Industrial decarbonization will propel India towards a sustainable future and further towards deep decarbonization.
New Delhi: Taking a stand against climate change, India has put forth climate commitments at various international forums. India is leading many battles by powering the future with renewable energy, accelerating sustainable mobility in the transportation sector, fostering international cooperation such as International Solar Alliance (ISA), and by financing the energy transitions from conventional sources to green technologies.
Such advancements have been backed by strong domestic actions to focus on providing secure, affordable, and sustainable energy, while achieving its Nationally Determined Contributions (NDCs) and reducing local air pollution.
Over the last few years, decarbonization pathways have emerged for sectors such as transport, power, and buildings. These pathways have been driven by technological breakthroughs and cost reduction, whereas, in practice, pathways for industrial decarbonization have proven to be particularly challenging for a host of reasons given in Figure 1.
In India, the industrial sector is second, next to the power sector in terms of energy consumption, and being a developing nation, it is well known that industrialization activities are expected to surge in the coming years.
The manufacturing sector (a subset of industry) has seen a 5 per cent growth in CAGR between FY16 to FY20 in GVA at basic current prices (Source: IBEF, 2020) and with rapid urbanization and rising income levels, it will continue to be the economic powerhouse as manufactured materials and goods are integral to our daily lives.
Also, with ‘Make in India’ and ‘Atma Nirbhar’ vision, India has started becoming a global manufacturing hub, which will provide a boost to the Indian economy. The success of ‘Make in India’ will also increase the industrial value add. It will have significant implications for India’s energy trajectory and GHG emissions.
When it comes to policy-level interventions associated to decarbonize the industrial sector, there is only Perform, Achieve and Trade (PAT) scheme, which is being regulated by the Bureau of Energy Efficiency (BEE). It aims to reduce the specific energy consumption in energy-intensive industries, with an associated market-based mechanism.
The scheme has been successful, promising and widely accepted, but unlocking energy efficiency is just one part of the decarbonization story. The focus needs to shift from energy efficiency measures to carbon neutral or carbon negative measures down the lane.
Decarbonization policies for industries will be most essential and instrumental if we want to meet the Paris Agreement target of keeping global heating “well below 2 Degree Celsius” by 2100.
Industrial decarbonization policies across the globe
Industries in Europe and China have seen a fall in GHG emissions and energy consumption intensity. Industrial energy management systems, EU-ETS framework, and the adoption of new advanced technologies, along with the green electrification of industries are some of the measures adopted by European countries (Source: EC, 2018).
China has started energy efficiency improvements, reward, and penalty mechanisms to reduce energy consumption. As far as demand-side management is concerned, recycling and reusing the materials has led to the reduction in demand for carbon-intensive products.
Japan is also intent on establishing new production processes to achieve decarbonized manufacturing with disruptive innovation such as CO2-free hydrogen, feedstock change, and improved energy efficiency under their long-term strategy pledges for emission reductions.
Another major boost to greening this sector is tied up with NDCs. We find that countries like Sri Lanka, China, UAE, Chile, and Vietnam, have mentioned strategies pertaining to industrial decarbonization, which makes it more relevant for the economy to focus. Whereas in India, we observe voluntary company-level initiatives for reducing emissions and energy consumption.
Recently, six Indian industries have signed up an “Industry Charter for Near Zero Emissions by 2050” by improving energy efficiency, renewable energy, and circular economy. Internal Carbon Pricing (ICP) is also becoming a common choice for managing risks and meeting corporate emission reduction targets. From two companies in 2015 to 40 companies in 2020, ICP has been impressively growing among some big industries and IT service companies.
Decarbonizing the “Hard-to-Abate” sectors in India
Energy-intensive industrial sectors who majorly focus on increasing production volumes often miss the resource efficiency part. Industries like iron and steel, petrochemicals, aluminum, cement, and fertilizers produce basic commodities and for them, being competitive in market is of utmost importance. Investment in decarbonization technologies will certainly increase the costs for them.
Besides maintaining global competitiveness, heavy industries face another problem, due to their longer lifespan they cannot retire their existing machinery and switch to green fuels due to associated costs very quickly.
Moreover, the processes are highly integrated, so a change in one process would lead to changes in subsequent processes. Further, certain processes in hard-to-abate sectors such as clinker production in the cement industry lead to feedstock emissions. So, fuel substitution is not a solution here. Rather, we need to find out ways to modify these processes.
Another problem with heavy industries is the requirement of high temperature heat (>500 Degree Celsius), which can only be provided by burning fossil fuels.
Breakthrough technologies to decarbonize these ‘hard-to-abate’ sectors is the need of hour. According to International Energy Agency, a large part of emission reduction in industries will occur by Carbon, Capture and Storage (CCS).
Though this technology comes with many risks and uncertainties on CO2 storage, transport, and public perception, there has been a large potential scope for CCS in cement production, iron and steel and petrochemicals. Green hydrogen is another untapped opportunity which can help India in the energy transition.
Global studies estimate that with lower renewable energy costs and improving electrolyzer technologies, green hydrogen can become cost competitive by 2030 . It requires more research and development, along with lowering cost and increasing deployment.
Leveraging the Best Available Technologies (BATs) to mitigate emissions within sector-specific processes such as steam systems, process heating systems, electric motors and electronic control systems gives a lot of energy efficiency opportunities (IPCC WG3).
