It is important to not only bridge the demand gap for an optimal transition to green growth, but also create appropriate legal frameworks to actualise their potential.
This article is part of the new publication — Reconciling India’s Climate and Industrial Targets: A Policy Roadmap.
India’s climate policies have consistently aimed at fostering green growth in the country, with the development of green industries being a focus area. However, despite concerted efforts and huge growth potential, India’s ‘green market’ remains at a nascent stage. While the growth of green industries requires policies that stimulate both demand and supply to achieve market growth,<1> Indian policies have only managed to successfully increase production capacities for green products without a similar boost in demand.
Indeed, green industries in India find it difficult to capture the market owing to consumer perceptions and preferences.<2>,<3>,<4> Consumers tend to purchase goods that are produced using more pollutive processes even as they are willing to switch to sustainable products; there are various reasons: they are restricted by the large costs of environmentally sustainable products; there is a lack of an enabling environment to create better access to green products; an overall dearth of information about available green products and their benefits; and a lack of confidence regarding what is termed ‘green’ by companies.<5>
Several studies show that a change in consumption behaviour patterns towards environmentally sustainable goods and products can lead to a larger market share for them.<6>,<7> A shift in consumer perceptions and preferences towards green products can be achieved by addressing the issues on the demand side. Thus, it is paramount for a green industrial policy to incorporate market creation strategies aimed at increasing market demand for, and access to green sectors over traditionally polluting sectors. This chapter studies the biggest sources of industrial emissions and recommends policy instruments aimed at demand-creation for greener sources.
Emissions from India constitute seven percent of the total global emissions.<8> According to GHG Platform India, the energy sector and industrial process and product use (barring Agriculture) are the highest emitters in India (See Figure 1).
Figure 1. Emissions from India, by Sector
Source: GHG Platform India<9>
Industry in India drives emissions emerging from these two sectors. Within the energy sector (See Figures 2 and 4), the three biggest emitters are electricity and heat generation, industries (comprising manufacturing and construction),
Source: GHG Platform India<10>
To understand the magnitude of the emissions from these sectors from India, one must note that Electricity and Heat constitute 2.41 percent of the seven percent global emissions from India; Manufacturing and Construction constitute 1.16 percent; and Transportation constitute 0.57 percent (See Figure 6).
Figure 6. India’s Contribution (7 Percent) to Global Emissions, by Sector
Source: Climate Watch<11>
The breakup of sector-wise emissions from India matches global patterns (See Figure 7); thus, addressing emissions from these sectors is important for the world at large. While the energy sector contributes the most to global GHG emissions, within energy use, the highest emitters (as was the case in India) are industry (iron and steel being the largest), transport (especially road transport), and electrification and heating (specifically for buildings). Similarly, industrial process (particularly cement production) is the third-largest global emitter.
Figure 7. Global Greenhouse Emissions, by Sector
Source: Our World in Data<12>
This section provides a brief overview of the three sectors, highlighting the source of pollution in each along with sustainable alternatives; the efforts undertaken by the government; the current gaps; and how the growth potential of these sectors requires the emissions to be addressed in an urgent manner.
India ranks, respectively, third and fourth globally in terms of electricity production and consumption.<13> Fossil fuels — and coal in particular — dominate electricity and heat generation in India. In 2018-19, coal was used to generate over 70 percent of the country’s electricity, followed by renewable energy (RE) sources (See Figure 8). Indeed, the share of coal in India’s electricity generation has been on the rise in recent years (See Figure 9).
