Vol 1, June 2022 | India’s climate finance comes with a premium on clarity

The new green book: A comprehensive taxonomy could help open the floodgates to much needed capital to finance low-carbon transitions, a poorly designed taxonomy though carries commensurate risks. | Photo: IFLR

The proposed sustainable taxonomy will help India attract more green finance for its ambitious climate actions, but it must also be wary of pitfalls that plague taxonomies in other geographies, say experts.
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The new green book: A comprehensive taxonomy could help open the floodgates to much needed capital to finance low-carbon transitions, a poorly designed taxonomy though carries commensurate risks. | Photo: IFLR

India’s proposed sustainable taxonomy and the complexity of weighing climate gains with capital concerns

A green taxonomy will help India attract more green finance for its ambitious climate actions, but it must also be wary of pitfalls that plague taxonomies in other geographies, say experts

The latest IPCC working group report on mitigation has listed out the need to cut global emissions as soon as the world can and the ways to do it. Although developed countries cutting their emissions quickly is a more effective solution, an ongoing flattening of historic responsibilities is piling pressure on developing countries like India to ramp up climate action as well. 

Underpinning these developments, however, are billions of dollars that are needed in emerging economies to take on that challenge. While developed countries keep under-delivering on their commitment to provide $100 billion a year in climate finance to the developing world, which itself is a drop in the bucket as far as needs go, there has been a clear shift towards private finance when talking about delivering climate action.

Under pressure to relinquish their claim on international public finance for climate action, tapping into private capital is critical for large developing countries like India, experts say. In order to manage the risk perception of a developing economy and an under-developed financial market, India desperately needs a document that would standardise the definition of green and map the segment in its economy where green investments are possible. In other words, India needs clearly defined rules of engagement that would ideally help drive investment decisions towards sustainability and progressive climate action. A few countries, including the European Union (EU), China and Malaysia, have already developed such documents, loosely called ‘green taxonomies’.

Under a larger framework of sustainable financial architecture, a task force established by India’s finance ministry is working to develop such a taxonomy. However, no information regarding this document has been made public, so far. Sources privy to the discussion said that this taxonomy might not exclusively address “green finance” but the larger segment of “sustainable finance” which subsumes green segments as well. 

As India prepares to come out with its macro-view sustainable finance taxonomy,  there are some lessons from other ‘green taxonomies’ and economic trends from around the world that India needs to be cautious of. 

Why is a taxonomy important?

The lack of clarity surrounding India’s sustainable finance and the rules that govern them has meant that the country has so far been unable to tap into the pool of international green finance in any major way. A Climate Policy Initiative report from 2020 highlighted that green finance investments for the financial years of 2017 and 2018 in India were only 10% of the total required investment of US$ 170 billion per year. The share of international private finance was just 5% of tracked domestic green finance.

As for the potential, The International Finance Corporation (IFC) has estimated that India has a climate-smart investment potential of $3.1 trillion from 2018 to 2030. The largest space for investment is in electric-vehicle segment, at $667 billion as India wants to electrify all of its new vehicle by 2030. India’s renewable energy sector, steadily, continues to be a good investment avenue at $403.7 billion. (See the chart below)

Soure: Climate Investment Oppotunities in South Asia, International Finance Corporation (IFC)

This is the money that India cannot afford to miss given the ambitious goal it has set for itself. At the 26th Conference of Parties (COP26), Indian Prime Minister Narendra Modi declared a five-pronged “panchamrit” strategy reliant heavily on transformational changes in India’s energy systems to take India to net zero by 2070. 

“These targets represent a roadmap for India’s green transition. A transition that represents a new type of growth and a major overhaul of the existing systems of production. It will also demand significant investments,” says Renita D’Souza, fellow, Observer Research Foundation, a New-Delhi-based think-tank. 

“It is very important, therefore, for India to standardise what is green and establish the eligibility criteria for green finance. As such, a green taxonomy is critical at this juncture for India,” D’souza told CarbonCopy. “It will help garner the finance that this massive transition needs,” she adds.