Waste-to-energy recycling in energy-intensive industrial processes – including refineries — steel, cement, glass, and chemicals can be another class of best practices, where the cast-off energy in the form of exhaust heat, combustible gases, biomass, and other waste energy can be recovered to generate power.
Role of policy makers in Industrial decarbonization
In this context of industrial decarbonization, the Bureau of Energy Efficiency (BEE) has the caliber to play a pivotal role in accelerating the transformation through its range of policy and program solutions for both large industries as well as MSMEs.
Under the National Mission for Enhanced Energy Efficiency (NMEEE), BEE aims to strengthen the market for energy efficiency in the energy intensive industries.
PAT is being one of the initiatives under NMEEE, majority of the large and energy intensive industries which collectively consume 60 per cent of the total Industrial sector are covered under PAT.
Recent announcements in the union budget on the launch of Hydrogen Energy Mission for generating green hydrogen will make the role of policy makers even more critical.
This requires a leapfrog change in policies along with a greater inter-ministerial coordination across the government agencies. Hydrogen-based economy has been into the national commitments of various countries such as France, Japan, Norway, Singapore, and Australia, as we see green hydrogen’s huge potential to decarbonize hard to abate sectors such as ammonia (as feedstock) and steel (as reductant).
With further commercialization and development of technology over a period of time, hydrogen fuel cells may also be seen to power and heat industries including the MSMEs.
The Unorganized sectors in India
India hosts the second largest base for MSMEs in the world, the unorganized sector accounts for 45 per cent of the total industrial output and 8 per cent to the national GDP. MSMEs play a key role in the value chain with the large industry and the sector also provides the largest share of employment after agriculture. As of 2019, the sector has been the source of income to 110 million employees (50 million are rural based).
The sector functions with low level administration and is unorganized in nature. Stakeholders of MSMEs lack adequate awareness of global developments, poor confidence between MSMEs and financing bodies. Thus, they opt for low-cost and inefficient technologies. Tapping the decarbonization potentials from MSMEs is highly essential apart from organized and hard-to-abate sectors.
A possible pathway for Indian industries
In order for Indian industries to make key strides toward decarbonization, multiple actions need to be implemented. First, preparation of a vision or roadmap to decarbonize the industrial sector with inclusion of sector-specific targets (specially for hard to abate sectors) for industries in the NDC commitment will help in strategizing ways to decarbonize the sector.
Transition in the power sector is one example, as it has been clearly targeted in the NDCs. Innovative sector-specific policies are key role players towards strategizing ways in exploring the disruptive technologies to see a future in India at large scale.
Second, it is time to cover the complete industrial sector, including MSMEs, under the decarbonizing umbrella, through policy interventions such as inclusion of energy intensive sectors (sugar, ceramic, glass, chemicals, mining) under the PAT scheme.
Due to lack of information, inadequate finance, and low accessibility towards best practices, MSMEs are often left behind in the debate of emission reduction. Information or data gap is another roadblock where transparent data platforms need to be created, especially for the unorganized sector.
Third, in order to embrace decarbonization, one of the key enablers that industries will want is availability of proven technology. A joint R&D platform for industrial decarbonization with European countries will facilitate knowledge sharing alongside the technology transfer. Sharing knowledge and resources with technologically advanced countries is a way forward for exploring innovative technologies.
The UK is leading its efforts by turning industrial clusters into world-leading low-carbon hubs by capturing CO2 emissions and safely storing them in the grounds. Another plan is to use CO2 for producing materials and sustainable fuels.
Whereas, to reduce indirect emissions new renewable sources will be used to power industries. An investment sum of EUR 170 million to support industrial decarbonization has been provided by the UK government. Solutions developed can be deployed at the largest scale, in the UK and internationally. Thus, tapping into this opportunity of collaboration, India should move ahead in exploring such platforms.
Fourth, promoting circular economy is vital to limiting waste by increasing material use efficiency, reusing the products by creating a secondary market, recycling to make new materials from used ones and recovering industrial waste and by-products are incremental steps towards a completely circular economy.
A perfect example is Norwegian companies, who have been following these sustainable practices. BEE and other government agencies can also explore possibilities to collaborate together on creating policies for increased reuse and recycling in manufacturing industries to reduce raw material demand and thereby reduce energy intensity.
In the end, policies to ensure availability of low-cost financing to invest in new technology and sharing of investment risks for innovative technology is a vital support that industries will look forward to as a motivation to move towards deep decarbonization.
As India is marching towards its 75 th year of Independence in 2022, the country has remarkably transformed in the last couple of decades, embracing vital growth in major economic sectors. India has also lived up to global standards and competence, thanks to several timely policies and strategies and at the same time its acceptance from stakeholders and citizens.
Industries will continue to look forward toward carbon neutrality. Decarbonization will be a major effort and is only possible if the awareness and importance are inculcated for behavioral change at the individual and institutional level. Industrial decarbonization will transform India towards sustainable futures and further towards deep decarbonization.
1. IRENA (2020), Green Hydrogen Cost Reduction: Scaling up Electrolysers to Meet the 1.5⁰C Climate Goal, International
Renewable Energy Agency, Abu Dhabi.
[This piece was jointly authored by Milind Deore, Director, Bureau of Energy Efficiency; Rathin Kukreja, Manager, Energy Efficiency, and Poonam Nagar Koti, Climate Change Specialist, ICF]