Policy Inputs

on Low-Carbon
Transition
Unbundling the global and Indian policy landscape

Balasubramanian Viswanathan
Swasti Raizada
September 6, 2022
Welcome!
Objectives of this session
What we will cover

1 Policy objectives and trends

• India
• Global

1
2 How is the government in India supporting energy today?
• Subsidies
• Public sector undertakings (PSUs)
• Public financial institutions (PFIs)

1
3 Case study
• Brainstorm and discuss: how might your firm respond to a climate-driven policy shock?
Objectives of this session
What we will cover

1
4 Policy pathways and priorities
• Fossil fuels
• Clean energy

1
5 Reflections
Policy Context: India & Global
India’s Policy Context
What are India’s major policy objectives?
What is the government trying to achieve with its energy policy?

The Ministry of Petroleum & Natural Gas is concerned with

exploration and production of Oil & Natural Gas, refining, distribution
and marketing, import, export and conservation of petroleum
products. Oil and Gas being the important import for our economy,
many initiatives have been taken by the Ministry for increasing
production and exploitation of all domestic petroleum resources to
address the priorities like Energy Access, Energy Efficiency, Energy
Sustainability and Energy Security.
- About the Ministry
What are India’s major policy objectives?
Traditional objectives
What are India’s major policy objectives?
New and emerging objectives
Global context
Global processes and trends
Climate concerns driving low-carbon transition

• Where is the climate situation globally?

• What do climate negotiations mean for energy?

• What are key emerging trends?

Where are we
on climate
change?

Source:
Climate Action Tracker
https://climateactiontracker.
org/global/cat-
thermometer/
Why the
focus on
1.5°C?

Source:
Carbon Intelligence,
based on IPCC
assessment, Global
Warming of 1.5°C
https://www.ipcc.c
h/sr15/
Implications of the Paris Agreement for Energy
Climate concerns driving low-carbon transition

NDCs, Adaptation Plans and aligning financial flows

Source:
Biniaz & Ivanova,
Yale University
https://sustainabilit
y.yale.edu/explaine
rs/yale-experts-
explain-paris-
climate-agreement
Ratcheting

Source:
Lombard Odier
Investment
Managers
Emerging trends –
the “production gap”
Growing scrutiny on fossil fuel supply plans

Source:
SEI, IISD, ODI, E3G,
UNEP, The
Production Gap
https://production
gap.org/
Global processes and trends
SDGs and climate

• The growth of supply side targets – using both sides of the scissors
• Supply-side targets - fossil fuel phase-outs
• The PPCA & BOGA
• Just Transition – in the PA, growing importance
• JET-style deals to finance change in emerging and developing countries
Cutting with “both
arms of the
scissors”

• Solely pushing clean

energy no longer
sufficient
• Rise of “first movers”
clubs, PPCA & BOGA
Source:
Carbon Tracker, citing
Green & Denniss
https://link.springer.com/a
rticle/10.1007/s10584-
018-2162-x
Mapping support
 Subsidies PSUs PFIs

Expanded Scope of Study for 2022

Policy budgeting study to map India’s energy transition

Support Revenue Externalities

Subsidies PSU Investments Lending by PFIs
What is it? Government Capital investments Lending to energy Tax and non-tax Costs or benefits
policies that confer in energy by projects by majority revenue from that are imposed on
a financial benefit majority government-owned consumption and others and are not
on energy government-owned production of reflected in the
financial
producers, energy sector energy prices charged and
consumers, or both companies institutions

Based on what? A bottom-up review CAPEX reported by A bottom-up review A bottom-up review Literature for
of central govt. the 14 largest of outstanding of revenue receipts estimates of
policies for coal, oil central public credit, annual and govt. tax and impacts caused by
& gas, electricity sector undertakings disbursements and non-tax measures each energy type
T&D, RE & EVs (PSUs) in the credit risk exposure for coal, oil & gas, and their average
energy sector of the largest PFIs electricity & RE cost

Total value INR 217,737 cr. INR 140,000 cr. > INR 190,116 cr. INR 699,565 cr. INR 1,445,531 cr.*
(FY21) (FY21) (FY21) (FY20) (FY20)
 Subsidies PSUs PFIs

State of India’s Energy Subsidies

Mapping magnitude and trends of India’s energy subsidies
3,50,000 Key Findings
3,00,000 • Fossil fuel subsidies have fallen greatly
INR crore, real 2021

