Why climate change should be addressed by Indian industries?

Atmospheric concentrations of the Green House Gases (GHGs) have far exceeded their levels today and have increased over the years, primarily due to combustion of fossil fuels and land-use changes. Research has shown that air pollutants from fossil fuels combustion causing green house effects and contributing to additional warming of the earth’s surface. Evergrowing concentration of GHG’s causes climate change and global warming. Climate change is a significant and lasting change in the statistical distribution of weather patterns over periods ranging from decades to millions of years.

Climate change may cause extreme weather conditions like cyclones, flooding, acid rains, etc. It can also trigger resource scarcity, energy scarcity and change the micro and macro climatic patterns of certain regions or the whole world.  It is a business risk which is induced by climate change and need to be addresses before the time gone.

India is now the world’s third largest emitter of greenhouse gases, ranking behind China. India’s Ministry of Environment and Forests released its greenhouse gas inventory report of 2007 emissions in May 2010. As per the inventory report, India’s emissions have grown at an average annual rate of 3.3%, increasing from 1.25 billion tons in 1994 to 1.9 billion tons in 2007. The report analyzes emissions from Electricity use, Agriculture, Iron and Steel industry, Transportation, land use change and other industries.

What are the risks?

Regulatory framework to mitigate risks induced by the climate change is necessary. India is not behind in bringing about climate change regulation and it is found that there have been significant developments in legislation and regulation regarding climate change in the country.  The National Action Plan of Climate Change (NAPCC) of India was introduced in 2008. NAPCC envisage to use of 15% renewable energy by 2020 and to make energy efficiency mandatory. NAPCC proposed eight national missions and some other missions for the mitigation and adaptation of climate change.  Some of these include the Renewable Energy Certificates (REC) and the Perform Achieve and Trade (PAT) under the National Mission on Enhanced energy Efficiency that integrates climate change policies in the main development goals.

In India at present, there is no regulation with regard to GHG emission. However, Government of India being signatory to Kyoto Protocol is emphasizing on state-of-the-art technologies for energy efficiency and carbon mitigation. Considering the risks and opportunities due to the climate change to the heavy energy intensive industries, Electricity Act 2003 introduced Renewable Purchase Obligations for the fossil fuel based energy consumers. As many industries use captive power plants for power generation (most use Coal as a fuel), it comes under Renewable Purchase Obligations. It means Industries that have fossil fuel based power generation have to comply with RPO under the EA act 2003. If the obligated steel industries doesn’t comply with their obligations under the RPO, they will be penalized under the EA act. Either they can generate renewable power or can buy Renewable Energy Certificates (REC mechanism is also similar like the GHG emission trading scheme so the RECs can be bought/sold from the energy exchanges of India. RECs produced when electricity generate through the renewable energy source. These credits can be used to comply with the Renewable Purchase Obligations of the obligated entities) from the renewable energy project developers.

Another recent domestic regulation in India is carbon tax. To prevent over use of high carbon intensive fuels; in 2010, Government of India had set up policy on carbon tax (Rs. 50.00 for each metric ton of coal used in India – domestic or imported both). Carbon tax can be called as a tax on carbon or an environmental tax that is mostly levied on carbon content of the fuel. The fundamental concept behind carbon tax is to prevent the over use of fossil fuels and limit it to a certain level.  In addition it helps to pave ways for non carbon or less carbon technologies.  Money collected from the carbon tax will help to create National Clean Energy Fund for financing research and innovative clean energy technologies in the country. Heavy industries like Power, Steel and others are the most vulnerable sector for the carbon tax.

International legislation such as Kyoto protocol, Regional Greenhouse Gas Initiative (RGGI), the California Global Warming Solutions Act of 2006, the Western Climate Initiative, Australia’s Carbon tax etc are already in place to address the issue of climate change. It shows the world is concerned about the risks and opportunities associated with climate change.

India is the member country of Kyoto Protocol. Kyoto protocol is the international agreement linked to the GHG reduction targets to the developed countries.  Kyoto protocol was signed in 1997 and assigned GHG reduction targets to the developed countries for the period of 2008 to 2012 known as first commitment period which is expiring soon.  Seventeenth climate change conference (COP 17) successfully organized at Durban for the extension of Kyoto protocol beyond 2012.  Outcome of the conference is remained uncertain in many things but the developed countries are agreed to participate in a second commitment period of the Kyoto Protocol.

The second commitment period would start from 1^st January 2013 and would extend up to either 2017 or 2020 (to be decided COP 18, Qatar next year).  Developed countries clearly mentioned in the conference that they will sign the treaty on legally binding GHG emission reduction targets only after the developing countries like India and China take emission cuts.  European Union also wanted developing nations to do more than just “business as usual.”As per the Durban agreement, the participating countries have agreed to decide on the modalities and procedures of the second commitment period by 2015 and implement it from 2020. Thus, it is anticipated that the big emitters like China, India and USA will have legal emission commitments post 2020.

The major risks associated with climate change for the high energy intensive industries in India would be during post Kyoto scenario with possible new emissions regulatory regime.  There may be the emissions caps for developing countries like China and India. Industries like steel, power, mining, oil and gas etc are GHG emission intensive due to its huge energy uses. If the future climate change regulations in India put GHG emission caps on these industries, it will definitely affect the businesses and growth of the industry. In addition, NAPCC envisages voluntary emission cuts and hence all GHG emission intensive industries will require to embrace low emission technologies and subsequently be prepared for the stronger climate change regulations.

What are the opportunities?

Energy intensive industries are covered under PAT mechanism under the NMEEE. Some of them are also the obligated sectors for the renewable purchase obligations (Captive fossil fuel based power plants) and hence they need to comply under these mechanisms. Under the PAT scheme, energy intensive industry can become energy efficient by incorporating energy efficiency measures and can sell their energy saving certificates to the other entity that haven’t complied with the requirement. It can avail additional revenue to the company.

Kyoto regime brought lot of monitory benefits to the GHG emission reduction project developers. Kyoto Protocol  introduced the Clean Development Mechanism (CDM) which is an arrangement  allowing industrialized countries (called Annex 1 countries) with a GHG emission reduction targets to invest in projects that reduce emissions in developing countries as an alternative to more expensive emission reductions in their own countries.  Such projects can earn Carbon Credits in the form of GHG emission reductions (One carbon credit is equivalent to one ton of carbon dioxide).

In addition, The Bombay Stock Exchange (BSE) has launched the first ever ‘Carbon Indexing Project’ in collaboration with the UK government recently. This project will use data from the recently released ‘Carbon Disclosure Project (CDP) Report 2011 – India 200’ to rate BSE-listed companies on the basis of their carbon emissions and compare it to their performance on the stock exchange. It can help organizations with low carbon footprint to build their brand image among the industry.

As discussed in previous section, Indian industries need to adapt for the futuristic risks and opportunities induced by climate change. Global environmental laws, GHG emission trading scheme and carbon tax can affect existing international trading structure.  Resource availability is also a crucial concern for the industries as non availability of resources on time can increase the cost of import or can shut down the production units. Extreme events like cyclones, floods, etc can affect the production of natural resources and hence directly affects the different sections of industries. Therefore being prepared for such circumstances is always better than waiting for them.  In addition, quantitative data on the natural resources, energy and GHG emissions resulting from the industrial operation can also help in the decision making for adaptations as well as futuristic expansion plans of the company.

Read more on – Summary of Incentives and Subsidies for Renewable Energy Products by MNRE