Governance and Policies

US exit from Paris climate deal: How it affects India’s renewable energy ambitions

In his 27-minute speech announcing the US withdrawal from the Paris agreement on climate change, President Trump mentioned India only twice (well, thrice, but the third time was a repeat for rhetorical effect).

Jun 3, 2017
By Arunabha Ghosh
 
In his 27-minute speech announcing the US withdrawal from the Paris agreement on climate change, President Trump mentioned India only twice (well, thrice, but the third time was a repeat for rhetorical effect). The dumbed down message was: India was a big polluter, India was not doing and was not expected to do much on climate change under the Agreement, and India was asking for lots of money in return for little action. These are, of course, misleading statements – and unfortunate. Meanwhile, a trip is being planned for Prime Minister Modi to visit the United States in the very near future. Rather than impulsively reacting to this provocation, India must clinically examine the breadth and depth of its energy and climate relationship with the United States to decide which areas of cooperation, if any, still hold promise.
 
So far, the India-U.S. relationship can be characterised by the good, the bad, and the undecided. On the plus side, despite their differences, the two countries found common ground on three international agreements on climate change (in Paris, under the Montreal Protocol to phase out hydrofluorocarbons, and measures to curb emissions under the International Civil Aviation Organisation). Bilaterally, they launched numerous programmes on energy access, and established joint funds to push energy R&D. The negatives include contentious issues such as differentiation between countries’ responsibilities and capabilities under the Paris Agreement, how financial contributions would be counted, and several trade disputes on clean energy. Further, it is unclear how the U.S. withdrawal would immediately impact bilateral energy programmes, joint investments, and investor confidence. Prime Minister Modi’s visit is an opportunity to discuss four aspects of the energy/climate relationship.
 
First, energy prices will matter for any long-term contracts. GAIL is contracted to purchase 5.8 million metric tonnes per annum (MMTPA) of liquefied natural gas (LNG) from two U.S. terminals. But the landed price of the gas will be higher than from sources in West Asia or Africa. That said, by 2020, India will have the capacity to import 50 MMTPA of gas. If the price were right, in principle there would be a lot of scope for additional gas imports (in fact, up to 88% of projected net LNG exports from the United States). Equally, last month India signalled its continued ambitions on nuclear energy by sanctioning ten indigenous reactors (a total of 7000 MW). This June, the contracts for the purchase of six Westinghouse reactors were to be finalised but that will be delayed until the bankrupt Westinghouse finds a new buyer. As cleaner energy sources, both gas and nuclear could offer benefits for both countries, but fuel exporters and technology providers would have to cut their costs.
 
Second, energy efficiency offers huge technological and commercial opportunities. If India’s high economic growth rates have to be maintained within a shrinking carbon space, energy efficiency will matter in the industrial, transport and buildings sectors. Currently, only large industrial units are covered under countrywide energy efficiency schemes. However, micro, small and medium enterprises (numbering over 3 million and located in 200 industrial clusters) have a non-trivial share of industrial energy use (about 14%-15%). India’s space cooling needs will grow five-fold in two decades, again offering scope for Indian and U.S. firms to collaborate on technologies. Growing transportation demand will mean an expanding market for batteries for electric vehicles, fuel cells and third-generation biofuels. None of these market opportunities require the Paris Agreement per se.
 
Third, energy security matters for both countries. India and the United States need to raise the dialogue on maritime security cooperation in the Indian Ocean region, to ensure security of energy supply routes. Another emerging area of concern is the security of the electricity grid against cyber attacks. There is already a joint programme on transforming India’s grid. Grid stability and cybersecurity could offer a sustained basis for cooperation, technology exchange and commercial investment.
 
Fourth, the uncertainty in U.S. federal policies towards renewable energy has made India’s renewable energy market relatively even more attractive, not just for its size (175 GW by 2022) but for the investment opportunity that credible, long-term policies offer. India saw nearly $10 billion invested, both in 2015 and in 2016, in renewable energy projects. Last year, $1.9 billion of green bonds were issued. India’s solar targets, alone, need $100 billion of debt. These are huge investment opportunities for U.S.-based firms, as well as manufacturers.
 
The past decade had many instances of transformational deals (bilateral and multilateral) for India and the United States. President Trump’s announcement on the Paris agreement is highly unfortunate, but does not close the door completely. There are still many avenues to continue transacting. The negotiations will be tough but, as a businessman, Mr Trump should know a good deal when he sees one.
 
Hindustan Times, June 3, 2017

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