Decarbonising Industry sector in India: Current trajectory and challenges 

India’s $3 trillion economy is expected to grow about seven times to $22 trillion by 2070, the year by which India plans to be carbon neutral. As of now, emissions are increasing with an increase in the size of the economy. Very-soon-to-be the most populated country and with more than 75% of its districts classified as hotspots for extreme climate events, India must ensure for itself, if not for others, that temperature does not rise above 2 degrees as being strived for according to the Paris Climate Accords. To provide for its growing population and to halt the deteriorating climate, the trinity of growth, jobs, and sustainability has to be pursued together. India has to decouple emissions from economic growth. Industries investing in green production technologies will be pivotal in achieving the same. 

The status quo 

With its burgeoning population and a rapidly growing economy, India is the world’s third-largest carbon dioxide (CO2) emitter. Since 1990, India’s annual CO2 emissions have more than tripled, reaching a new high of 2.71 billion tonnes (GtCO2) in 2021 (in the same year, China emitted 11.47 GtCO2, and the US released 5.01 GtCO2). Though India’s per capita emissions (1.93 tCO2 as of 2021) remain well below the world average (4.69 tCO2 in 2021), India is only behind Russia when it comes to economic emissions intensity, i.e., the volume of emissions per unit of GDP. While Russia has the worst economic emissions intensity of 1.7 kgCO2e/$ per annum, India and China are only little behind with 1.5 kgCO2e/$ per annum. 

Breaking down the emissions, the power sector with coal as the main source of power generation accounts for 34% of the total emissions, the highest of all the sectors. Industry is responsible for 28% of the emissions, 18% comes from agriculture, 9% from transportation, and the remainder emissions are generated from waste and water treatment (6.5%) and buildings (4.5%).  

India has a vital role to play in not only the global efforts but also in the regional war against climate change. In its updated Nationally Determined Contribution (NDC), India has committed to improve its economic emissions intensity by 45% by the year 2030, compared to 2005 levels, and to achieve a 50% share of non‐fossil fuels in electricity generation capacity by the same year. Furthermore, at COP26 in Glasgow, India pledged to become Net-Zero by 2070.  

As India builds its renewable capacity at an unprecedented rate owing to decreasing costs and necessary policy support, coal use in the power sector is expected to flatten out. However, to be able to reach net-zero, industrial emissions must be a major focus in a developing country with an enlarging manufacturing sector like India, and it raises challenges due to many hard-to-abate emissions such as in cement and chemical industries. Steps taken and investments made within this decade will be crucial in curbing industrial emissions. 

Industrial emissions and the related challenges 

The industry sector, with annual emissions of 928 MtCO2e, is the second-highest carbon-emitting sector and the largest end-use sector consuming 36% of the total energy produced. Production of iron and steel, cement, ammonia, and petrochemicals account for roughly 74% of the total emissions from the manufacturing sector. Coal and oil are the dominant sources of energy for industrial processes, with coal-use alone accounting for nearly 70% of the total energy use emissions. 

One of the main challenges in tackling industrial emissions in India is the use of carbon-intensive fossil fuels, coal and oil, not only for high temperature but also for low- and medium-temperature processes. Less than 20% of the industrial energy demand is supplied through electricity grids and even lesser (approximately 8%) is generated via natural gas (a relatively cleaner fossil source). Small industries, such as food and paper, that can easily electrify, continue using coal-fired heaters due to higher electricity prices, limited capital to switch to better technologies and underdeveloped distribution infrastructure. Greater use of natural gas and electrification of industrial processes are indispensable for reducing the carbon footprint of the sector and achieving higher energy efficiency. However, policy efforts are lacking in this direction.  

Another significant obstacle in curbing industrial emissions is the substantial number of informal or unorganised manufacturing industries, which account for 97% of all industrial enterprises and 71% of employment in the overall manufacturing sector. Due to their dispersed and informal nature, there are no reliable estimates of operational parameters for these micro, small and medium enterprises (MSMEs). According to a rigorous study on informal manufacturing industry in India, in 2015-16, combustion of lignite (the dirtiest type of coal) was the single largest source of emissions from the informal sector – contributing nearly 90% of the emissions of this sector. On top of that, these MSMEs are substantially more energy intensive than the best-performing facilities. Therefore, bringing these industries under regulation and ensuring access to capital for the necessary green investments are essential.  

