customers with low incomes. Moreover, careful attention should be paid to the structure of the partnership with an understanding of each partner’s responsibilities (Morris 2007). When done thoughtfully, and with the appropriate risk mitigation mechanisms in place, however, this exciting combination of microfinance and clean energy represents a dynamic new trend in expanding affordable and clean energy access.

V. “Hello” Clean Transport, Otherwise “Ta-ta” India

If there is anything to stimulate the search for alternative transport, it is the image of polluted cities clogged with vehicles – an image of impending catastrophe for India’s future. In January 2008, Tata released the ultimate low-cost people’s car for India. Not to be outdone in the world’s future largest car market, Mahindra, Hyundai and other car-makers announced plans for similar vehicle lines. Priced at $2500 (the “one lakh rupees” car), this new “people’s car” could allow every member of India’s growing middle class to experience the feeling of independence on the road, and “success” in every household. In response, however, many anxiously asked, “Where are the roads? Where will the oil come from? How will India continue to walk, much less breathe?”

According to India’s Planning Commission, diesel consumption grew 5.8% per year while petrol consumption grew 7.3% per year between 1980 and 2004 (Planning Commission 2006: 10). This was due to the growth in personal transport and road haulage (see Figure 8). Growth projections for the future show no decline in sight and are predicted to be much higher than historical growth rates. On top of increased energy consumption, recent research shows that new vehicles in India are actually emitting more CO2 per km than earlier vehicle models (see Figure 9). As a result, in the five years between 2002 and 2007, “the CO2 emissions load from cars has increased by 73% and from two wheelers by 61%” in Delhi alone (CSE 2008). With imports accounting for 75% of India’s crude oil needs, oil prices currently above $120 per barrel and some Indian cities approaching the top of global rankings in pollution, it is urgent, therefore, that the country find more affordable and clean sources of energy for transport.

In 2003, Delhi garnered much attention for its successful implementation of the world’s largest public transport fleet running on cleaner burning compressed natural gas (CNG). However, as global demand rises, gas prices continue to soar and individuals increasingly eschew public CNG transport in favor of private petrol vehicles, the efficacy of this policy as a long-term sustainable strategy to be implemented across India may be questionable (Economic Times 2007).

With all of India’s major cities facing similar dilemmas and deliberating on a variety of urban transit choices before them, alternative fuels based on electricity or biofuels are looking especially appealing. One Indian plug-in electric carmaker, Bangalore-based Reva Inc., is already producing its own low-cost people’s car. Priced at $8,750 (INR 350,000), the Reva car travels 80 km on a fully charged lead-acid battery in which the “electric fuel” costs the equivalent of $0.75/gallon (~INR 8/Litre) of diesel equivalent. By the end of 2008, the company plans to launch a lithium-ion battery version which would be capable of traveling 150 km on a full charge. Not to miss out on these emerging opportunities, Tata Motors has also formed a partnership in 2008 with Chrysler to produce electric mini-trucks for sale in US markets.

More appropriate to the Indian context, however, are developments in clean fuel two-wheelers. During the past three decades, motorbike usage has experienced the highest growth rates of any form of motorized transport in India (see Figure 8). As an example of an alternative, one start-up, Kabirdass, developed an electric plug-in scooter priced at $1,125 (INR 45,000) that does 70 km on a full charge and is suitable both for customers’ inner-city driving needs as well as their wallets.

Currently, there are over 30 electric bike manufacturers in India. Reliability and cleanliness of the grid (i.e. how clean the electricity is that charges the vehicle) are clearly critical issues, but this technology could make sense for urban application today and, surely in the future, as India pushes forward with an aggressive renewable power agenda.

Biofuels may be yet another option as a transition fuel towards other cleaner options in the future. Jatropha, a non-food oil-seed bearing tree, in particular, has captured the imagination of Indian politicians who envisioned biodiesel plantations on marginal lands throughout the country, benefiting poor farmers and reinvigorating depleted, non-cultivable “wasteland.” While the GoI has considered but not yet mandated a national biodiesel blend, states such as Maharashtra, Chattisgarh, Rajasthan, Madhya Pradesh and Jharkhand have taken the lead with favorable land grant policies and other incentives. As a result of such measures, by the end of 2007 biodiesel capacity in India had expanded to more than 570 million liters (150 million gallons) per year (Riedy 2007). The big players in 2007 included, among others, D1 Oils, BP, Neste Oil, and the Indian Railways.

Ethanol, meanwhile, recently gained renewed attention when the government set a 10% ethanol blending mandate nationwide for October 1, 2008. Despite being the world’s second largest sugar producer, it is questionable however, whether this new target based on water-intensive energy crops such as sugar cane should be pursued over other clean fuel alternatives. Particularly, given the fact that oil companies failed to procure enough ethanol to meet the 5% target from the previous year. Cellulosic ethanol, meanwhile, a popular topic in the U.S., is scarcely discussed in India. Mumbai-based Praj Industries, funded by Khosla Ventures, is the most visible developer of the technology in India. However, investors in biofuels are urged to move extremely carefully, particularly in India, as controversies have arisen over a variety of issues in recent years. Proceeding sustainably and thoughtfully with close attention paid to the global biofuels debate will be critical for achieving success in bio-based alternative transport.