Figure 8. Gross Electricity Generation in India, Mode-wise (2019-20)
Source: Govt<14>
Figure 9. Share of Coal-based Power Generation (2004-05 to 2013-14)
Source: Shakti Foundation<15>
The dominance of coal has made electrification highly polluting, with emissions from fossil fuels
To de-carbonise the electricity generation sector, the Government of India has made a push towards increasing the renewable generation capacity in the country, which is in line with its commitments to the Paris Agreement on Climate Change. Aiming to improve the affordability of solar and wind power, India introduced the National Mission on Enhanced Energy Efficiency,
Based on India’s current policies and its aim to reach 100-percent electrification to meet India’s SDG Targets, the country’s electricity demand could triple by 2040, due to increased appliance ownership and cooling needs.<19> This steady rise in the demand for electrification presents an opportunity for RE to overtake coal as the main source of electricity generation — that is, provided that market access and demand for RE is boosted. While a commitment to sustainability has led many companies to pledge to use 100 percent renewable-powered electricity, lack of access to certified, commercially supplied RE at a low cost remains a barrier.<20> Moreover, the general market for RE remains largely uneven, which creates an additional obstacle for demand. The NITI Aayog has observed that consumers of electricity are restrained by higher costs in states with poor RE source, whereas DISCOMs are hindered by the lack of demand in states rich in RE sources.<21>
Thus, phasing out coal and replacing it with RE via increased accessibility and affordability is crucial to reducing the emissions emerging from electrification. A greater emphasis on facilitating access to RE will also be key in attracting global RE100 companies.
The manufacturing and construction industries together account for 18.4 percent of the total emissions from the energy sector. Within this, the biggest polluters are cement, and iron and steel.<22>
Cement: India is the world’s second-largest cement producer, accounting for over eight percent of global installed capacity. In 2010, the cement industry’s share of India’s total CO2 emission was around seven percent. The construction industry’s demand for cement drives production and is thus a crucial contributor to total CO2 emissions. The construction of housing and real estate, followed by infrastructure (e.g. the development of roads) and industrial development are the largest consumers of cement.<23>
With India recognising cement production as a significant source of unsustainable production practices, there have been concerted efforts by the country’s private sector to embrace green practices.<24> Consequently, India’s CO2 emission in the cement sector has come down to 670-700 kg per tonne of cement, compared to the global average of 900 kg per tonne of cement.<25> However, while CO2 emissions from cement has been on a steady decline, it still makes up five percent of India’s total emissions.<26> This is largely due to the unaffordability of the green production practices for small- and medium-scale companies.<27>
With increased emphasis on infrastructure (NIP), housing (PMAY), real estate (smart cities) and industrial development (Make in India) by several Indian policies,
Iron and steel: India is the fourth-largest producer of crude steel in the world. The sector contributes around three percent of the country’s gross domestic product (GDP), employing around 2.5 million people.<30> It also adds 6.2 percent to the national GHG load.<31> Within industry, the iron and steel sector is the largest energy-consuming sub-sector, accounting for over 20 percent of industrial energy use (See Figure 10).
Figure 10: Iron and Steel’s Share of Industrial Energy Use 2018-19
Source: TERI report<32>
While critical for economic growth, the iron and steel sector is both energy- and resource-intensive, and the rapid growth of Indian steel demand has had significant environmental and economic consequences. The iron and steel sector accounts for 28.4 percent of the entire industry sector emissions, which constitute 23.9 percent of the country’s total emissions.<33>
To drive a reduction in energy use in the steel sector, one of the major initiatives undertaken by the Government of India is the Perform Achieve and Trade (PAT) scheme.<34> Despite this, the average energy efficiency level of the industry remains low compared to global peers, and emissions from the sector are still significant and rising. The National Steel Policy, 2017 envisages 300 million tonnes of production capacity by 2030-31.<35> There is enormous potential for growth in the consumption of iron and steel, due to the thriving automobile and railways sectors, infrastructure development, and construction. In light of the present policies and the increased demand for iron and steel, experts estimate that emissions from the sector will increase to 837 MtCO2 per annum by 2050, i.e. nearly half of India’s total CO2 emissions in 2018.<36> This massive yet anticipated demand in manufacturing and construction creates an excellent opportunity for India to reduce emissions by increasing access to affordable low-carbon options for consumers.
The transportation industry, including both passenger and freight, is vital for growth. The production of any commodity or service requires the transport of people and goods. Freight transportation, in particular, is a source of significant supply-chain emissions from all industries globally (See Figure 11).
