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DELHI: Dhruba Purkayastha is India director at the Climate Policy Initiative and director of US India Clean Energy Finance. He says despite being a one of the few “2°C compatible” members of the G20, decarbonising the country will cost US$2.5 trillion by 2030:

"
India’s commitments under the 2015 Paris climate agreement, which aims to limit global warming to well below 2° Celsius relative to pre-industrial levels, include three quantifiable objectives. By 2030, the country aims to reduce the emissions intensity of its GDP by 33-35 percent, ensure that renewable energy sources account for about 40 percent of its installed power capacity, and, through afforestation, create an additional carbon sink of 2.5-3 billion tons of carbon dioxide equivalent.

International observers like Climate Action Tracker and Climate Transparency regard India as one of the few G20 countries to be “2°C compatible” and on track to fulfill its so-called nationally determined contributions (NDCs) under the Paris accord. But even if India achieves its NDC targets and adopts measures to help keep global warming to 1.5°C, on current trends its CO2 emissions in 2030 could be about 90 percent higher than in 2015.

India must therefore decarbonize more, and fast. But India also needs to invest in manufacturing and infrastructure to improve its competitiveness, create enough jobs to lift one-third of its 1.3 billion people out of poverty, and increase its chances of meeting the United Nations Sustainable Development Goals (SDGs). Achieving these objectives without drastically increasing CO2 emissions will require India to pursue a radically different green growth strategy.

This will not be easy. True, with renewable energy sources currently accounting for 140 gigawatts, or 37 percent, of India’s 380 GW of installed power capacity, the country looks set to achieve its 40 percent target by 2030. But only 15.5 percent of the electricity consumed in India is clean, while the remainder is sourced through fossil fuels. That is primarily because large additions of renewable-energy capacity do not translate into lower CO2 emissions in linear fashion. The effect instead depends on the capacity utilization of renewable sources, the grid’s capability to absorb variable power, and the flexibility of power systems to ramp up during peak loads.

Moreover, while India is the third largest emitter of greenhouse gases (GHGs), its per capita electricity consumption is among the world’s lowest, at about one-third of the global average. But it is imperative that the country’s electricity consumption increases as the economy continues to develop.

The energy sector alone accounts for 78 percent of India’s GHG emissions, while industry is responsible for 7.0 percent, and agriculture and land use 10 percent. Within the energy sector, industry is the biggest consumer of electricity, using 42 percent of India’s output. As the country’s low per capita resource consumption rises toward the global average, and with demand for carbon intensive commodities such as steel, cement, and chemicals expected to grow, electricity consumption is likely to increase at least threefold between 2014 and 2030.

Structurally transforming the Indian economy will entail a shift in the share of GDP from agriculture to industry and services, accompanied by a reduction in energy poverty and improved access to reliable electricity. This would be the required development trajectory for achieving the SDGs, but it would result in India increasing its CO2 emissions. So, how, and to what extent, can India decarbonize? The solution lies in deploying clean technology on a large scale, reducing the cost of finance, and pricing and paying for CO2 emissions mitigation.

To promote both decarbonisation and economic development through a green investment and growth strategy, policymakers should consider adopting a sequenced approach. They could start by investing in large-scale renewable energy projects, before electrifying transportation, and then expanding and integrating distributed green energy for cleaner electricity access.

The next step would be to create additional rural non-farm livelihoods in agro-processing (such as milling, grinding, crushing, and packaging), storage, and warehousing. After that, policymakers should aim to increase energy efficiency in heating, cooling, lighting, and electric motors. India also will need to adopt clean technologies such as carbon capture and storage, hydrogen as a fuel and reducing agent for steel, and green cement manufacturing. And, it must expand its forestry-based carbon sinks on a massive scale.

Speeding up decarbonisation in line with India’s NDC calls for massive investments totaling some US$2.5 trillion by 2030. Moreover, most emission-mitigation technologies require large upfront capital investments relative to subsequent operating costs, which is why India’s relatively high cost of finance is an important factor. And increased risk perceptions of the country – including climate-related financial risks – make it difficult to reduce borrowing costs for climate investments. Large-scale green investments in India therefore may not provide adequate risk-adjusted returns.

That means India requires interventions from government and intergovernmental institutions to enable finance to flow toward decarbonisation investments. These measures could include creating pooled or specific risk-mitigation mechanisms to 'de-risk' finance; shifting investments from banks to financial markets; reducing reliance on credit ratings for lending and investment; measuring, registering, and pricing carbon mitigated incrementally beyond NDC targets; and compensation for additional perceived risks borne by banks and institutional investors.

The risks are indeed high. A long coastline, widely varying seasonal monsoons, and significant dependence on agriculture make India highly vulnerable to the effects of climate change. This is carbon evident from increasingly frequent cyclones, droughts, and erratic temperatures across the country.

India therefore requires climate adaptation investments that would preserve ecosystems and reduce coastal erosion while protecting livelihoods. Because the private sector usually perceives core adaptation investments as economically unviable, the public sector must lead by making suitable investments and developing public-private partnership business models to attract private investors.

Indian policymakers should thus regard meeting national climate targets under the Paris agreement as only a first step. The far bigger challenge is to foster sustainable green growth that provides a better future for India’s people while also helping to protect the planet.
 
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CPI is a non-profit analysis and advisory organisation with deep expertise in finance and policy. Its mission is to help governments, businesses, and financial institutions drive economic growth while addressing climate change. This article originally appeared in the Fall edition of Project Syndicate magazine.
 

LONDON: Latest data from the Science Based Targets initiative (SBTi), enabling companies to set GHG emissions reduction targets, says while 18 European power companies have approved science-based targets, the US only has one – NRG Energy.