Ultimately, no private transport option can surpass the efficiency and practicality of a well-designed and well-maintained public transport system – particularly in India’s densely populated cities. In response to exacerbated traffic problems, several Indian metropolises have recently begun construction of underground metro lines and bus rapid transit lines. Concomitant with the foresight of these progressive policy-makers and innovative clean fuel and vehicle entrepreneurs, however, will be the education of the consumer. Only with a “mental shift” among people to redefine “success” and demand clean transport, can the critical “modal shift” towards a sustainable transport paradigm take place.

VI. A Creative Approach to Carbon Credits

No longer relegated to burning dull industrial gases or setting up renewable energy projects in mature technology sectors like wind, creative carbon crusaders in India, in both the private and public sectors, are stretching their imaginations to the limit to identify new ways to reduce GHG emissions. As the fourth largest emitter of GHG’s at 1.2 Gt CO2 per year, India is the largest contributor of Clean Development Mechanism (CDM) projects (32%, 352 projects), and the second largest (27%, 43 million CERs) after China in terms of carbon credits issued (see Figure 10).

With the lure of additional revenues from carbon credit sales, everyone is jumping on the carbon bandwagon. Many of the large Indian corporates such as Reliance, Ansal, Tata Chemicals, Ispat Steel, Jindal Steel, Hindustan-Lever, ITC Paperboards, and Mahindra have been seen in newspaper headlines for their recent ventures into wind farm investments, energy efficiency, or reductions in industrial gases. Not to be outdone by the high-profile players, smaller non-traditional enterprises such as tyre companies, hotels, home-builders and chicken farmers are setting up innovative projects as well.

In the transport sector, meanwhile, Delhi’s Metro became the first railway in the world to qualify for carbon credits in January 2008. By using regenerative braking technology, which captures and stores the energy released during braking, Delhi Metro is able to reduce its electricity requirement by 30%. Converting these energy savings into emissions reductions, they “can now claim 400,000 CERs for a 10-year crediting period which translates to INR 1.2 crores [($300,000)] per year for 10 years” (Live Mint 2008).

Likewise, pioneering commercial bus or truck operators can also receive carbon revenues based on a recently approved methodology granting credits for the “introduction of low-emission vehicles to the commercial vehicle fleet” both for passenger and freight transport (UNFCCC 2007: 9). Applicable clean transport technologies include CNG, electric, and hydrogen vehicles, among others.

Perhaps soon even non-motorized transport such as bicycle promotion initiatives, and efficient urban planning options such as analyzing the emissions implications of siting particular urban activities, could be pursued as projects under the CDM. The latter could include activities such as shopping and entertainment, within close proximity of new metro stations compared to their placement in suburbs. Such ideas represent a crucial opportunity for India to develop a sustainable transport sector and, at the same time, increase revenue streams. In other words, the creative application of carbon financing to the transport sector is just “revving” up.

Programmatic CDM for other areas such as energy efficiency and rural electrification is also a useful tool that will facilitate new streams of carbon revenues.

Programmes could include credits received for energy efficient street lighting projects in municipalities, the replacement of electric water heaters with solar heaters, the application of building efficiency standards to businesses and homes, and low-income sustainable housing projects. Two particularly exciting pilot projects in Andhra Pradesh and Haryana are planning to use carbon revenues to finance the replacement of 1.5 million incandescent light bulbs with CFLs for savings of 25 MW.

The programme, when implemented across the entire country, could replace 400 million light bulbs and save 6 to 10 GW (Mathur 2008).

In anticipation of the important role that India is expected to play in the carbon market, the Multi Commodities Exchange of India (MCX) and the Chicago Climate Exchange (CCX) entered into a partnership to create a platform for trading CERs in India. In January 2008, the MCX took the first step and launched futures trading in carbon credits with the goal of ensuring better price discovery of credits and helping mitigate risks associated with buying and selling.

One issue that is holding many people back, however, is the lack of certainty regarding the post-2012 future of the carbon market and prices. As a result, some investors are caught in a dilemma in which they “will heavily discount CER revenues to the project beyond 2012, making the CER revenue stream insignificant to the project. This in turn defeats any argument that the CDM component of the project is material from a financial perspective and…, [thereby], render[s] the project ineligible for CDM” (ADB 2007: 60). Thus, from the corporate and investor perspective, the sooner a global agreement can be reached to provide certainty to investors and traders, the better.

Apart from revenues for participating companies, the CDM – arguably more than anything else – has catalyzed awareness on the topic, with headlines running nearly every week about the latest developments in qualifying carbon projects in India. Nevertheless, “the private sector, while appreciating the benefits from CDM projects, has yet to fully engage with the potential impact of climate change on business” (CDP 2007: 8). Unlike in the US and Europe where major corporates are putting climate risks and opportunities at the top of their agenda, in India only recently have a few industry leaders emerged to take the first steps towards managing their own carbon footprint.

Regardless, for India to get the maximum benefit from the carbon market, it cannot depend on the private sector alone. The country should build the capacity of its public sector agencies to avail of carbon finance regularly with all major infrastructure and urban development projects systematically screened to check eligibility for carbon credits. The success that Indian companies have found in the international carbon market is contagious and surely the public sector will not be far behind in 2008. Despite questions about the effectiveness of the carbon market as a way to solve climate change or not, India, with its boundless creativity and some stable post-2012 global policies, is certain to be an exciting lab for innovative carbon financing in the name of sustainable development.

