Fighting Climate Change

India’s energy industry has a key role to play

Anish De, Global Head of Energy & Natural Resources, KPMG

It has now been more than twenty-six years since my consulting journey in the energy industry started. Energy consulting was not a conscious choice – it just happened to be my first job.

How­ever, since then it has grown to be a part of my existence and purpose. What star­ted with engagements on revenue im­­provements in failing utilities in Odisha turned into specialisation in po­wer sector regulation and markets, then to oil and gas, renewables, energy transi­ti­on, decarbonisation, climate change and eventually ESG.  The last few elements ha­ve happened at an amazingly fast clip as climate change and ESG have come to be on the top of society’s consciousness, and my own.

The energy industry across the world will have a disproportionate role in ad­d­ressing the climate change challenges. Indeed, it has been argued widely, in­clu­ding by The Economist, that the E of ESG representing environment should be the sole focus (rather than the whole of ESG) as the world struggles to stay within ac­ceptable levels of global warming1.  That point of view is debatable, and I personally have certainly come to have a different view. The effects of environmental and climate change affect society deeply and progressively more by the day. As I write this, various parts of the world in­cluding the most unlikely of pla­ces are facing tornadoes, typhoons and hurricanes while others suffer from the driest weather they have seen in decades or centuries. Climate events are happening at increasing frequency and intensity and affecting society at large. As Em­m­anuel Faber, former chair of the board and CEO of Danone and inaugural chair of the International Sustainability Stan­da­rds Board, mentioned at a senior KPMG gathering this September, climate transformation is not possible without social transformation.

The situation in India is further intriguing because India is in the midst of a massive and overdue economic transformation. Amidst the general economic challenges in much of the world at this time, including in China which has been the growth engine of the global economy for the past three decades, the Indian economy is an outlier.  It continues to grow and modernise. It is also one of the most innovative economies with some ab­solutely fascinating work happening on new-age themes such as Web 3 and blockchain. Even more broadly, the gro­wth trends across the economy re­ma­in very encouraging. India is now the fifth-largest economy in the world and the fastest growing major economy, with its GDP having expanded at 13.5 per cent in the April-June quarter. Its digital sector is booming. The monthly mobile data consumption per user, at 12 GB, is the highest globally. It has also recorded 493 million smartphone users, which is the second highest across the world. India is the second-largest internet market globally. Unified Payments Interface (UPI) is among the most potent transactions platform the world has ever seen. India now has the largest number of digital pay­­ments in the world. UPI clocked a re­cord high of 6.28 billion transactions, amounting to $133 billion in July. India also has the third-highest number of unicorns (105 and counting), having an es­timated collective value of $341 billion. As the digital economy grows, this will only expand.  Even the physical eco­no­my is attracting great attention. Buoy­ed by the strong manufacturing focus of the government through the production-linked incentive and other sche­mes, In­dia is now emerging as a credible al­ter­native to China in a range of industries.

The growth will inevitably be energy hungry. Between now and 2047, when independent India celebrates it centenary, es­ti­mates indicate that energy consumpti­on would have doubled despite the im­provements in energy efficiency and productivity. Yet, unless that energy grow­th is propelled principally by low-carbon re­sources, it would not be tenable in the climate-challenged world. In­deed, even from a practical standpoi­nt, asset financing will be difficult henceforth if proponents cannot demonstrate that they co­mply with global standards of efficiency, emissions and broader ESG parameters.

Given the umbilical connect between en­­ergy and the environment, it is important to explore and identify what this means for the energy economy in practical terms.  Here are a few aspects:

  • El­ectrification has been globally identified as a key means to decarbonise be­cause electricity can be generated from non-fossil resources at scale, and also because this often brings in significant efficiencies.
  • Consequently, led by renewables, en­er­gy supply must transform radically with incremental supplies largely co­m­ing from clean energy systems inclu­ding wind, solar, biofuels, energy storage (including pumped hydro storage). The installed capacity of non-fossil el­ectricity generation – currently at 41 per cent – will double its percentage sha­re of installed capacity by 2047. This, in practical terms, could mean an almost tenfold increase in the renewable energy installed capacity.
  • Apart from energy supply, the dema­nd side of the energy equation would ne­ed attention because hard-to-abate sectors such as heavy industries and transport sit on the demand end. A ra­nge of solutions including green hy­drogen, biofuels and sustainable aviation fuels wo­uld need be in the mix. India is already considering ambiti­ous programmes on some of these. Im­­­ple­mentation would be challenging and would need sustained at­ten­tion and mea­sures to remove roadblocks and bottlenecks.
  • The transition to electric vehicles (EVs) will be critical because if well done, the opportunities for India are huge across the value chain. Con­ver­sely, if adoption and production are slow, energy security, employment (In­dia is a major automobile producer for the world) and innovation will be affected.
  • The circular economy holds great economic promise and will also be a key means for decarbonisation across sectors including in energy and industrial manufacturing. Value chain management of the circular economy and building up institutions and processes would need careful attention.
  • Focus must be accorded to nature-ba­sed solutions (NbS), which can be a key means to decarbonise and also co­mpensate for biodiversity losses of decades and, in fact, centuries.

This will be a complex agenda with ma­ny moving parts that will often be in conflict or may not converge.  Accepting that as inevitable, we would need to sol­ve the challenges expeditiously be­cause, amo­ng all commodities, time has come to be the most precious. Equally in finding the solutions we have to be ex­tremely sensitive to the wider stakeholder community affected. Not the “Not in My Backyard (NiMBY)” kind of stakeholders, but the population at large. The transition cannot but be a “Just Transition”.

A word on governance as I end. While technical and engineering solutions will often underpin the measures to bring ab­out the energy transition, commitment of leadership as well as structures to implement the measures in earnest will be ab­solutely vital. In KPMG’s Th­ought Lea­dership for ENRich 2021 (KPMG in India’s annual energy event), we called out that corporate boards must step up to meet the challenges of the carbon-constrained world, working shoulder to shoulder with executive leadership.  That imperative is becoming even stronger as time elapses. We need to see genuine corporate leadership to transform businesses, products, supply chains and communities. That is true for the world at large. However, it is especially true for India where we deal with the twin objectives of economic gro­­wth and social protection, none of which can progress without being in lockstep with the other.

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