Report by HRI researchers
Eika Yamaguchi
Senior Researcher
Global Intelligence and Research Office
The global average temperature reached its highest point in recorded history last year (2023), with an increase from the pre-industrial (1850-1900) average temperature of 1.45-1.48°C. The day is fast approaching when the Paris Agreement's promise of 1.5°C will be broken.
Looking at greenhouse gas (GHG) emissions, which are the main cause of global warming, by region, the trend shows that the reductions in developed countries are offset by increases in China and India (Figure 1). Not only is India the world’s third-largest GHG emitter, but it is also expected to further increase its share of global GHG emissions. In order to curb global warming, it is imperative to reduce emission in India, which accounts for a large portion of emissions and continues to show a trend of increasing emissions (Figure 2).
Note: The EU includes 27 member countries
Source: Compiled by Hitachi Research Institute based on EDGAR - Emissions Database for Global Atmospheric Research
Figure 1: GHG Emissions of Major Countries
Note：NDC stands for Nationally Determined Contribution (each country’s GHG emission reduction target under the Paris Agreement)
Source: IEA “Climate Pledges Explorer
Figure 2: India’s CO2 Emission Projections Based on NDC
India's environmental and energy-related goals can be broadly divided into three milestones (target years): 2030, 2047, and 2070 (Table 1). In November 2021, Prime Minister Modi declared in his speech at the 26th Conference of the Parties (COP26) to the United Nations Framework Convention on Climate Change that India would achieve net zero emissions by 2070. In addition to this international commitment, in August 2021, prior to COP26, Prime Minister Modi declared in his Independence Day speech that India would achieve “energy independence" by making India self-reliant in the energy sector by the milestone year of its 100th anniversary of independence (2047).
Note: Underlined are international commitments
Source: Compiled by Hitachi Research Institute from "India's Updated First Nationally Determined Contribution Under Paris Agreement (2021-2030)", "India's Long-Term Low-Carbon Development Strategy" (2022), "National Green Hydrogen Mission" (2023)
India has been promoting solar power generation, including solar parks and rooftop solar panels, since the National Solar Mission in 2010. Photovoltaic (PV) power generation has low installation costs in India due to factors such as inexpensive labor costs and the country's large land area with abundant solar radiation. The economic rationality of photovoltaic power generation has led to its rapid spread, and its cumulative installed capacity has surpassed that of Japan to become the third largest in the world, following China and the United States. However, it is not easy to ensure a stable supply of renewable energy in India. In its analysis of the global PV market (Snapshot of Global PV Markets 2024), the International Energy Agency (IEA) assesses that India will remain a leading player with ambitious local manufacturing targets but also identifies a number of challenges by noting that it is a “highly volatile market” and that “administrative procedures, grid access, and financing” will be hurdles to steady growth of PV. There is a need to stabilize electricity distribution by improving transmission and distribution loss rates and investing in the development of transmission infrastructure connecting consumption and generation areas.
While India is making progress in introducing renewable energy, its dependence on coal is persistent. Looking at India’s primary energy mix, non-fossil fuels account for only 10%, while fossil fuels account for 90%, including coal (56%), oil (27%), and natural gas (6%) (Figure 3). Among fossil fuels, approximately 80% of demand for oil is imported, making it the largest factor in the trade deficit in value terms, and natural gas is also dependent on imports. On the other hand, although about 20% of coal demand is dependent on imports, about 80% can be procured domestically because India is one of the world’s leading coal reserving and producing countries.
The IEA’s energy outlook (World Energy Outlook 2023) projects that India will be the largest contributor to global energy demand growth over the next three decades under the STEPS (Stated Policies Scenario). According to the analysis, the factors contributing to the increase in energy demand in India include the increase in urban population, higher per capita income, industrialization (increased demand for steel and cement), and a rise in air conditioner ownership. The IEA’s electricity industry outlook (Electricity 2024: Analysis and forecast to 2026) forecasts India’s electricity demand growth at an average of +6.5% per year in 2024–2026 (the three-year additional increase is equivalent to the UK's electricity demand) and mentions the government policy that “about 80 GW of additional thermal capacity will be needed in the next decade” to meet the increased demand.
Behind the Indian government’s failure to provide a GHG emissions peak-out year toward net zero and its non-participation in the G7-led “Just Energy Transition Partnerships (JETPs),” which aims for the early termination of coal-fired power plants and other measures, India is facing energy security and energy access challenges as a result of such strong domestic energy demand growth.
Source: Compiled by Hitachi Research Institute based on Energy Institute
Figure 3: India’s Primary Energy Composition (2023)
A number of international organizations and research institutes have published their outlooks on India’s decarbonization and energy (Table 2). Among them the World Economic Forum (WEF)’s white paper points out that a Green New Deal in five sectors (1) Energy, 2) Mobility, 3) Industry, 4) Green building, and 5) Agriculture) is essential for India to transition to a net zero economy. The mobility (transportation) sector in particular is highly dependent on oil, accounting for about half of India’s oil demand. As demand for oil has doubled over the past two decades due to increased road traffic, import dependence has continued to rise. For this reason, the Indian government is promoting policies to diversify fuels, such as setting a target of blending 20% bioethanol with gasoline (E20). In parallel with the search for medium- to long-term policies (EVs and the use of hydrogen), in the short term, the government is adopting a pragmatic policy that combines various fuels such as bioethanol and CNG (compressed natural gas).