VII. A New Market for Indian Corporates: Rural Renewables

Just as “Walmart became a clean energy market maker” in the US for 2007, so too could several major Indian corporates be drivers in India in 2008 (Makower 2007: 2). As they reach into rural areas of India, many companies are discovering an expanded role to their businesses; in particular, in electricity provision. These companies are finding that in order to tap the supply of workers for enlarged operations in rural India, they need to bring electricity to these areas as well.

Enlightened rural clean energy entrepreneurs, like DESI power and SELCO, have always known that successful village electrification occurs not just when a light bulb is installed, but when income generating activities are created so that customers are able to pay for the electricity. A light bulb, in and of itself, does not necessarily engender “sustainable development”. Rather, a job utilizing clean electricity does.

Until recently, this trend in electrification only went one way; that is, clean energy entrepreneurs worked relentlessly to both provide electricity services as well as foster micro-enterprises to create jobs that would productively use their electricity. Thus, the energy companies had to create the demand for their product. As an example of this, in one village electrification project, DESI Power set up both a 75kW biomass gasifier and a rural job-training center to nurture businesses that would productively use the electricity generated by the biomass power plant.

Today, however, the trend is beginning to go both ways. As large corporates increasingly bring jobs and products to rural areas, these behemoths are looking for alternatives to standard diesel generators, the operations of which often cost $0.20-.0.37/kWh (INR 8-15/kWh), depending on the remoteness of the location.

Three companies, leaders among their peers of “India Inc.”, provide forceful examples of this trend.

In an effort to cut costs in an increasingly competitive IT industry, as well as contribute to development in India, Satyam, a major Hyderabad-based IT company, adopted an extremely innovative business model “outsourcing their outsourcing to villages” (Friedman 2007). In these villages, rural college graduates can live a peaceful life close to home and the company benefits by paying half the wages of its urban workers. Today the rural outsourcing centre relies on diesel generators and sixteen car batteries when the grid electricity fails. Displeased with the expense, noise and pollution of this dirty energy source, however, Satyam is now driven to find a distributed clean energy source that will not only expand its business to more areas where electricity is often extremely unreliable, but also sustainably develop the surrounding villages to create a comfortable life for workers who might otherwise leave to seek jobs in the city.

After visiting one of Satyam’s rural outsourcing centers, New York Times journalist Thomas Friedman mused, “If only … If only we could make a breakthrough in clean, distributed power — an ET [energy technology] revolution — it could drive the IT revolution into every forgotten corner of the world to create jobs, light up schools and tap the innovative prowess of rural populations, like India’s 700 million villagers. There is a green Edison growing up out here — if only we can give them the light to learn” (ibid).

ITC, meanwhile, a major Indian conglomerate, launched a successful IT initiative way back in 2001 called e-Choupal. Its internet kiosks, set up in remote village centers throughout India, allow farmers to check market prices and sell directly to ITC (or anyone else, for that matter) without profiteering middlemen in between.

ITC trained one e-Choupal entrepreneur at each kiosk to charge a fee for reading information on the computer to farmers. To power these remote IT kiosks, however, ITC discovered that it could not always rely on the unpredictable grid, or on the option of transporting expensive diesel fuel to remote areas. The most practical alternative solutions were based on renewable energy utilizing solar panels with back-up batteries, a diesel hybrid, or, given its extensive agricultural linkages, developing a reliable biofuel supply chain for biomass-based power.

The third and perhaps most influential example is Reliance Industries, who like ITC, developed a radical farm-to-market business idea using clean energy. Under the banner of Mukesh Ambani’s new “holistic model of development,” Reliance has incorporated a provision for a 1-2 MW solar power plant in many of the villages where it is also setting up rural food processing centers that do not have reliable grid electricity. Similar to Satyam’s case, these solar plants will not only power Reliance’s facilities but also bring sustainable development to the neighboring villages.

Do not be mistaken. These are not just corporate philanthropy initiatives to promote goodwill. These companies have recognized that a critical prerequisite to expanding their businesses into India’s rural areas is often to provide off-grid electricity solutions as well. For smart corporate decisions-makers looking for a cost-effective energy source, renewables are the only option. It may be that this interest of large companies eager to outsource, build in, and sell to rural markets will be the true accelerating force for the revolution in rural energy provision that the world has been waiting for.