Figure 11: Supply Chains that Dominate Emissions – Freight’s Contribution
Source: BCG analysis<37>
In India, road transport is a dominant form of transportation, carrying almost 90 percent of the country’s passenger traffic and 65 percent of its freight — contributing 5.4 percent of India’s GDP.<38> Consequently, within the transport sector, road transport utilises 78 percent of the total energy share and contributes 87 percent of the total CO2 equivalent emissions. The two major fuels used by the transport sector are gasoline and diesel, both of which are highly carbon intensive
India’s road transport has witnessed remarkable growth in recent years and is expected to grow at a significant rate in future. Current projections indicate that road transport traffic will grow more than five times from 2011-12 to 2031-32.<40>
Despite these efforts, the projected increase in road transport will lead to increased consumption of fossil fuels. Unless the demand for cleaner fuels and EVs is boosted, increases in transport will continue to have serious health and environmental impacts.
Given these sectors’ contribution to GHG emissions and the future growth potential, it is important to address emissions from them. The overview of the sectors in consideration further clarifies the importance of reducing emissions by bridging demand and market access gaps. This section lists policy instrument suggestions for stimulating the demand for alternative or green industries.
A. Phasing out harmful subsidies: To help the market for green products prosper, a policy must first ensure that subsidies to environmentally harmful sectors are removed. This will boost the demand for greener alternatives. Thus, < style="text-decoration: underline">gradually phasing out harmful subsidies aimed at cost-effective production and consumption of environmentally unsustainable products and processes allows market signals to align with the true values of polluting sectors. This is the first step towards incentivising the emergence of green industries.<42>
RE.
B. Large scale adoption of green certifications: A large-scale adoption and promotion of green certifications by the government will impress upon the market the importance of and possible fiscal benefits associated with such certifications. As a result of the BEE certifications, for instance, not only did producers transition to developing more energy-efficient products, but people also moved towards products with green ratings, thereby fostering a larger market for green industries.<45>
C. Creating mandates and targets: The creation of mandates and targets by governments support increased production and demand for green industries. This signals India’s prioritisation of green products and incentivises the transition to green goods and processes.<49>
D. Fiscal incentives: The easiest way to promote demand for a particular industry is to make it more cost-effective than its competitors. Thus, increased affordability will enable consumers to switch to greener industries.<52>
E. Public procurement: The best tool for the government to increase the cost-effectiveness and efficiency of cleaner sources of energy is the undertaking of mandatory green procurement requirements. In India, this will also allow governments to create a demand for green products, especially since 30 percent of the country’s GDP is spent on public procurement. Considering the massive size of public spending, the public sector in India can be a prime driver towards sustainable production and consumption, creating both environmental and economic benefits. Furthermore, public procurement would highlight “greening” as a government priority and provide clear directives and expectations to politicians and procurement officials.<57> < style="text-decoration: underline">The first step will be to introduce a clear < style="text-decoration: underline">mandate and targets for the procurement of sustainable items in tenders.
F. Creating enabling environment: The policy interventions mentioned here will only work if the environment is suitable for their optimal utilisation. This makes it equally important to create policies that help bridge gaps in effectiveness to facilitate those that aim at improving access to green products in the market.
The suggested policy instruments are intended to increase market access and boost the demand for green industries as alternatives to conventional highly polluting industries. The impact would create environmental benefits whilst also fostering green growth for India.
Electricity and heat generation: Investments in RE have the potential to create thrice as many jobs as compared to investments in fossil fuels such as coal. Furthermore, the creation of clean energy and closing the energy access gap are good business, since the cost of renewables has fallen enough to build new RE capacities instead of operating on existing coal capacities.<63> In India, 50 percent of coal production will become uncompetitive by 2022, reaching 85 percent by 2025.<64> If subsidies enhancing the competitiveness of coal production are phased out, this figure will be much higher. Thus, India can become a true global superpower in the fight against climate change if it expedites its shift from fossil fuels to RE.