The Houston, TX-based company has an approved 1.5°C science-based target and is committed to reduce absolute Scope 1 and 2 emissions by 50 percent by 2025 and 100 percent by 2050 from a 2014 base year. This means it will cut at least 32 million tonnes of emissions by 2025.

Other major US utilities, including Duke Energy, Dominion and Southern Company, have defined their own 2050 net-zero targets resulting in only a 1-2 percent reduction per year.

By contrast, European power companies Enel, EDP, Iberdrola, Siemens Renewable Energy, Orsted and Verbund have approved 1.5°C targets and are reducing emissions at an average rate of 59 percent over 10 years. Combined, these companies will cut more than 136 million tonnes by 2030.

They are included in a group that has joined the SBTi’s ‘Business Ambition for 1.5°C’ target to reduce total Scope 1 and 2 emissions of 303.5 million tonnes by 2030, more than the GHG emitted by Spain last year (272 million tonnes).

While the US is committed to cut emissions 50-52 percent from 2005 levels by 2030, much depends on the Biden Administration enacting an ambitious Clean Energy Standard. If passed into law, the goal is to generate 80 percent clean electricity by 2030 and 100 percent by 2035, up from 12 percent in last year.

“The science is clear - we must halve global emissions by 2030 and the electricity sector must lead the way,” said SBTi managing director Alberto Carrillo Pineda. “But currently, the European electricity sector is powering ahead of North America. Europe has demonstrated the possibilities, and the US must now deliver an energy revolution that rapidly phases-out coal and gas while turbo-charging the expansion of renewable energy.”

The SBTi is inviting all remaining major European utilities, including Vattenfall and ENBW, to make 1.5°C a goal.

LONDON: Seventy-five miles west of the Shetland Islands there is a new oil field project known as Cambo. It’s owned by Shell and a private-equity backed firm called Siccar Point Energy. They have applied for a licence from Boris Johnson’s government to start extracting the fossil fuel.

Activist lawyer group ClientEarth calls the 17 banks associated with the project hypocritical saying they cannot claim to be transitioning to net-zero while supporting new oil and gas drilling less than 400 miles from where COP26 will be held in November:


The plans have sparked significant controversy – if given the green light, the companies would be able to produce as much as 170 million barrels over 25 years, locking in 63.5 million tonnes of harmful greenhouse gas emissions in the project’s first phase alone.

It would also be one of the first proposals to receive approval since the International Energy Agency declared that there could be no new oil and gas supply projects if the world is to keep global warming within safe levels – up to a limit of 1.5°C.

Yet, major banks across the world continue to support the companies behind Cambo’s development. Barclays, HSBC, and Standard Chartered are among the many banks that fund or advise Shell and Siccar Point, effectively enabling the climate damage caused if the project went ahead.

At the same time, these banks have committed to address their climate impact. Each of them are members of the Net-Zero Banking Alliance or signatories of the Collective Commitment to Climate Action, meaning they have promised to align their portfolios with pathways to reach net-zero emissions by 2050.

This is why we’ve written to the 17 banking institutions calling out their hypocrisy and the disconnect between their words and actions.

These include: Bank of America, Barclays, BNP Paribas, BPCE/Natixis, Citi, Crédit Agricole, Credit Suisse, Deutsche Bank, HSBC, ING Bank, Lloyds, Morgan Stanley, Banco Santander, Société Générale, SpareBank 1 Markets, Standard Chartered and UBS.

Our lawyers have challenged these financial giants to justify their support of Shell and Siccar Point in light of the banks’ climate commitments, and warned that continuing to do business with the companies presents significant legal, financial and reputational risks.

We challenge the directors of every bank that is enabling the Cambo project to justify such hypocrisy. Not only are they putting their credibility and reputation on the line, but if the project proceeds they are unnecessarily exposing the bank to significant financial and legal risks with no clarity on how these will be managed.”

The banks’ promises under the Net-Zero Banking Alliance or Collective Commitment to Climate Action include reducing their emissions in line with science-based decarbonisation scenarios and engaging with their clients on their transition.

By contradicting these pledges, directors risk breaching their fiduciary duty to act in a way that promotes the success of the bank.

There is additional risk of the banks breaching regulatory requirements in relation to prudential risk management including failure to manage the stranded asset risk.

If approved, proposals to develop Cambo would lock in oil production up to 2050 or beyond. But these reserves could be rendered obsolete if new laws designed to tackle climate change were introduced.

ClientEarth has also highlighted the banks’ legal obligations under international standards such as the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises.

These include engaging with Cambo’s operators to influence them to stop pursuing the proposed development, and considering terminating their relationships if they refuse.

Aside from legal risk, banks could come under significant pressure by investors to withdraw financing, including through shareholder climate resolutions calling for strengthened energy policies, and votes against directors.

The sad fact is that the Cambo oil field is just one example of where these banks’ actions don’t match their words. What is it going to take for these institutions to listen to the science and start demanding that polluting companies stop oil and gas expansion immediately, or consider ending their relationships with clients that refuse?

It’s time for these powerful financial actors to put their money where their mouth is. With Cambo, they have the opportunity to help avoid millions of tonnes of harmful emissions from damaging our fragile climate even further and help get the world on track for net-zero.

"
According to Greenpeace UK, Siccar Point is registered in an offshore tax haven. Shell, which has a 30 percent stake in the Cambo project, paid no UK corporation tax in 2019 and has been ordered by a Dutch court to cut its oil production 45 percent by 2030. It has lodged an appeal.
 

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