Acknowledgements

I would like to thank the following people for their advice and assistance in writing this paper: my Fulbright research advisor, Dr. Pachauri, TERI and UNIPCC; V. Subramanian, Ministry of New and Renewable Energy; Debashish Majumdar, India Renewable Energy Development Agency; my TERI colleagues, especially Sreeja Nair, Mark Runacres, Shirish Garud, Nitu Goel, Neha Misra; Malini Mehra, Center for Social Markets; Surya Sethi, Planning Commission; Suneel Parasnis and the New Ventures India team; Ajay Mathur, Bureau of Energy Efficiency; Peter Castellas and Erin Kuo, Cleantech Australasia; Sanjeev Krishnan, Global Environment Fund; Somak Ghosh, YES Bank; Jaisingh Dhumal, ICICI; S. Padmanaban and Glenn Whaley, USAID; Raju Indukuri and the Byrraju family, Satyam; Arjun Uppal, formerly of Network Enterprises Fund; Carmine D’Aloisio, U.S. Foreign Commercial Service, India; Nandan Nilekani and Rohan Parikh, Infosys; Sagun Saxena and Shashank Verma, Clean Star Energy; Crestar Kumar, Crestar Capital; John MacLean, Energy Efficiency Finance Corp.; Tom Burr, Peter Luchetti, Hugh McDermott, clean energy finance specialists; Michael Eckhart, ACORE; Paul Dickerson, DOE; Thomas Friedman, NY Times; Ernst von Weizsaecker, UCSB and formerly of the German Parliament; the Habitat Center Library; my mother, Lydia Ringwald; the Mehta family; my friends Ranu, Kartik, Caroline, Dave, Aileen, Franz, Nadaa, Neeraj, Anna, Dhruv, Hans, and James with whom I exchanged countless dinner conversations on climate change and clean energy. I am also grateful to the many others not listed who supported me along the way.

I would like to give special thanks to the U.S. Educational Foundation in India for having awarded this incredibly beautiful Fulbright experience to me, to TERI for the knowledge shared and good friendships created, and to Yale University for the rich educational environment that encouraged me to grow.

Abbreviations

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Climate Change – Why India needs to take leadership: Malini Mehra – August 2007 [Discussion Paper]

It is an exciting time to be an Indian. Sixty years since independence, the country has shot to global prominence and is making its economic presence felt. It is now the fourth largest in terms of purchasing power parity (PPP) and projected to be one of the three largest – along with China and the US – by 2032. Last year, India Inc. was the toast of Davos and its ‘Global India’ campaign took the Alpine resort by storm raising the rafters to Bollywood hits.

The country’s rising economic confidence is beginning to rub off on its engagement on the global stage. Once regarded in diplomatic circles as the chief ideologue of the G-77 group of developing countries, India is taking a more self-regarding line and asserting its interests on a range of issues. A nuclear power, it has rebuffed attempts to sign the non-proliferation treaty, entering instead into an as yet unclear and controversial civil nuclear deal with the United States.

Today India is shaking off its long-held image of maharajas, snake-charmers and holy men, in favour of a more modern, hi-tech and sophisticated look. But this is not the entire story, for modern India exists in both the space, as well as the stone ages. For the 300 million-strong middle class that wants white goods and wireless, there is the 300 million-strong underclass that exists on less than a $1 a day. The re-branding of India is incomplete. Beneath the puffed-up ‘India boosterism’ talk is the reality that confronts any visitor to the country – ramshackle infrastructure, hunger, illiteracy, poverty and despair.

But the one exists with the other, and this is the rub. India’s journey to freedom and opportunity is incomplete. It is this schizophrenia which informs a key area of our international policy which critics charge remains in the dark ages – climate change.

Climate change: a generational challenge

Despite an Indian, Dr Rajendra Pachauri, chairing the lead global body – the United Nation’s Intergovernmental Panel on Climate Change (IPCC); in India, climate change is virtually a leadership-free zone. As we celebrate 60 years since our Independence, it is time for Indians to wake up to the issues and demand more of our political class – and more of ourselves.

For my generation, climate change will present the most compelling leadership challenge. It is a threat of an order we have never had to face before where basic environmental conditions that make our planet habitable – and which we take for granted – will hang in the balance. In place of climate stability, we are entering an era of instability when natural phenomena, such as monsoons and mountain-fed streams that make our country liveable and our economy productive, may no longer be relied upon.

The impacts of climate change will be felt not just in years, but over generations. Tackling it will require far-sighted leadership. Its greatest victims will be the poor, the marginalised and the disenfranchised.

Analysts tell us that future wars will be fought around resources such as water. In a country that has not only seen a tripling of its population since Independence, but also a shrinking of its natural resource base and a sharpening of its income divide, these are not idle concerns. This paper argues for enlightened leadership from India’s political class on climate change. If we are to avoid conflict and demagoguery in the future, we need to invest in a proactive, opportunity-led strategy to deal with climate change now.

Why should we be worried?

The Earth is warmer now than it has been for the past 650,000 years. Scientists have correlated this warming to an increase in carbon dioxide (CO2), and other greenhouse gases (GHG), released by the burning of fossil fuels such as coal, oil and gas since the beginning of the industrial age 150 years ago.

To put this in perspective, the pre-industrial concentration of CO2 was 280 parts per million (ppm). In 2005, in Mauna Loa, Hawaii, one of the most pristine parts of the world, this had reached 381 parts per million. In 2006, measurements in Svalbard, in the high Arctic region, had recorded 390 ppm – a full 10 ppm above the global average. This last figure most likely reflects our own emerging carbon footprint, as emissions from Indian and Chinese power plants and cars head northwards.

Top scientists from the world’s leading scientific academies are now united on the threat posed by climate change. The UN’s Intergovernmental Panel on Climate Change (IPCC) in its February 2007 assessment report ratcheted up the alarm level: the climate is changing, human beings are responsible, and it is worse than we thought before.