Construction and manufacturing: Industry projections suggest that India’s green building market for new buildings is estimated to be somewhere between US$30 billion to US$ 40 billion.<65> Additionally, a recent TERI report estimated that investments in green building and RE have the potential to generate 2.4 million unskilled and 6.1 million skilled jobs in India.<66>
Transportation: The global automotive market’s projected shift towards EVs creates a huge opportunity for India. According to a government blueprint, the EV sector is expected to create 10 million jobs in India and be a USD 206 billion opportunity.<67> Given the country’s increased focus on LNG and CNG, the total consumption for these greener fuels is set to witness a projected year-on-year increase of 28 billion cubic metre (BCM) during 2019-25. Finally, as the Asia Pacific region prepares to increase its LNG imports, from 69 percent in 2019 to 77 percent by 2025, India has the potential to supply this increased demand to a large extent and account for 20 percent of incremental trade.<68>
Table 1: Summarised Recommendations on Policy Instruments
For a green industrial policy to work, both market demand and supply must be stimulated. So far, the Government of India has developed policies that enhance both supply and demand, but these have stressed disproportionately more on the former.
Moreover, for the policies aimed at incentivising demand creation for green products and green transition in the country, there is substantial gap between the guidelines and implementation. The main reason for this is the absence of a regulatory framework to operationalise the guidelines. For instance, the National Cooling Action Plan proposes important strategies for creating a greener India; however, it is far too ambitious given the lack of any accompanying structural support.<69> Unless they are backed by adequate and essential regulatory and institutional bodies, action plans aimed at transitioning the Indian market and industries to greener versions are bound to fail. It is therefore important to not only bridge the demand gap for an optimal transition to green growth, but also create appropriate legal frameworks to actualise their potential.
This chapter focused on policy interventions aimed at shifting consumption perceptions and preferences from traditionally polluting sectors to alternative green sectors. It examined the largest emitters in India — electrification and heat generation, construction and manufacturing, and transportation — and suggested policy recommendations aimed at increasing the demand for already established alternatives in these sectors. Policy interventions suggested are phasing out harmful subsidies, large-scale adoption of green certifications, fiscal incentives to consumers, creating an enabling environment, and public procurement. Additional policy instruments include green marketing, aimed at increasing knowledge and awareness about green products, its benefits, and the financial incentives associated with them; and monitoring and evaluation of existing subsidies in these sectors to alleviate the demand gaps.
An increase in the demand for green products not only can boost sustainability, but also create a huge potential for fostering economic growth and increasing jobs in the country in a post-pandemic world. Given the rapid global shift towards green sources, investing in green industries will further India’s prominence and centrality in the global climate action. Undoubtedly, the first step towards this is to foster demand at home.
‘Green market’ here refers to a market for environmentally sustainable products and processes.
Given the theme of the report, Energy and Industrial Processes are the focal points for this chapter.
These are called RE 100 companies.
India’s rapid growth in oil consumption is mainly driven by the transport sector.
traffic.
<1> United Nations Industrial Development Organisation, Green Industry – Policies for Supporting Green Industry, May 2011, Green Industry Platform.
<2> Sabita Mahapatra, ‘A study on consumers perception for green products: An empirical study from India’, International Journal of Management & Information Technology, 2013.
<3> Mayank Bhatia and Amit Jain, ‘Green Marketing: A Study of Consumer Perception and Preferences in India’, Electronic Green Journal, 2014.
<4> Vishnu Nath, and et al., ‘Green Behaviors of Indian Consumers’, International Journal of Research in Management, Economics and Commerce, 2012.
<5> Lay Peng Tan, Micael-Lee Johnstone, and Lin Yang, ‘Barriers to green consumption behaviours: The roles of consumers’ green perceptions’, Australasian Marketing Journal, 2016.
<6> Beibei Yue and et al, ‘Impact of Consumer Environmental Responsibility On Green Consumption Behavior In China: The Role Of Environmental Concern And Price Sensitivity’, Sustainability, 2020.