Even if India comes out with a larger sustainable finance taxonomy instead of a more granular one that defines green, it will still be very helpful at this stage for the country to streamline the information asymmetry.

A sustainable finance taxonomy is a classification system, with specific performance thresholds, that defines what constitutes a sustainable activity. It provides a common language for equity investors, lenders, policymakers and regulators to clearly identify the economic activities that contribute to a country’s sustainability priorities, says Arjun Dutt, an expert on green finance working with the policy think-tank, The Council on Energy, Environment and Water (CEEW).

Such a system mitigates the risk of greenwashing and facilitates the linking of sustainability investors with credible sustainable investment opportunities. It can also provide the basis for redesigning policy and market incentive structures to align investments with sustainability as well as a basis to track these investment flows, Dutt adds.

What are the challenges? 

There is little doubt that how far India (or any other country) can realise its climate ambition will depend heavily on how much money is available and accessible for individual objectives. As far as the economics of climate action goes, capital is king. While negotiators press on with demands to keep the principles of historic responsibility, equity and common but differentiated responsibilities (CBDR) front and centre in matters of international public climate finance, hoping for these funds to not only transpire but also be adequate to power economy-wide climate action is a dangerously foolish gambit. 

India’s domestic sources for green finance are still limited, as the CPI report shows. But, according to D’Souza, there is enough money available for green actions from international sources—a collective Asset Under Management (AUM) of $81.7 trillion under the 1,715 signatories to the Principles for Responsible Investment as of April 2018; some 534 sustainability indexed funds overseeing a combined $250 billion as of the end of the second quarter of 2020, and the impact investment market worth $715 billion

But why does global private finance, so far, only form a fraction (5%) of India’s already meagre flows of total green finance? 

The lack of definition of what activities can be deemed green is a massive impediment. Then there are the traditional risks of investing money in a low-middle income economy that is still developing, India’s government think-tank, Niti Aayog’s CEO Amitabh Kant and researcher Sweety Pandey wrote in an article, “This can dent the integrity of the market and increase the risk of damaging investor perception and demand.”

A green taxonomy, as per D’Souza, will help tackle most of these challenges by providing a standard definition of ‘green’ along with a rulebook “for determining the eligibility of economic activities/projects/assets for such finance.” In addition, a green taxonomy will also help the country deal with its non-coherent publishing of green finance data by minimising information asymmetry, which would also increase investor confidence. 

By delineating the eligible economic activities, it will help financial institutions understand the investment peculiarities of green projects and leverage financial innovations accordingly, D’Souza adds.

About 80% of India’s green finance is being used to build the country’s renewable capacity. 

Dutt of CEEW says a proper taxonomy will provide visibility to other sectors in need of investment that remain starved of capital. “The inclusion of market segments, including those that are financially underserved, in a sustainable finance taxonomy is a policy signal for investors to direct capital flows towards them. Designing policy and market mechanisms that de-risk investments in financially underserved segments that have not attained commercial viability could accelerate capital flows towards them.”

Extending the taxonomy to include transition segments could further help identify the conditions under which investments in these segments are aligned with economy-wide decarbonisation trajectories. This could help channel capital flows that finance these hard-to-abate sectors to the extent that they support economy-wide decarbonisation, Dutt explains.

Some of the examples of these transition segments could be a cement plant looking to go green, transmission assets which carry both green and brown electricity or distributed renewable energy applications like a solar-powered coal storage facility or solar-powered textile facility or a flour mill.

The biggest benefactor of visibility through a taxonomy could also be India’s cash-strapped adaptation actions. 

“Mitigation has always been considered measurable, whereas adaptation is typically perceived to be too complicated to measure,” Namrata Ginoya, programme manager – energy and resilience with World Resources Institute, India, tells CarbonCopy. 

“Scientists, policy researchers and economists have shown through various studies that it is possible to measure adaptation gains. However, these studies have either failed to bring the conventional finance sector into the fold or they are focusing on the perceived quick gains with the mitigation sector.”