In 2006, a seminal conference on climate science hosted by the UK in Exeter, concluded that we have a decade to start pulling back before ‘tipping points’ are reached. The concern is that if greenhouse gas emissions are not drastically reduced, we will breach critical ecosystem thresholds and face ‘runaway climate change’ as the entire global carbon system becomes unstable.

Key among these thresholds are the collapsing of Antarctica’s great ice sheets and the melting of Siberia’s vast permafrost releasing cataclysmic quantities of methane – a greenhouse gas 72 times more potent than CO2 over a shorter time period. Once this happens we will lose all control, with global temperatures potentially rising to 70C and making large parts of the world utterly uninhabitable and unfit for human civilisation. This is the real risk of inaction.

No less a figure than NASA’s top climate scientist James Hansen – the man who first made headlines with global warming in 1978 – has recently said:”We are on the precipice of climate system tipping points beyond which there is no redemption.” The inconvenient truth of climate change is that even if everyone were to stop emitting greenhouse gases tomorrow, we would still be ‘locked into’ at least 30 to 50 years of warming. This is why scientists and enlightened politicians are urging global CO2 stabilisation targets not exceeding 450 ppm by mid-century.

The emissions we release today will still be in the atmosphere a hundred years from now. This is why the infrastructure we build now matters so much. By 2030 all major countries – including India – will need to reduce emissions to make a stable climate possible. This is not a developed country plot to thwart the ambitions of emerging economies such as India. It is the blunt reality of climate physics.

In this world of risk and uncertainty, the best approach is a precautionary one. The UK’s Stern Review on the economics n climate change emphasized that action now is far better – and more cost effective – than action in the future. The report’s author, Sir Nicholas Stern, calculates that the cost of climate change could be somewhere in the region of 5% to 20% of global GDP, if current trends continue, compared to the 1% of global GDP cost that is needed to tackle the problem.

Climate change impacts on India

India has strong reason to be concerned. Climate change is projected to impact tropical countries more negatively than temperate ones. As a tropical country, our geography is our destiny. India’s 7500 km coastline will be particularly hard-hit by storm surges and sea-level rise displacing millions, flooding low-lying areas, and damaging economic assets and infrastructure.

The encroaching salt water will poison fields and make coastal agriculture unviable, deepening the crisis that is already full-blown in India’s farm sector. Just these impacts alone could severely test India’s governance systems and its institutional and social resilience. Unless dealt with effectively they could also quickly turn into political challenges.

For the 700 million people in rural India who are dependent on the most climate-sensitive sectors for their livelihoods agriculture, forests and fisheries – the future brings declining crop yields, degraded lands, water shortages and ill health.

It also brings confusion and helplessness as people lose their traditional capacity to ‘read’ the weather and adjust accordingly. When the rains do not come and when the natural world does not behave as it should, societies which have survived by observing the world and adapting to it lose essential coping skills.

Climate change, at a most profound level, disempowers by rendering traditional knowledge useless. How this will affect identity and culture amongst India’s tribal and indigenous communities is something we are yet to properly understand.

As for the more tangible impacts of climate change: floods, droughts, heat waves, cyclones, storm surges, displacement, disease and pestilence… these are not just projections for a distant future. The future is now.

Phenomena consistent with climate change projections for India can already be seen across the country. 2007 has brought ‘wild weather’ to South Asia with the worst floods in living memory and 20 million people displaced. Islands and villages in the Bay of Bengal have been lost to sea-level rise causing a drift of ecological refugees to cities such as Kolkata.

The Super Cyclone of 1999 – our equivalent of Central America’s Hurricane Mitch – wreaked havoc on Orissa, knocking decades off its development and killing more than 30,000. Heat waves across the country have caused untold deaths and human distress. Diseases such as malaria and dengue have increased their geographical range to metropolises such as Mumbai. Rising temperatures and a retreating snow-line in Himachal have fatally affected its once-legendary apple industry and crippled local economies.

The rapid melting of the Himalayan glaciers – the source of our major river systems – is a cause for particular alarm. Latest IPCC estimates suggest that they may shrink to one-fifth of their volume within a few decades. Initially this may cause floods as the waters melt – and then a water crisis of unprecedented proportions as the rivers dry.

Seven of the world’s major river basins originate in the Himalayan and Tibetan plateaus. They are the source of water for 40% of humanity. China, India, Nepal, Bhutan and Burma all share these borders. If the rivers do run dry, a more serious cause of regional destabilization can scarcely be imagined. When it happens, it will make India’s current water conflicts such as between Karnataka and Tamil Nadu over the Cauvery look like a walk in the park in comparison.

But this is not only a story of human impact. It is estimated that up to 50% of the country’s flora and fauna could be threatened, with at least a quarter of our biodiversity lost. For a country with such a long and mythic self-identification with our plant and wildlife, the loss of our natural heritage will carry both socio-cultural as well as significant livelihood implications.

What must a responsible nation do?

In the face of this, what has the response been of responsible nations? At Heiligendamm this year, the G-8 group of industrialised nations agreed to take “strong and early action to tackle climate change in order to stabilize greenhouse gas concentrations at a level that would prevent dangerous anthropogenic interference with the climate system”, with a majority agreeing to “at least a halving of global emissions by 2050.”