(~70-80%) but still worth 9 times more

2,50,000 Coal than clean energy
2,00,000 O&G • Low-priced electricity ~62% of all subsidies
T&D
1,50,000 • RE subsidies have fallen 59% since FY2017
RE
1,00,000 • Coal subsidies largely unchanged
EV
Recent Developments
50,000
• LPG subsidies removed in FY2021 and
0 reinstated in May 2022
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
• Frozen fuel prices have led to under-
Source:
IISD & CEEW, 2022, see: https://www.iisd.org/publications/mapping-india- recoveries by OMCs
energy-policy-2022
 Subsidies PSUs PFIs

Beneficiaries

“Among the quantified subsidies in FY 2020, 81% of beneficiaries were

consumers, 12% were producers, and the rest were both.”
• Major subsidies towards consumption of electricity, LPG
• Reflects energy priorities of India
• Creates a fiscal pressure

Source: IISD & CEEW, 2021, see: https://www.iisd.org/publications/mapping-india-energy-subsidies-2021

 Subsidies PSUs PFIs

Oil and Gas Subsidies

DBTL Subsidy on Domestic LPG (PAHAL)
250000

Under recovery on diesel

200000
Under recovery on domestic LPG
INR Crore, Real FY2021

(subsidized)
150000 Under recovery on PDS kerosene

Customs Duty Exemption on Imported LPG

100000 for domestic use

Expenses on LPG Subsidies for the Poor

(Ujjwala Scheme - PMUY)
50000
Capital Outlay on Petroleum

0 Lower GST rates for Domestic LPG

FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Others

Source: IISD & CEEW, 2022, see: https://www.iisd.org/publications/mapping-india-energy-policy-2022

 Subsidies PSUs PFIs

Investments by India’s Public Sector Undertakings

Four key parameters were used to create an ambition matrix for PSUs

• Capex of 14 energy-PSUs stood at INR 1.4 lakh crore in FY21 – chart shows results for 7 energy Maharatnas

50,000

40,000
INR crore

30,000

20,000

10,000

0
CIL ONGC GAIL HPCL BPCL IOCL NTPC

FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

Source: IISD & CEEW, 2022, see: https://www.iisd.org/publications/mapping-india-energy-policy-2022

 Subsidies PSUs PFIs

Investments by India’s Public Sector Undertakings

Four key parameters were used to create an ambition matrix for PSUs

• For big 7, 11 times more investment in fossils than clean energy

Key Findings
45,000
• Tracking PSU ambition reveals several gaps:
40,000
Vision and mission statement of no PSU
INR Crore, Real 2020

35,000 o
30,000 have been updated to reflect the national
25,000
Net Zero and coal phase down targets
20,000
15,000 o Stated clean energy targets lack clarity on
10,000
the scale and mode of investment needed
5,000
0 o Clean energy and just transition yet to
FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
feature in the corporate social
Fossil fuel power Fossil fuel transport Fossil fuel storage
Electricity transmission Renewable power Hydro power responsibility plans of PSUs, likely due to
regulatory limits
Source: IISD & CEEW, 2022,
see: https://www.iisd.org/publications/mapping-india-energy-policy-2022
 Energy Revenues
Oil and gas taxes constitute a major portion of centre and state revenues

4,00,000
Key Findings
3,50,000 • In FY20, energy revenue from Centre,
3,00,000
States and UTs was INR 699,565 cr.,
INR crore

17% of all government revenue

2,50,000
2,00,000 • 83% of this is from two taxes: central excise
duty and state VAT (O&G)
1,50,000
1,00,000 Upcoming Decision Points
50,000 • Coal cess – intended to be used as GST
0 Compensation Cess for 5 years, what next?
Oil and Gas Coal Renewables Electricity • Large growth in oil revenue to 2030 but
Centre State & UTs very volatile depending on energy
pathways, INR 48,000 to INR 412,000
Source: IISD & CEEW, 2022, crore (USD 7 to 59 billion)
see: https://www.iisd.org/publications/mapping-india-energy-policy-2022
Case study
Purpose of case study
How might your firm respond to a climate-driven policy shock?

• Policy is volatile – what if it changes quickly?

• Learning by brainstorming, discussing, sharing views & experiences
Hypothetical scenario
How might your firm respond to a climate-driven policy shock?