The task is not so simple, D’Souza of ORF warns. Climate adaptation is location and context specific. Developing a taxonomy for it is not as straightforward as for mitigation, she says. And if such a taxonomy is successfully developed, she adds, that it will have identified basic principles that would determine whether a particular activity can be regarded as climate adaptation or not. This would solve the most fundamental challenge of greenwashing in the context of climate adaptation.

Russia, Mongolia, Malaysia, China and the EU have their taxonomies in place. What are the learning that India can take from these taxonomies?

The China, Mongolia, and EU taxonomies concur on the need to identify sectors that can deliver significant positive impacts across environmental objectives. The China and Mongolia taxonomies further observe the importance of timely updates according to changing needs. In the context of screening criteria, the Mongolia, Egypt and EU taxonomies are important, since they address the specific needs of the geographies that they attend to. 

The differences in the screening criteria reflect the need to cater to national/ regional circumstances and adhere to national/regional standards and norms. Unlike the Bangladesh, Malaysia and China taxonomies, the Indian taxonomy must establish appropriate screening criteria to reflect domestic realities and align with national standards/norms.

The Mongolia, Malaysia and EU taxonomies cater not only to banks, financial institutions and investors, but also to companies, project developers, credit-rating agencies and standard setters. This is indicative of the utility and contribution to the development of the broader green finance ecosystem. The Indian taxonomy must be formulated in a way that gives direction to the development of its green finance ecosystem.

The EU iteration is the most comprehensive and sophisticated template of a regional/national taxonomy, anchored in scientific evidence, and can be modified to accommodate specific regional/national concerns without losing the essence of the template. The clarity and the detail afforded by this taxonomy makes it the top choice as a reference framework. For climate mitigation, the document prescribes technology agnostic metrics and thresholds to define eligibility for green finance.

– Renita D’souza, Fellow, Observer Research Foundation (ORF)

A taxonomy is as strong as the environmental process it is built on

For a green taxonomy to be robust and increase the confidence of International players in India’s green finance sector, there are some precautions that need to be considered. First, gauging the strength of India’s existing green laws and second, considering the mistakes in other countries’ taxonomy journeys.

Of late, the Indian government has been facing criticism for systematically diluting the country’s laws, including those on its forests, biological diversity, coasts, pollution norms and rights of people at the intersections, to promote an easy atmosphere for industries, as media reports show. This could weaken the strength of India’s green taxonomy that will be heavily informed by these rules.

“The green taxonomy’s eligibility criteria ought to be anchored in the environmental norms and standards of the country. Hence, compliance with the taxonomy is underpinned by these environmental norms. Diluting them will definitely undermine a robust taxonomy,” D’Souza says. 

According to Dutt, best practices pertaining to eligibility criteria in taxonomies entail simultaneously ensuring positive contributions to specific environmental objectives without compromising on others. 

For example, Dutt elaborates, “the EU Taxonomy requires eligible activities to have a “substantial contribution” in advancing one environmental objective while ensuring activities do no significant harm to other environmental objectives.” 

If an Indian taxonomy follows similar principles, it could ensure that eligible activities result in an overall positive impact from the perspective of sustainability, he adds.

India’s green taxonomy discussion should also draw information from debates happening around the world about the EU’s latest proposals regarding its taxonomy. The European Commission, this February, announced a proposal to include “specific nuclear and gas energy activities” in the EU taxonomy for sustainable activities to meet its 2030 climate targets. It underscores the role of gas as a transitional fuel to move from coal to renewables and sets out certain conditions under which construction of gas infrastructure would be allowed. But this has drawn serious criticism given its dissonance with climate science—both IPCC recommendations and the EU’s own stated goal of net-zero by 2050. Criticising this, scientists, civil society groups, and even financial institutions said, “the taxonomy itself would become a greenwashing tool” given the warming potential of methane, CarbonCopy reported on March 21, 2022.

As India explores green/low-carbon hydrogen and other transitional fuels like gas, it could try and avoid similar mistakes. However, beyond science, politics around global energy supply chains will have a clear influence over what India decides to include in its green taxonomy.