China, present at Heiligendamm with India as a member of the +5 Group of Countries – and soon to overtake the US as the largest global emitter of greenhouse gases – issued a constructive paper.

What about India? Well, it was business-as-usual it seemed. Although not challenging the IPCC’s scientific conclusions, the Indian government seems in no rush to change. Prodipto Ghosh, former Secretary, Ministry of Environment & Forests, and architect of the government’s climate strategy has said: “India is certainly not responsible for the mess. We are, in fact, victims of it. So why expect us to tighten our belts?”

This sums up the Indian government’s position on climate change for much of the past decade. As a poor developing nation, with per capita carbon emissions one twentieth that of the US and one tenth that of Europe, the immediate imperative is economic growth. India’s ‘Right to Development’ cannot be compromised; any emissions reductions must be compensated; and richer nations with greater historical responsibility for the problem must bear the brunt of the costs.

The latest twist added is the Government’s emphasis on differentiating India’s growth from China’s allegedly far dirtier growth. Lest people mistake the two, Surya Sethi, India’s Principal Energy Adviser, says:”China has grown faster than India but has also consumed over 11 times the fossil fuels … since 2002″. India on the other hand “has been delivering an 8% GDP growth with only 3.7% growth in its energy consumption.” A clean bill of health then?

From a climate equity perspective, there is merit to India’s position. We are all familiar with the argument. Why should a poor country be expected to bear the brunt of the pain when rich countries such as the US drag their heels?

But from a climate impact perspective, the government’s position is short-sighted and dangerously complacent. The global climate does not distinguish between borders. The greenhouse gas emissions being pumped into the atmosphere do not come with country flags attached. What matters is the total volume of emissions entering our fragile atmosphere. At present, India is the 5th largest – and growing – emitter of GHGs – at a time when the window for remedial action is reducing.

Despite having had an Indian head of the IPCC, the debate in India has been inaudible. Confined to an inner-circle of officials, NGOs and academics, the focus has been on international climate change negotiations, not on the impacts and responsibilities of us as a nation.

Time has been lost in not internalizing the implications of climate change by national development planners. The approach document to India’s 11th Five Year Plan (2007- 2012) only mentions the words climate change twice in its 109 pages; and the capital city’s newly-adopted Delhi Master plan avoids the issue altogether.

But with every passing freak weather event, the arcane has now become the obvious. In a landmark issue this April, India’s leading weekly, India Today, argued for – collective responsibility and rebuked the government for “preferring to point fingers at countries like the US rather than focusing on what it should be doing.”

India’s climate position is a consequence of the schizophrenia of being both poor and rich at the same time. It speaks as the weak and insecure India, not the India of hope and confidence that seeks to stride the world stage. The emotional message it sends out is of victimization and fear. The lens through which it views other countries is of entitlement, not leadership.

India cannot have it both ways – we cannot be weak in some fora and strong in others. Which India gets to set our approach to the climate challenge – and the mindset, spirit and attitude it brings – matters.

It matters because sixty years after our Independence, we face a challenge as a global community unlike any other that has come before. It can only be met through collective responsibility and enlightened leadership.

Is there a need for change then?

I – along with a growing number of my fellow citizens – believe that there is and that it should be informed by two words – responsibility and opportunity.

Why we need a new approach

India may not be the biggest global emitter, but it is time we were pro-active in addressing its impacts on our people; and responsible for the impacts of our emissions on other regions and future generations.

An enlightened approach would take ownership of the problem, recognizing that while we are not historical emitters, our emissions now – at a time when the implications of our actions are crystal clear – are not without consequence. They risk turning us from climate victim into climate perpetrator. It will be harder to take the moral high ground if our actions accelerate the evacuation of people from poorer, low-lying states or small island nations.

This is not to suggest that India is as much to blame as the US, the world’s biggest historical emitter, or earlier industrialising nations. This is not about the politics of blame; it is about recognizing a shared dilemma and grasping the necessity for collective leadership.

At its core, climate change is about morality and inter-generational justice. India has a young population – 70% of our people are under 36. We cannot hold their future hostage to positions that look backwards, not forwards.

In a world where 1 out of every six people is Indian, India will be the global future. We must conserve, not damage that future. Adjusting with hope to the reality of a climate-constrained future, could be the best legacy we leave our children.

Reframing the issue – opportunity not fear

To succeed, climate change must be re-framed not as an agenda of fear and entitlement, but of growth and opportunity. Addressing it is the best means for a country like India to secure peace, development and quality of life.

We need to grow to provide prosperity and dignity for our people. But in a carbon-constrained world that growth needs to be clean and green. Suggesting, as Government advisers currently do, that there is a choice between investing in social development or in environmental protection is a false choice. We need to do both.

But instead of following the example of earlier industrializing countries, we need to go for smart, low-carbon growth. We need to make sustainability the organizing principle of our economy and of our modernization agenda.

This need not be as hard as it seems. The money and the brains are there. Capital markets are awash with money for low-carbon technologies. India has more billionaires than Japan now, and an army of domestic venture capitalists eager to sniff out green markets. Green is the new gold and the $30 billion carbon trading market is growing in India. The country is now one of the biggest sellers of Clean Development Mechanism (CDM) carbon credits worldwide. The Diaspora of
20 million overseas Indians is another under-tapped source of capital, innovation and political leverage.