• It is 2025
• There have a been a series of severe weather-related crises in India
• Scientists concur that they are strongly driven by changing climate
• The central government announces three policies to raise ambition
Scenario: Three policies to raise climate ambition
Taxation, diversification, phase down

1 Carbon tax
• Starting at INR 2,330 (USD 30) increasing to INR 3150 (USD 40) in 2030 and INR 3882
(USD 50) in 2040
• To keep retail prices in check, the government has prohibited complete pass through of
costs to consumers
Clean energy mandate
1
2
• To identify and establish dominant market share in key clean energy technologies
• Set up investment targets and periodic ratcheting up of ambition

1
3 Phase down
• The government sets a 2070 end-date for domestic oil and gas production
Scenario: Revenue reallocation
How to use the revenues allocated to your firm?

• At USD 30/tCO2, this is equivalent to a tax of INR 5,625/MTOE. It

results in a net additional carbon tax of INR 25,000 crore at current
exploration levels
• Half of additional carbon tax, ~INR 12,000 crore is available for re-
investment and supporting just transition
• So there is risk – but also resources and opportunity
Scenario: Instructions
Discussion and assumptions

• Discuss how your firm and subsidiaries might adapt to this policy shock

• Assuming:
o The Centre is firm—challenging the policy will not be fruitful
o The government has asked for inputs on how the revenue should be
allocated into supporting policies and programs
Scenario: A taskforce with three divisions
1 Just transition
• How to ensure benefits of transition are shared with those who stand to lose economically
• Notable situation of re-skilling current staff

Diversification into clean energy

1
2 • How to identify and implement strategies for diversification
• Could be manufacturing, power generation, clean mobility – but what makes most sense?

Phase down of production

1
3
• Where to begin? How to track? Same across formal / informal sectors, the value chain?
Scenario: Guidance
Discussion and assumptions

• Each group should nominate a rapporteur to take notes and report back

• You don’t need to know all answers—but how to find them—think about:
o Processes: What knowledge do you need to plan?
o Actions: How might it change staffing, investments, subsidiaries, borrowing?
o Feedback : What do you need from government to make this work?
o Timelines: the short (2025-27), medium (2027-2035) and long (2035+) term?
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Break! Email:
bviswanathan@iisd.org
Policy Inputs on Low-
Carbon Transition
Unbundling the global and Indian policy landscape

Balasubramanian Viswanathan
Swasti Raizada
September 6, 2022
Welcome back!
Case study
Scenario: Three policies to raise climate ambition
Taxation, diversification, phase down

1 Carbon tax
• Starting at INR 2,330 (USD 30) increasing to INR 3150 (USD 40) in 2030 and INR 3882
(USD 50) in 2040
• To keep retail prices in check, the government has prohibited complete pass through of
costs to consumers
Clean energy mandate
1
2
• To identify and establish dominant market share in key clean energy technologies
• Set up investment targets and periodic ratcheting up of ambition

1
3 Phase down
• The government sets a 2070 end-date for domestic oil and gas production
Scenario: A taskforce with three divisions
1 Just transition
• How to ensure benefits of transition are shared with those who stand to lose economically
• Notable situation of re-skilling current staff

Diversification into clean energy

1
2 • How to identify and implement strategies for diversification
• Could be manufacturing, power generation, clean mobility – but what makes most sense?

Phase down of production

1
3
• Where to begin? How to track? Same across formal / informal sectors, the value chain?
Policy pathways ahead
How might future policy influence the energy sector?
IEA modelling of possible energy scenarios in India

• IEA India Policy Outlook – published 2020

• Developed in close coordination with Government of India
• Detailed granular representation of Indian energy sector

• Not a prediction of the future—an estimate of the possible range of future pathways
• Two major scenarios:
o Business as usual—trends based on existing implemented policies
o Sustainable Development Scenario—consistent with NZ in mid-2060s
• May not represent full extreme of potential ambition
Two pathways
Findings from the Green Economy Model
Electricity demand
Emissions from power sector 2,00,00,000

1,40,00,00,000 1,80,00,000

1,20,00,00,000 1,60,00,000

1,40,00,000
1,00,00,00,000
1,20,00,000
80,00,00,000
1,00,00,000

TJ
tCO2e

60,00,00,000 80,00,000

40,00,00,000 60,00,000

40,00,000
20,00,00,000
20,00,000
0
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 0
-20,00,00,000 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Aspirational BAU Aspirational BAU

Source: IISD, A. Jindal, Knowledge SE (2022)

 What influences policy pathways?