Transition segments, according to Dutt, should be included conditional on strict criteria that ensure that these are aligned with long-term decarbonisation trajectories. For example, the proposed inclusion of gas in the EU Taxonomy also entails the requirement for facilities to switch fully to renewables or low-carbon gases by 31 December 2035. 

“Similarly, India could consider including both low-carbon and transition segments when developing its taxonomy to the extent that these are consistent with the ambition of net-zero emissions by 2070 or a more ambitious target set by policymakers for the country in the future,” Dutt added.

But India needs to be careful

Former chief economic advisor to the Indian government, Arvind Subramanian, in a January 2020 column, warned against a future reality if India fails to deal with the fuzziness of sustainable finance regulations. If trillions of dollars in climate finance go to emerging markets, the flows could amount to 5-10% of these economies’ GDP — similar to the financing surges that preceded the 1997 Asian financial crisis and the 2013 ‘taper tantrum’. Unregulated private capital flows of this magnitude will lead to overheating, volatility, imprudent lending, and overvalued exchange rates. Speaking of the elephant in the sustainable finance room- ESG funds, Subramanian wrote that eventually, when the mania is seen for what it is, costly consequences will follow: capital flows will reverse, and both output and the financial sector will collapse, he wrote. A rise in interest rates in developed economies could make the capital costly and inaccessible for developing countries, but currently “enough liquidity still sloshing around in the system” is making the risks connected with large ESG flows and climate finance real, he wrote.

“The halo of perceived social good” along with the impression of ESG funds being less risky, “could easily lull regulators into leniency and inattention,” per Subramanian.

Through a “cynical view” he warned that the “private climate finance could end up damaging poorer economies and producing little by way of climate-positive outcomes, while enabling the financial sector to coat its somewhat tarnished reputation with a patina of green.”

A moody beginning: Despite being early, initial signs indicate an erratic start to the monsoon season | Photo: IndiaPost

Monsoon season begins in India, three days early

Monsoon arrived three days early in India this year. The India Meteorological Department (IMD) announced the arrival of the southwest monsoon in Kerala on June 1. Progression of the monsoon will be slow, at least in the initial days, the IMD said. According to experts, however, the IMD was too hasty in making the announcement. The rainfall criterion was met for 24 hours and not for two days as is the norm, they said. The disruption in the early progress of the monsoon might be signalling a staggered and erratic distribution of rains in the first half of the season.

Valley of Flowers blooms early after premature melting of Tipra glacier

The Valley of Flowers, deemed a UNESCO site, which normally bloom in June, have bloomed prematurely in May. This is likely because the Tipra glacier, which usually melts in May, and ends up in the Pushpawati stream that waters the valley, began melting at the end of March. This was a result of rising temperatures. According to experts, a continuation of this trend could lead to an extinction of plants and growth of weeds.

Parts of northeast India more vulnerable to rainfall-driven soil erosion: Study

A new study found many parts of northeast India are more vulnerable to rainfall-driven soil erosion. The study by IIT-Delhi assessed rainfall erosivity across India. This kind of erosivity reflects rainfall’s potential to degrade soil. The study created a high-resolution map to mark vulnerable areas using precipitation datasets, both national and global, that covered 40 years of data. According to the researchers, a map of this kind will help expand the efforts to conserve soil in vulnerable areas.

91 killed in floods, landslides in northeastern Brazil

More than 100 people are suspected to be dead due to flooding and landslides in northeastern Brazil. The flood was triggered by heavy rains in the state of Pernambuco at the end of May. As a result, housing in poor neighbourhoods was wiped away. The IPCC has classified the capital of Pernambuco, Recife, to be one of the world’s most vulnerable cities with regards to intense rainfall.

High temperatures in the Atlantic and a prolonged la Nina set the stage for an “above average” atlantic season in North America

The US National Oceanic and Atmospheric Administration (NOAA) has predicted above-average hurricane activity this year. Hurricane season 2022, which stretches from the beginning of June to the end of November, is likely to see between 14 and 21 named storms, 6-10 of which could develop into hurricanes (including 3-6 major hurricanes with windspeeds of over 178kmph). NOAA has predicted a 65% chance of an above-normal season, a 25% chance of a near-normal season and a 10% chance of a below-normal season. Realisation of NOAA’s forecast would make it the seventh consecutive “above average” hurricane season.