Corporate India has heard the penny dropping: ITC’s new building in Gurgaon is Platinum-rated by the US Green Building Council’s LEED (Leadership in Environment and Energy Design). Bangalore’s hybrid REVA car is enjoying export success around the world. India’s wind power giant, Suzlon, is now the 5th
largest globally and poised to expand domestically. Infosys is involved in an effort to build a foundation for Indian companies to benefit from carbon emission management.

This is not only a story of big business responding. At the small and medium end of the market, India’s entrepreneurs have long been active developers and enthusiasts for renewable energy and energy efficiency. The Ashden awards for sustainable energy – the only one of their type – have had more award-winners from India than any other country. Indeed, this year’s ‘Outstanding Achievement’ winner was SELCO, the Bangalore-based private company that provides solar services to low-income households and institutions.

Gearing the economy around sustainability may also help India address two of its most pressing problems – high unemployment and jobless growth. The potential for win-win-win benefits all round in the green economy has long been recognized but remains unrealized. The climate challenge might just give it the impetus it needs.

Europe provides an example of the gains to be made in the building sector alone. The European Union’s building stock currently accounts for 40% of its CO2 emissions. At present only 10% of the potential for emissions reductions from buildings is being realize through the EU’s Energy Performance of Buildings Directive (EPBD). If properly implemented, however, it has been estimated that instruments such as the EPBD could realize significant CO2 reductions and energy and cost
savings. For the enlarged EU of 25 countries, experts suggest this could also result in 530,000 new jobs being created every year. There are lessons here for India.

All of the above, however, are piecemeal examples of leadership – they do not add up to a coherent national framework. Without a pro-active, opportunity-led national strategy on climate change they will remain isolated examples. The technology is there, the economics are persuasive, but can we get the politics right?
If we are indeed the last generation to enjoy a stable climate, as many scientists fear, we must get it right. Failure is not an option. The missing link is political leadership.

A time for leadership

There are signs a change may be coming. On June 5th, World Environment Day, the Prime Minister, Manmohan Singh, admitted “our future will be at peril” unless people change their lifestyles. He has recently spoken of the need for a national action plan and established agenda-setting committees. Helping him deliver this is a task for us all – at all levels. But first we need to democratize the debate and move it from the arcane to the public.

CSM’s national public engagement initiative, Climate Challenge India, launched earlier this year, is an attempt to help do this. The first effort of its type, it seeks to provide a national platform for discussion and agenda setting on climate change issues.

Given the vastness and diversity of the country, such efforts need to be multiplied many times over, link up with others, and take place in the country’s vernacular languages and reach into its remotest areas. In particular, women – who are often the ‘first movers’ on environmental issues –must be engaged and mobilized.

The message from our events across the country so far is that a national dialogue is long overdue. Participants from all walks of life have spoken of the need to ‘shout it (climate change) from the rooftops’ and prioritize public awareness-raising. They have called for role models and more visible leadership. Even small gestures and symbols can carry weight. Imagine what a signal it would send if the Prime Minister swapped his car for a low-emissions Reva?

Addressing climate change could unleash the greatest outpouring of ingenuity we have seen yet. It could create new skill-sets and new markets for India as a leader in climate adaptation and mitigation technologies. The Dutch have done this before us. They transformed their national disadvantage – a country lying below sea-level and prone to disastrous flooding – into an asset, and now lead the world in flood defense technologies. There is no reason why a confident, pro-active India cannot be similarly versatile. We have the talent; we just need the ambition and the leadership.

The year 2007 marks a number of historic anniversaries for India: 60 years since our Independence, 150 years since the Indian Mutiny, and 250 years since the Battle of Plassey.

It also marks 10 years since the agreement of the United Nations’ Kyoto Protocol in 1997 –the first international agreement to set curbs on greenhouse gases. At the time of Kyoto in 1997 we were largely a bystander. This time we are a player; a protagonist with a clear stake in the outcome of future climate talks.

It is worth repeating: the world cannot solve climate change without India. If we aspire to global leadership, there are few other issues to match. The world needs a fair and effective system of international governance to manage this problem. It is in our interest to engage fully and constructively in the process of establishing such a system.

At present, the politics are stuck. But change can come through leadership. We do not have to wait for others. A more farsighted stance by India could well trigger a new more positive climate of political will globally. This is crucially needed if efforts to construct a “Global Deal” on climate change, beginning in
Bali this December, are to succeed. India could hold the key to this. Generations to come may well see this as our defining moment of global emergence.

Sixty years ago, on the eve of India’s Independence, the country’s first Prime Minister, Jawahar Lal Nehru, gave the country words that crystallized a sense of national purpose. He added: ‘Those dreams are for India, but they are also for the world, for all the nations and peoples are too closely knit together today for anyone of them to imagine that it can live apart.’ That spirit of internationalism and inter-dependence needs to imbue the present time.

India, ‘the ancient, the eternal and the ever-new’ in Nehru’s words, has a long and proud heritage. Five thousand years of civilization must surely count for something at the moment of our greatest challenge. If we wish to take our place at the table as a Great Power, we now need to act as one.

What would leadership look like?

To paraphrase the business bestseller, ‘Green to Gold,’ smart companies use climate change to “innovate, create value, and build competitive advantage.” Smart nations can afford to do no less.