<7> ‘Consumer Perception Towards Green Products And Strategies That Impact The Consumers Perception’, International Journal Of Scientific & Technology Research, 2019.
<8> ‘This Interactive Chart Shows Changes in The World’s Top 10 Emitters’, World Resources Institute, December 10, 2020.
<9> ‘GHG Platform India’, Ghgplatform-India.Org, 2021.
<10> ‘GHG Platform India’, Ghgplatform-India.Org, 2021.
<11> ‘This Interactive Chart Shows Changes in The World’s Top 10 Emitters’, World Resources Institute, December 10, 2020.
<12> ‘Sector By Sector: Where Do Global Greenhouse Gas Emissions Come From?’, Our World In Data, September 18, 2020.
<13> ‘Overview Of The Power Sector’, Parliamentary Legislative Research India, 2021.
<14> Central Electricity Authority, Ministry Of Power, Government Of India, 2020.
<15> ‘GHG Emissions From India’S Electricity Sector’, Shakti Sustainable Energy Foundation, 2017.
<16> ‘GHG Emissions From India’S Electricity Sector’, Shakti Sustainable Energy Foundation, 2017.
<17> ‘India 2020 - Energy Policy Review’, Niti Aayog and IEA, 2020.
<18> ‘5-Fold Increase In Clean Energy Jobs In 5 Years: India’, NRDC, July 14, 2019.
<19> ‘India 2020 - Energy Policy Review’, Niti Aayog and IEA, 2020.
<20> Atul Mudaliar, ‘Corporate Renewable Energy Sourcing: The Way To 100% Renewable Electricity In India’, RE100, September 14, 2020.
<21> ‘India 2020 - Energy Policy Review’, Niti Aayog and IEA, 2020.
<22> ‘Climate And Business Partnership Of The Future - CDP India Annual Report 2019’, Carbon Disclosure Project, 2020.
<23> ‘Climate And Business Partnership Of The Future - CDP India Annual Report 2019’, Carbon Disclosure Project, 2020.
<24> Vivek Gilani, ‘Carbon, Cost, Community, Climate’, CBalance.in, December 10, 2013.
<25> ‘Green Manufacturing Energy, Products And Processes’, Confederation of Indian Industries, 2011.
<26> ‘Existing and Potential Technologies For Carbon Emissions Reductions In The Indian Cement Industry’, International Finance Corporation, 2011.
<27> ‘Green Manufacturing: Opening New Avenue For Growth Of Manufacturing’, Journal Of Manufacturing Excellence, 2011.
<28> ‘Cement’, Bureau Of Energy Efficiency, 2021.
<29> ‘Indian Cement Sector SDG Roadmap’, World Business Council for Sustainable Development, 2018.
<30> ‘Iron & Steel Industry In India: Production, Market Size, Growth’, IBEF, 2021.
<31> Jocelyn Timperley, 'The Carbon Brief Profile: India’, Carbon Brief, March 14, 2019.
<32> ‘Towards Low Carbon Steel Sector’, TERI, 2021.
<33> ‘Iron And Steel – Analysis’, IEA, 2019.
<34> Bureau Of Energy Efficiency, Government of India, 2020.
<35> ‘National Steel Policy (NSP)’, Ministry Of Steel, Government of India, 2017.
<36> ‘Carbon Emissions By India’S Steel Sector To Triple By 2050’, The Economic Times, February 4, 2020.
<37> ‘Supply Chains As A Game-Changer In The Fight Against Climate Change’ BCG Analysis, 2021.
<38> ‘The Road Transport Year Book 2016-17’, Ministry Of Road Transport & Highways, Government of India, 2019.
<39> ‘Transport - Mitigation of Climate Change - Working Group III, Fifth Assessment Report’, Intergovernmental Panel on Climate Change, 2018.
<40> ‘Moving To 2032’, National Transport Development Policy Committee, 2014.
<41> ‘Decarbonising India’s Transport System Charting the Way Forward’, The International Transport Forum, 2021.
