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India’s energy boom: Cause for hope or fear?


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Hi all, and welcome back. As we dive into today’s newsletter I’d like to start with big news from Canary Wharf where the IFRS Foundation is on a roll. You might recall that at COP26 the accounting body unveiled an ambitious goal to set global standards on green disclosures with the launch of the International Sustainability Standards Board (ISSB).

Now, the ISSB has teamed up with the Global Reporting Initiative (GRI) to align their sustainable standards, with each to be represented on the other’s consultative body. The goal is to address uncertainty about how the GRI’s well-established standards will fit with new ones coming from the ISSB. The two bodies are promising to co-operate closely to avoid clashes and confusion between the investor-focused capital markets standards developed by the ISSB, and the GRI reporting framework with its greater focus on social and environmental impacts.

But today’s newsletter takes us from London to Mumbai, where Simon interviewed a number of business leaders about India’s push for low-carbon development. And James Fernyhough highlights serious controversy in Australia’s carbon credit market. Please read on. Patrick Temple-West

Will India help or hinder the global climate fight?

“We will always be seen as a punching bag,” Prashant Jain, the chief executive of Indian power company JSW Energy, told me last week. We had been reflecting on the tumultuous end to November’s COP26 climate summit, where India took the brunt of the blame for diluting the wording of the final agreement on coal. Like other businesspeople I met on my trip to Mumbai, Jain considered the scapegoating of the country an outrage given that other big economies have far higher per-capita carbon emissions. “I genuinely believe that we are doing much more than what should be expected from us,” he said.

I spoke to Jain during my first visit to Mumbai since 2019, when I concluded a three-year posting as the city’s FT correspondent. Since my departure there has been a surging focus on greening India’s economy: prime minister Narendra Modi has pledged a three-fold increase in renewable power capacity this decade, and committed the country to net-zero carbon emissions by 2070. This month the authorities in Mumbai — where shiny new electric buses abound — went further, saying the city would reach that goal by 2050.

The speed of India’s energy transition has powerful implications for the global climate struggle. Under the base case scenario in an International Energy Agency report last year, India’s carbon dioxide emissions — already the third-highest of any nation — were set to rise 50 per cent by 2040, entirely cancelling out Europe’s projected emission cuts over the same period.

But as the IEA noted, there is enormous potential for India’s development to follow a much cleaner path: “More than that of any other major economy, India’s energy future depends on buildings and factories yet to be built, and vehicles and appliances yet to be bought . . . This represents a huge opening for policies to steer India on to a more secure and sustainable course.”

And as those policies appear at a quickening pace, some of India’s biggest corporations — and the investors who finance them — are spotting a historic opportunity. The business empires of Mukesh Ambani and Gautam Adani, India’s two richest men, have pledged a combined $126bn in green energy investment.

Domestic financial activity in this space still has ample room for growth. EverSource Capital — a joint venture between private equity group Everstone and BP subsidiary Lightsource — is one of only a few Indian funds focusing on clean tech opportunities. EverSource was set up with seed funding from the UK and Indian governments — something that was crucial in securing private investor interest, chief executive Dhanpal Jhaveri told me. With $741mn now under management, EverSource’s investments range from a solar park developer to an electric bus operator.

Investing in India’s clean tech space came with some headaches, said Jhaveri, who had just been analysing a potential investment in the electric car sector. “There’s no market in India yet — a few thousand cars sold a year,” Jhaveri added. While those sales are growing at an annual growth rate of more than 100 per cent, it’s impossible to say how far India’s path will follow those of other major economies. “It’s a completely different market construct. It’s very difficult.”

Still, executives are bullish about the financing prospects for clean energy — even as foreign fund managers have cooled on the wider Indian market over recent months. “If I say I want funds for green business, it’s a different ball game altogether,” Praveer Sinha, chief executive of Tata Power, told me. JSW’s Jain agreed, pointing to his company’s hugely oversubscribed $700mn green bond issuance last year for investment in hydroelectric power.

Mukesh Ambani, chair of Reliance Industries
Mukesh Ambani, chair of Reliance Industries © Reuters

But there are some crucial differences with the west. In developed nations, the implementation of solar and wind power has helped drive a rapid phaseout of smoke-belching coal-fired plants. In India, the first priority is not replacement but addition of capacity.

Electricity consumption in the country is 1,208 kilowatt-hours per person, according to the most recent figures published in 2020. That’s roughly a tenth of the US figure. So it would be unreasonable, Jain said, for India to shut existing coal plants as rapidly as western counterparts. “There is a responsibility to bring every citizen to a respectable level,” he added. “They need power.”