Economics Environment Society Technology Politics

Coal sector
Pathways
Peaking, plateau and phase downs

National coal capacity Coal transport

Domestic coal production
1000
1,400 300
900

1,200 250 800

700
1,000
200
600

Million Tonne
Million Tonne

800
500

GW
150

600 400

100 300
400
200
50
200 100

0
0 0
2015 2020 2025 2030 2035 2040 2045 2050
2015 2020 2025 2030 2035 2040 2045 2015 2020 2025 2030 2035 2040 2045 2050
Aspirational BAU
Aspirational BAU Aspirational BAU

Source: IISD, A. Jindal, Knowledge SE (2022)

Policy priorities
Energy security

• Coal shortage crisis

• Trade-off between short-term needs and long-term investments
Policy priorities
Risk of asset stranding

• Falling cost competitiveness

• Long life-cycle
• Changing investor sentiments
• Asset lock-in
• Inter-dependent markets
• Just transition
Source: Standing Committee (2018)
Solar sector
Pathways
Historical growth, scale and targets

National grid-scale solar capacity

• Projected to cross coal 1800

installed capacity before 2030 1600

1400

• Matching the coal fleet in ~15 1200

years
1000

GW
800

• Achieving exponential growths 600

400

• Sustained addition post 2070 200

0
2015 2020 2025 2030 2035 2040 2045 2050

Aspirational BAU

Source: IISD, A. Jindal, Knowledge SE (2022)

Policy priorities
Estimated grid-scale CAPEX, Aspirational
Scale of investments 10,00,000

9,00,000

“Considering the target of 175 GW renewable 8,00,000

energy installation by 2022 and 450 GW by 2030, 7,00,000

the overall financing requirement … would need an 6,00,000

INR Crore
annual investment of Rs. 1.50 to 2 lakh crore just 5,00,000

for the renewable energy capacity ... Against this 4,00,000

our estimated investments for last few years have 3,00,000

been in the range of Rs. 75,000 crore. “ 2,00,000

- Standing Committee on Energy, 2022 1,00,000

-
2020-25 2025-30 2030-35 2035-40 2040-45 2045-50

Source: IISD, A. Jindal, Knowledge SE (2022)

Policy priorities
Just transition
Solar & Coal
• Is there a need for just Wind
transition for solar power?

Fraction of national installed capacity. Recreated from MoP, (2018)

Policy priorities
Domestic manufacturing

“In line with the government’s vision,

the Ministry of Coal (MoC) has
mandated CIL to take up de-
carbonization and diversification
initiatives. CIL, in accordance with the
mandate, has planned to establish a 4
GW solar PV ingot-wafer-cell-module
manufacturing plant as part of its
diversification initiatives. CIL already
has formed a special purpose vehicle
(SPV) named CIL Solar PV Limited as a
wholly-owned subsidiary of CIL to take
up the proposed solar PV
manufacturing project.“

Source: IISD, CEEW (2021)

Oil and gas sector
Pathways
Peaking, plateau and phase downs Petrol and NG Consumption (TJ)
2,00,00,000

1,80,00,000
• Even under BAU, peaking and plateau
1,60,00,000
happens by 2050 1,40,00,000

• IEA and Bloomberg have had a strong 1,20,00,000

1,00,00,000

TJ
modelling bias towards natural gas
80,00,000

• Forecasts hide a lot of policy nuances 60,00,000

40,00,000
• Demand by sector 20,00,000

• Technology growth 0
2015 2020 2025 2030 2035 2040 2045 2050

Aspirational (Petrol) BAU (Petrol) Aspirational (NG) BAU (NG)

• Global crude oil prices

Source: IISD, A. Jindal, Knowledge SE (2022)

Policy priorities
Protect the economy

• “Can we be so import
dependent? I don't want to
criticise anyone but I want to
say (that) had we focussed on
this subject earlier, our
middle-class would not have
been burdened”- PM, 2022
• Dependency in regions prone
to conflict
• Import value of INR 2.27 lakh
crore in FY20 Source: NITI Energy Dashboard
Policy priorities
Tax revenues

• Ethanol (biofuel) blending resulted in lost

revenue of INR 10,950 Crore in FY21 (Rakesh
Sarwal et al., 2021).

