New analysis by Climate Policy Initiative (CPI) demonstrates that, with the right policies, India’s transition to a low carbon energy system could free up significant financial capacity over the next 20 years to invest in better development and economic growth.
India is trying to meet ambitious renewable energy goals, as well as development needs, with finite financial resources. CPI’s two new reports, ‘Moving to a Low Carbon Economy: The Financial Impact of the Low-Carbon Transition,’ and ‘Moving to a Low Carbon Economy: The Impact of Policy Pathways on Fossil Fuel Asset Values,’ indicate how the global economy can maximise its financial capacity to meet economic and development goals while moving to a low carbon economy.
In the reports, CPI uses the International Energy Agency’s business-as-usual and two degree change assumptions to simulate current and low carbon energy pathways. CPI’s research on India found that:
- Transitioning from oil to low carbon transport alone could increase investment capacity in India by US$600 billion, depending on policy choices. As India, the US, the EU and China are all net consumers of oil, they stand to benefit if they all reduce their oil consumption in favour of low carbon alternatives, regardless of whether oil-producing countries choose to act. A combination of policies that encourage innovation and reduce demand, such as taxes or ending fossil fuel subsidies, can result in benefits.
- Transitioning to a low carbon electricity system could also bring financial savings if India can reduce the cost of finance. Renewable energy enjoys significantly reduced operational costs compared to coal-powered electricity, which pays high (and volatile) costs for coal and gas extraction and transportation. These savings, when coupled with a reduction in India’s high financing costs, can provide India with additional financial capacity to meet its economic and development goals.
- The government and lenders should also be aware of future risks of fossil fuel asset value loss. Of India’s potential new coal-fired power plants that are currently planned or under construction, 77% are at risk of causing asset value loss in an IEA two-degree scenario.
“Our analysis reveals that with the right policy choices, over the next twenty years India and the rest of the world can achieve the emissions reductions necessary for a safer, more stable climate and still free up billions for investment in development and other parts of the economy,” said David Nelson, Senior Director, Climate Policy Initiative.
Priorities for action:
- Innovation and demand-focused policies are the best combination to maximise financial system benefits. For example, in a transition away from oil, a combination of innovation and policies such as taxes or a reduction of fossil fuel consumer subsidies provides the most promising approach to achieve a net increase in India’s financial capacity to invest in its economy.
- Continue to accelerate the growth of renewable energy and energy efficiency. India can save significant operational costs in electricity generation in the transition to renewables, and it can minimise the risk of future asset value loss inherent in building new coal plants. India already has ambitious solar and wind plans, and accelerating those will help India achieve both its energy and development goals.
- Reduce the cost of financing renewable energy plants to significantly lower the cost of transition to a low carbon economy. In particular, long-term, low-cost debt can reduce the cost of low carbon power in India by 25%.
Adapted from press release by Rosalie Starling
Read the article online at: https://www.worldcement.com/asia-pacific-rim/13112014/india-low-carbon-energy-transition-could-free-up-us-600-billion-in-investment-capacity-843/