Even so, new coal plants are off the agenda, thanks mainly to the huge falls in the cost of solar power over the past decade. “No one is ready to [sign new agreements] to buy long term from coal-based plants,” said Sinha of Tata Power. A major unit of India’s biggest conglomerate by sales, his company wants renewables to make up 80 per cent of its generation capacity by 2030, up from about 30 per cent today.

One complicating factor, however, is the government’s push to spur domestic solar panel manufacturing through financial incentives — and imposing tariffs on Chinese imports. It’s a necessary step, Sinha said. “Globally, people have abdicated their responsibility and said that everything will be manufactured in China,” he added. “India has to create the manufacturing infrastructure.”

Others in the sector worry about what the localisation push means for the pace of solar capacity growth. Low-cost Chinese production “really funded a big part of India’s energy transition”, said Mahesh Kolli, co-founder of Greenko, a big renewable energy company that this week signed a deal with steelmaker ArcelorMittal. The localisation drive “will definitely pull back the sector transition” in the short term, Kolli warned.

Anand Mahindra, chair of the Mahindra Group
Anand Mahindra, chair of the Mahindra Group © Bloomberg

But all the business leaders I spoke to seemed confident in the government’s commitment to the clean power drive. “From a geopolitical point of view, independence from oil has become incredibly important,” Anand Mahindra, chair of the Mahindra conglomerate, told me. “I think the government recognises that if we don’t want to be in hock to Russia or the Arab world in the future, we’ll need to expand solar.”

And the scale of the green investment opportunity ahead is indisputable. The level of renewable energy that India is targeting by 2030 — 500 gigawatts — is nearly seven times the installed capacity of the entire UK electricity system. And with about 20mn vehicles sold each year in India, it is destined to become — eventually — an enormous market for electric transport.

To some foreign observers, India’s economic growth looks like one of the biggest obstacles to global emissions reduction. But in the eyes of the business leaders I met last week, the country has been moving impressively quickly to green its economy, even as rich nations fail to muster promised financial support. “We want to be a climate advocate, a climate agent,” Jhaveri told me. “But the idea that we can shut the coal plants and completely electrify the transportation system in India tomorrow — that’s not going to happen.” Simon Mundy

Australia’s carbon credit system under fire

Australia has developed a reputation over the years as the rich world’s pre-eminent climate laggard, but it has long held up its huge carbon credit programme as a saving grace. The government, through its A$4.5bn (US$3.4bn) Emissions Reduction Fund, has poured billions into all sorts of abatement projects, from natural sequestration through tree planting and soil carbon, to emissions avoidance through the combustion of methane emitted from landfill sites.

The programme has created a vibrant market in carbon credits extending well beyond the government’s direct funding. Corporates seeking to offset their emissions and claim “carbon-neutral” status have become big purchasers of these credits.

But according to new research by Australian National University law professor Andrew Macintosh, a leading expert on carbon markets who was involved in the development of the Australian carbon credit unit (ACCU) framework, the whole thing is a fraud. He found the majority of credits do not represent “real or additional abatement”, and called for the entire system to be thrown out — and for the regulator that oversees it to be disbanded.

“People are getting ACCUs for not clearing forests that were never going to be cleared; they are getting credits for growing trees that are already there; they are getting credits for growing forests in places that will never sustain permanent forests; and they are getting credits for operating electricity generators at large landfills that would have operated anyway,” he said.

“What is occurring is a fraud on the environment, a fraud on taxpayers and a fraud on unwitting private buyers of ACCUs, including private households who purchase ACCUs to offset their personal emissions.”

It was damning stuff from a highly credible source. The Clean Energy Regulator said it would assess the research, but insisted the projects it regulated “have a high degree of assessment” and did not accept Macintosh’s claim that 70 to 80 per cent of credits were essentially worthless.

The research focuses on three forms of carbon abatement: avoided deforestation, forest regeneration and combustion of methane from landfill sites. But other methods also face criticism. Professor Richard Eckard, an agricultural scientist and carbon cycle expert at the University of Melbourne, told Moral Money that soil carbon credits — which are growing in popularity — were also highly questionable, because they were often being granted in places that could not in fact sequester carbon in the soil over the long term.

The allegations are damaging to the Australian government’s flagship climate policy. But are there broader lessons for global carbon markets?

According to the Australia Institute think-tank’s Polly Hemming, who used to work at the government’s carbon neutrality accreditation programme, governance is even more of a problem in other jurisdictions. “What’s really worrying about Australia is we’re one of the only government-regulated carbon markets. The majority of carbon credits [globally] are under voluntary certification schemes. The fact we’re a government scheme and we still haven’t got it right is incredibly alarming,” she said. James Fernyhough

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