Since coal in India is produced in economically low-income states, the energy transition to achieve decarbonization requires the provision of employment opportunities and retraining for local residents whose income is highly dependent on the coal industry. In addition, it is necessary to support long-term just transition processes, such as the ecological restoration in legacy mines, and the phasing out of coal is not only an energy challenge, but also a structural challenge for the economy and society as a whole.
In its 2022 Article IV Consultation Report, the IMF assessed that “Under current policies, India is expected to see a 40.8 percent increase in total GHG emissions by 2030” and that the country is “moving away from a linear path to Net Zero,” and stressed that the government’s choice of policies (a combination of subsidies for renewable energy, increased coal tariffs, and carbon taxes) will be important.
Source: Prepared by Hitachi Research Institute based on information published by each institution
Among India’s international commitments, Hitachi Research Institute believes that the commitments to “reduce emissions intensity of its GDP by 45%” (Table 1, (a)) and “achieve about 50 percent cumulative electric power installed capacity from non-fossil fuel-based energy resources” (Table 1, (b)) are highly likely to be met, given India’s high economic growth rate and aggressive renewable energy deployment measures. However, it should be noted that even if the 2030 emission intensity target (NDC) is achieved, the total emissions of the country as a whole will increase in the case of India (Fig. 2), and that there is generally a trade-off between GDP intensity and energy consumption per capita (i.e., when GDP intensity decreases, energy consumption per capita tends to increase). Given India’s population growth, which is expected to continue into the 2060s, energy supply and demand will remain tight for the foreseeable future, and the top priority will be to secure sufficient energy to ensure economic growth, rather than net zero. In addition to this perspective, the scenarios of various organizations (such as Bloomberg NEF’s 2050 Net Zero Scenario, Lawrence Berkeley National Laboratory's 2047 Energy Self-Sufficiency Scenario, McKinsey's Acceleration Scenario, etc.) assume “EV conversion rate in new passenger vehicle sales will be 100% by 2035 or by 2040” but this is unlikely to be achieved given the Indian government’s current policy focus (a combination of diverse fuels such as bioethanol and CNG) and the low EV penetration rate of four-wheeled vehicles. It must be considered that it will be difficult for India to achieve net zero emissions by 2070 (Table 1(e)).
Of the five Shared Socio-economic Pathway (SSP) scenarios envisaged in the IPCC (Intergovernmental Panel on Climate Change) report, the SSP3 scenario, which assumes conflict between regions, is a scenario in which each country will prioritize domestic issues, security concerns will increase, and environmental issues will be given a lower priority. India’s commitment to energy self-sufficiency is similar to SSP3.
Policy and financing will be key for India to achieve net zero. In terms of policy, the core of the plan will be subsidies for renewable energy through PLI (Production Linked Incentives) and the emissions trading scheme (ETS). While the full deployment of the ETS is an issue for the future, it remains to be seen whether the disadvantages of introducing the EU’s Carbon Border Adjustment Mechanism (CBAM) for Indian export industries will be strongly recognized (i.e., whether the need to expand the emissions trading scheme functions will be recognized). In terms of finance, according to the Council on Energy, Environment and Water (CEEW: think tank based in India), India's net zero goal will require a cumulative total of about US$10.1 trillion (about 1,570 trillion yen) over the 2020–2070 period in the three sectors of (1) electricity (generation, integration, transmission, and distribution), (2) hydrogen (production), and (3) vehicles (manufacturing), but only a small portion of that amount are currently expected to be available. Net zero will only become a reality when domestic self-help efforts are implemented, such as the Indian government's continuous green bond issuance and investor relations activities for overseas investors and the Reserve Bank of India (RBI)’s strengthening its climate finance measures, as well as investment from developed countries (such as utilization of the “IPEF (Indo-Pacific Economic Framework) Clean Economy Agreement” to identify priority infrastructure projects and to accelerate investment, and mobilization of private funds with guarantees from international organizations etc.).
India formally applied for membership with the International Energy Agency (IEA) in October 2023 and began negotiations in February 2024. If India’s accession to the IEA is realized, international energy governance could be transformed. India, with its growing influence on the Global South, has little incentive to achieve net zero at the moment. However, India has declared its candidacy for the presidency of COP33 (2028), and there is room for its membership in the IEA to raise the priority of its international commitments in addressing global warming.
Eika Yamaguchi
Senior Researcher, Global Intelligence and Research Office, Hitachi Research Institute
Engaged in research on geopolitical risks and policy trends in the environmental and energy sectors. After graduating from Tokyo University’s Faculty of Economics, she worked at the Bank of Japan before assuming her current position. Her recent research interests include CBDC (central bank digital currencies), decarbonization, and biodiversity.
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