Published Editorial

Meeting Paris climate goals is no easy task

June 2016

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The Hindu

By

Ajeya Bandyopadhyay
Director, Advisory, EY India

The Paris Agreement is perhaps the world’s biggest leap forward in the history of climate policy. For the first time, the world is united on the ambitious goal of limiting the global temperature rise ‘well below’ 2 degrees Celsius.

The new ‘architecture’ of the Paris deal, a which marks a break from the previous Kyoto regime, makes emission mitigation a political priority for each country government.

Renewable energy challenge

The challenge before India – reducing the emissions intensity of its GDP by 33-35 per cent by 2030 – seems hard but not insurmountable. Renewable energy, energy efficiency, electric mobility and smarter infrastructure are the areas that need a policy push backed by strong political will and sound technical ability.

Doubling of the coal cess in the last Budget, and the tax hike on petroleum fuels were good instruments, but we are yet to see mobilisation of this fund on a substantial scale to support low carbon projects. Fundamentally, renewable technologies are disruptive in nature, challenging the business models of traditional utilities and their supply chain. The incumbents should embrace new technologies and business models sooner rather than later to survive in a competitive environment. Some utilities are doing so, working on plans to mainstream solar, both large-scale and distributed rooftop, through transmission planning, loss reduction, energy efficiency and net metering.

The prospect of achieving 40 per cent cleaner power generation by 2030 is not so encouraging with a disappointingly low nationwide power demand, growing grid instability in areas of high RE penetration and intense competition pushing the solar tariff so low (Rs 4.34-5 per unit) that the bankers are reluctant to lend to such projects.

Electric vehicles

Nonetheless, the Government needs to work closely with the sectoral stakeholders to remove regulatory and policy barriers in RE. According to the National Electric Mobility Mission Plan, 6-7 million electric or hybrid vehicles are expected to ply on Indian roads by 2020. To enable this, charging infrastructure must be deployed or retrofitted in commercial and residential areas. The government can involve private players to set up charging stations on a PPP mode.

EVs ramp up power demand and hence utilisation of power plants. Further, EV battery can be charged at night and the stored power can be fed back, through Vehicle-to-Grid (V2G) system, into the grid during peak periods, thus helping to stabilise the grid’s voltage and frequency, providing a spinning reserve to balance sudden demand spikes. Regulatory clarity is needed with regard to sale of electricity to EV consumers and possible sale back to the grid.

An unfinished agenda for many State Governments is to develop the building energy efficiency code, and undertake capacity development for the public and private stakeholders. Industrial energy efficiency is on the rise.

However, access to finance, especially for MSMEs, remains constrained, due to their limited borrowing capacity, lack of knowledge and information on newer technologies, higher transaction costs, and higher demand for collaterals by lenders.

Credit flow can be augmented by targeted assistance to the MSMEs and capacity building of financial institutions to develop a standardised credit appraisal framework for climate-friendly projects.

The ‘International Solar Alliance’ and the ‘Mission Innovation’, which entails bilateral exchange of technologies, may slow down if a next US President is a climate-sceptic.

States’ preparedness

Back home, the States should develop their own revenue generation plans to support the mandatory State action plans for climate change. It is also the time to overhaul the global financial system to ensure sustainable investment flows. in climate projects. A crucial role of the regulators will be to allow markets to adjust efficiently, and encourage enhanced disclosure. The Governor of the Bank of England, Mark Carney has observed: “With improved disclosure, climate sceptics and evangelists, techno-optimists and pessimists, alike will be able to back their convictions with capital.”