While no-one expects India to produce a comprehensive national climate change strategy overnight, the process of leadership could begin with a few steps:

Firstly, the Prime Minister could use the preparatory process for the next Conference of Parties to the UN’s Climate Change Convention (COP 13), to be held in December 2007 in Bali, to signal a new more positive approach to climate change. This would explicitly recognize the benefits of early and responsible action for front-line nations such as India.

This international confidence building measure could be accompanied by serious domestic efforts – coordinated by the Prime Minister’s Office for needed authority – to construct a joined-up and forward-looking national policy platform on climate change that could help the country deliver on its sustainable development and poverty eradication objectives.

For coherence, any policy platform must involve the four key energy ministries: Ministry of Power, Ministry of Coal, Ministry of Petroleum and Natural Gas, Ministry of New and Renewable Energy; as well as the departments responsible for India’s three-stage nuclear programme. At present this is not the case and paints a poor picture of the seriousness of intent.

A new approach would recognize the need to positively address India’s energy security dilemma and the co-benefits of so doing not only for climate security, but also for the national purse and the provision of basic energy services to the poor.

India currently imports about 78% of its annual crude oil requirements – a huge drain on national resources and a dependency projected to increase by 2012. An imaginative climate change strategy would address this dependence head on and chart a path towards a low-carbon economic future that had more of a chance of meeting the energy needs both of industry, as well as of India’s masses.

For a country with an advanced nuclear programme and space exploration ambitions, leapfrogging from a high-carbon to a low-carbon energy economy is both timely and possible. It is not rocket science. But it does need to be prioritized. There are many things we can do. For example, India needs to make major investments in infrastructure and transportation systems. We need to ensure that these are climate resilient, and cost and energy efficient over the long-term. Government leadership could facilitate this by creating national frameworks, setting guidelines, and incentivizing public and private investments.

Prioritising low-carbon technologies today will yield benefits tomorrow in the form of an industrial economy much more ready to compete in a carbon-constrained future. It will add rather than depreciate value for the country.

Studies have shown the diversity of measures that can be taken today. For example, “all new housing stock could be built to the highest possible standards of energy efficiency and integrate micro-generation technologies such as solar and wind. Combining this with technologies such as solar hot water systems and energy efficient electrical goods may have the potential to greatly reduce future energy demands and associated carbon emissions.”

We have seen that this is already an area where Indian enterprise is alive and well. Government leadership to incentivize these sectors could reap dividends in climate security as well as employment generation and economic development terms.

But leadership need not only come from central Government. In India, state-level responsibilities are considerable and it may just be a question of time before – as in the US – we see a clamour for change at the sub-national level, and Mayors and municipal leaders begin to rise to the challenge themselves.

In conclusion, climate change is a generational challenge. Dealing with it could help provide a new sense of national purpose. But it demands that each one of us ask more of ourselves. The gains are there to be realized. What are we waiting for?

Acknowledgements: This paper has benefitted from detailed ongoing discussions with Nick Mabey. Helpful comments on an earlier version were made by Yvan Biot, Anthony Barnett, Beverley Darkin, Ram Gidoomal, Tauni Lanier, Jean-Pierre Lehmann, Khozem Merchant, Anant Nadkarni, Andreas Papandreaou, Allison Robertshaw, Harnam Singh, Raj Thamotheram and Martin Wright. All errors or omissions are the sole responsibility of the author.

About the author

Malini Mehra is the founder and chief executive of CSM. In 2007, she was named as an ‘Asia 21 Young Leader’ by the Asia Society. She has been featured on CNN’s Principal Voices, BBC World, TIME and FORTUNE magazines. Trained as a political scientist and gender specialist, Malini is a campaigner by instinct. She was an active participant at the landmark Kyoto Climate Conference in 1997 where she led the input of the global federation, Friends of the Earth International.

Malini has worked on sustainability and human rights issues in the voluntary sector, business, government and international organisations for more than 20 years. This includes serving as a member of former UN Secretary General, Kofi Annan’s High-Level Panel on UN-Civil Society Relations, and contributing to the UN’s Human Development Reports on democracy and human rights.

From 2005-6, Malini worked in the UK government where she led on sustainable development partnerships and established a pioneering high-level initiative, the Sustainable Development Dialogues, with China, India, Brazil, South Africa and Mexico. Malini presently serves as an advisor to several private and public organisations including companies such as Unilever, BHP Billiton and Fortis.

She is a Fellow of the Royal Society for Arts, Commerce and Manufactures (RSA), the British-American Project, the Asia Society, and the Remarque Foundation. An Indian citizen, Malini is fluent in six global languages and divides her time between India and the UK.

Sixty years on from India’s Independence, the country is a rising global star with ambitions to match. But global climate change could wreck that rosy future. As a tropical country with a long coastline and a large population, India could be amongst the worst affected. The time to act is now. This paper makes a powerful
case for enlightened leadership from India’s political class on climate change. Calling it the challenge of a generation, it argues that climate change must be re-framed not as an agenda of fear and entitlement, but of growth and opportunity. Addressing it now could be the best means for a country like India to secure peace,
development and quality of life for its billion-plus people. If India truly aspires to greatness, there could be no other issue more timely or compelling.