• Key taxation lever for state government budgets Source: IISD & CEEW, 2022,
see: https://www.iisd.org/publications/mapping-india-energy-policy-
2022
Policy priorities
Natural gas

• Needs a firm demand

• Import dependency is likely to persist
• Significant investments with risk of stranding
• Economic case varies by use
Electric vehicles, green hydrogen
 Pathways
Electric vehicles

• 30% of all new vehicle sales to be electric by 2030

• “Energy independence” by 2047 – implies almost no oil and gas use

Passenger car sales (million vehicles)

STEPS SDS
Technology 2019
2030 2040 2030 2040
Petroleum ICE 2.4 n.d. 7 n.d. 0
CNG 0.1 n.d. 1 n.d. 1
Hybrid 0.0 n.d. 0.3 n.d. 1.5
Electric 0.0 n.d. 1.7 n.d. 7.5
Source: IEA, India Energy Policy Outlook 2021
Pathways
Green hydrogen

• 5 MMT of green hydrogen by 2030

• Reduce prices to <1 USD/1 kg of green
hydrogen in 1 decade
• Aim to be a global export hub
Policy priorities
X-factors

• Will India succeed in setting itself up as a manufacturing hub?

• How will energy security for batteries affect EV markets?
• Will DISCOMs be able to sustain large additional energy needs from transport fleets?
• How long will it take to reach USD 1 per kilogram?
• How will volatile gas prices influence green hydrogen investments & cost competitiveness?
X-factors
Policy priorities

1 Land usage
• Changes in leasing, acquisition and repurposing

Carbon capture and storage

1
2
• IEA estimates USD 50-100/tonne of CO2 for just capture
• Will the basic economics ever work for India?

Critical minerals for clean energy

1
3
• Batteries, electronics, magnets, conductors, etc.
Reflections
How do these pathways matter?
In case we have time

• Expectations for the future

• Expectations from the government
• Expectations from ONGC
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sraizada@iisd.org
 Subsidies PSUs PFIs Revenues Externalities

Investments by India’s Public Sector Undertakings

Four key parameters were used to create an ambition matrix for PSUs

Why Study PSUs?

Key Findings
• Account for 50% of power generation, 90% of electricity • Increase in capex for upstream players in FY21
distribution, 90% of coal mining, 57% of crude oil refining (CIL, GAIL, ONGC) while drop in power
and almost 100% of distribution of petroleum products generation (NTPC) and OMCs (IOCL, BPCL,
HPCL)
• Capex of 14 energy-PSUs stood at INR 1.4 lakh crore in FY21
• Tracking PSU ambition reveals several gaps:

50,000 o Vision and mission statement of no PSU have

40,000
been updated to reflect the national Net Zero
INR crore

and coal phase down targets

30,000
20,000 o Stated clean energy targets lack clarity on the
10,000 scale and mode of investment needed
0 o Clean energy and just transition yet to feature
CIL ONGC GAIL HPCL BPCL IOCL NTPC in the corporate social responsibility plans of
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 PSUs, likely due to regulatory limits
Note: Chart shows the 7 Maharatnas that comprise 84% of the energy-PSU capex
 Subsidies PSUs PFIs

Lending by Public Finance Institutions

15 PFIs including 12 Public Sector Banks and 3 NBFCs were studied

1,20,000 Key Findings

1,00,000 • For FY21, annual disbursements 3
INR Crore

80,000 times higher for fossil projects than RE

60,000 • 8 out of 12 PSBs had high risk exposure

(>5%) to energy infrastructure
40,000
• PSBs have the lowest asset portfolio
20,000
share towards clean energy when
0 compared with NBFCs, private banks
Generation Transmission Distribution Others RE
FY19 FY20 FY21 and foreign banks

• Poor data transparency and reporting

Note: Based on data from 3 biggest PFIs – PFC, REC Limited and IREDA
The same data was not available for the 12 PSBs covered in the report on financial flows for fossil fuels and
clean energy among PSBs
Source: IISD & CEEW, 2022,
see: https://www.iisd.org/publications/mapping-india-energy-policy-2022
Policy priorities
Just transition

• Both same and different

• Both old and new

Source: World Bank (2021)