Role of Hydrogen and Carbon Capture technology and their commercialisation 

Switching to low-carbon fuels for high-temperature heat generation and electrifying the rest of the heat demand need to be the first steps along the industrial decarbonisation path while simultaneously addressing other sources of industrial emissions such as use of fossil-fuel-based chemical feedstocks. Green hydrogen and biomass can potentially eliminate fossil-based feedstocks such as coke used in steel production, and oil used in petrochemicals. 

India is the world’s second largest steel producer, accounting for over 6% of the global steel production. It is also the largest emitting industrial subsector. Besides emissions from coal use for heat generation, blast furnace – basic oxygen furnace (BF – BOF) is the main route for crude steel production, which uses coke (a type of coal that India imports) as an input and produces carbon dioxide as a by-product. With the ongoing urbanisation and industrialisation, the current recycling rate of 10% is hard to increase by much, limiting the less-carbon-intensive secondary production. This leaves only two options to decarbonise the industry: start piloting green/blue hydrogen-based direct reduced iron (H-DRI) and investing in research and development of carbon capture and storage (CCS) technology. 

After steel, cement production is the second‐largest emitting industrial subsector. Although several energy efficiency measures have been introduced at cement plants, and total emissions per tonne of production are nearly 15% lower in India than in China, there is no technology yet to produce cement without carbon emissions. The role of CCS is quintessential in cement production. Furthermore, R&D in sustainable building materials can pave the way for future sustainable construction. 

Green hydrogen and CCS have a significant role in the chemical industry as well. Ammonia, which is used to make fertiliser can be readily produced using green hydrogen (Haber-Bosch Process) instead of current production via steam methane reforming. India is a major producer of petrochemicals such as methanol, ethanol and ethylene, and the industry is only going to grow; hydrogen and biomass can potentially become alternatives to fossil-based feedstocks. Additionally, recycling and circular economy should be a priority. 

The Indian government has already recognised the critical role of green hydrogen in its ‘National Hydrogen Mission,’ launched in 2021, aiming to make India the global hub for the production of green hydrogen. By 2030, the Mission aims to develop capabilities to produce at least as much green hydrogen as India currently consumes. Furthermore, in 2022, the Indian government released its report on carbon capture and utilisation, exploring the importance of the technology and outlining broad-level policy interventions. 

After formal recognition, much investment is needed in R&D and making technologies commercially viable. Subsidising green technologies to compensate for the learning curve and taxing fossil sources will be pivotal policy steps. In this regard, the Indian Government recently amended the Energy Conservation Act paving the way for the creation of carbon market to price carbon emissions. The creation of carbon market will also be crucial for Indian industries in negotiating with the EU’s Carbon Border Adjustment Mechanism (CBAM), which aims to equalise carbon price between domestic production and imports. 

It is essential now to put the industry sector onto a sustainable pathway which is set to experience rapid growth in the coming decades to meet growing demand. Early deployment of the best available technologies is the best way to increase energy efficiency and to enable the retrofitting of abatement technologies. 

Decoupling emissions from economic growth 

Unlike its Asian counterparts such as China, South Korea, and Vietnam, India’s economic growth has been primarily driven by the services sector (accounts for 54% of the GDP) rather than the more energy-intensive manufacturing sector (contributes 30% to the GDP). India has long pursued a structural economic shift towards manufacturing, and the government announced the landmark ‘Make in India’ initiative in 2014 with the intention of turning India into a global manufacturing hub. A higher share of industries in GDP and the material intensity of future economic growth would have profound implications on the overall emissions. 

As of 2020, India has cumulatively emitted 54.40 GtCO2 which is a small number in comparison to the top historical emitters, the USA (401.55 GtCO2), the EU – 27 (290.40 GtCO2), China (238 GtCO2) and the UK (78.16 GtCO2). As India urbanises and industrialises in the coming decades, the emissions are expected to rise and peak by 2040-45. No one can contest the right to develop, just as no one can deny the impending climate breakdown. Now, which policies govern the development process, will be of crucial significance for India itself and the global trends. 

Riya is a second-year Master of Public Policy student specialising in Policy Analysis at Hertie School. She holds a Bachelor’s degree in Commerce with a minor in Economics from the University of Delhi, India. She is interested in policy issues such as social inequality, climate change and mitigation, and digital governance. In her free time, she likes to watch ocean documentaries and scroll Twitter. Find her @Riya_Kejriwal

Views expressed by the author(s) do not represent the Hertie School.