<42> ‘Policy Instruments For Resource Efficiency Towards Sustainable Consumption And Production’, SCP Centre, 2006.
<43> ‘Mapping India’s Energy Subsidies 2020: Fossil Fuels, Renewables, And Electric Vehicles’, The International Institute For Sustainable Development, 2020.
<44> ‘Mapping India’s Energy Subsidies 2020: Fossil Fuels, Renewables, And Electric Vehicles’, The International Institute For Sustainable Development, 2020.
<45> ‘Policy Instruments For Resource Efficiency Towards Sustainable Consumption And Production’, SCP Centre, 2006.
<46> ‘GRIHA Rating’, Green Rating For Integrated Habitat Assessment, 2021.
<47> ‘Greenpro’, Confederation of Indian Industries, 2021.
<48> Atul Mudaliar, ‘Corporate Renewable Energy Sourcing: The Way To 100% Renewable Electricity In India’, RE100, September 14, 2020.
<49> Altenburg, T., and Assmann, C., ‘Green Industrial Policy. Concept, Policies, Country Experiences’, UN Environment and German Development Institute, 2017.
<50> ‘ECBC Mandatory For Getting Building Approvals In State’, The Hindu, October 19, 2020.
<51> ‘Electric Vehicles A $206 Billion Opportunity For India By 2030’, Business Today, December 8, 2020.
<52> Eaton, D., and Sheng, F., ‘Inclusive Green Economy: Policies and Practice’, Zayed International Foundation for the Environment and Tongji University, 2019.
<53> ‘Mapping India’s Energy Subsidies 2020: Fossil Fuels, Renewables, And Electric Vehicles’, The International Institute For Sustainable Development, 2020.
<54> ‘Towards Low Carbon Steel Sector’, TERI, 2021.
<55> ‘Electric Vehicle Sales In India Up 20% In 2019-20’, Mint, April 20, 2020.
<56> Karan Shah, ‘Retrofitting Of EVs: The Need To Revisit Government Policies To Realize India’S EV Dream’, BW Businessworld, March 15, 2021.
<57> ‘Policy Instruments For Resource Efficiency Towards Sustainable Consumption And Production’, SCP Centre, 2006.
<58> ‘Housing For All’ Bringing Positive Change In Lives Of Poor, Middle-Class Families: PM Modi’, BW Businessworld, January 1, 2021.
<59> ‘Developing Infrastructure To Charge Plug-In Electric Vehicles’, Alternative Fuels Data Center, US Government, 2021.
<60> Atul Mudaliar, ‘Corporate Renewable Energy Sourcing: The Way To 100% Renewable Electricity In India’, RE100, September 14, 2020.
<61> Mayank Bhatia and Amit Jain, ‘Green Marketing: A Study of Consumer Perception and Preferences in India’, Electronic Green Journal, 2014.
<62> Eaton, D., and Sheng, F., ‘Inclusive Green Economy: Policies and Practice’, Zayed International Foundation for the Environment and Tongji University, 2019.
<63> ‘India A ‘Global Superpower’ In Fight Against Climate Change, Secretary-General Says At Memorial Lecture, Calls For Shift From Fossil Fuels To Clean Energy’, UN.org, August 28, 2020.
<64> ‘Moving To 2032’, National Transport Development Policy Committee, 2014.
<65> ‘India Green Building Market Opportunity’, Research and markets, 2016.
<66> ‘Future Is Green Job Market’, India Today, January 18, 2019.
<67> ‘‘Electric Vehicles A $206 Billion Opportunity For India By 2030’, Business Today, December 8, 2020.
<68> ‘India To Drive Global Gas Demand Post-Slowdown, Output To Rise Too’, Business Standard, June 11, 2020.
<69> ‘New Draft India Cooling Action Plan, Released Recently By Union Environment Ministry, Is Grossly Inadequate In Its Scope And Ambition – Says CSE’, CSE India, September 18, 2018.
The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.