Big gains to big taxes: The Indian government is considering following in the steps of the UK and institute a "windfall tax" on oil and gas companies which have profited from soaring energy costs | Photo: Financial Express

India mulls levying windfall tax on oil and gas producers

Oil and gas producers in India may have to deal with a windfall tax soon. A source told Hindustan Times the government is considering levying the tax on both private and state-owned producers to offset rising expenditure on fuel, food and fertiliser subsidies along with inflation. The decision, if taken, will mirror the UK’s announcement of a 25% windfall tax on profits of oil and gas companies. 

India to get its first carbon trading market in Gujarat

Gujarat is set to get India’s first cap and trade carbon market. The Gujarat government signed a Strategic Partnership agreement with The Energy Policy Institute at the University of Chicago Trust in India (EPIC India) and the Abdul Latif Jameel Poverty Action Lab (J-PAL) at the end of May. Power plants and industries will be allowed to trade CO2 permits in the market, which will act as a tool for the government to meet its climate goals.

G7 commits to working out a coal phaseout

G7 countries committed to working towards phasing out coal, according to a recent meeting communique. They haven’t, however, set a date for a phase out, but are largely committed to decarbonising their power sectors by 2035.  

Climate finance should be on top of agenda at COP27, says host Egypt

The host of the next COP, Egypt, made clear its desire to have climate finance on top of the agenda when countries meet later this year. The richest countries, which are also the largest emitters, are yet to follow through on the pledges they made at COP26 held in Glasgow last year. Egypt said it hopes CO27 shifts the focus from pledges and concentrates more on implementation. 

Finland passes “most ambitious climate target” into law

Finland’s climate target of becoming the first developed nation to attain net-zero emissions status by 2035 and become net-negative by 2040 has been passed into law. The country arrived at “the most ambitious emissions reduction target” by becoming the first in the world to apply the “fair share” principle. The principle is based on Finland’s share of the global population, its ability to pay to reduce emissions and its historic responsibility towards causing climate change. The Norden country’s target however will largely depend on the sequestration potential of its forests, which for the first time have been shown to have released more GHGs than it absorbed in 2021.

Nitro-boosting crops: Scientists have shown for the first time how reduction in NOx pollution levels can help boost agricultural productivity in different geographies | Photo: Pixabay

Study: Cutting NOx emissions by half leads to dramatic gains in crop yields

A new study shows that cutting NOx pollution levels by about half would improve crop yields by about 25% for winter crops and 15% for summer crops in China, nearly 10% for both winter and summer crops in Western Europe and roughly 8% for summer crops and 6% for winter crops in India. 

The Stanford University-led study published in Science Advances, uses satellite images to show for the first time how nitrogen oxides – gases found in car exhaust and industrial emissions – affect crop productivity. NOx gases, invisible to humans, were precisely mapped by new satellites. Similarly crop production was also measured from space, which allowed scientists to assess how NOx affects agriculture in different regions.

Govt to miss deadline to cut emissions from coal plants for the third time, seeks extension till 2035

India’s power ministry has sought another extension for 80% of the coal plants to install emission-cutting equipment, which would lead to violation of the deadline to clean up dirty air for the third time. India has already missed the deadline to install flue-gas desulphurization (FGD) pollution cutting technology twice (2017 and 2022). FDG equipment controls toxic sulphur dioxide emissions from plants.

After the guidelines first came into place in 2015, the Central Electricity Authority (CEA) has now suggested extension of the deadline till 203. The government said the CEA had informed that the project cost for wet lime-based FGD technology was Rs 0.39 crore per megawatt (MW). At present, the cost has reached Rs 1.14 crore per MW, which is nearly three times of the initial cost.

Around 98% of Maharashtra affected by air pollution: study 

A new study by the World Bank Group  has ranked Maharashtra third in the list of most polluted sub-national regions globally, with 97.6% of its population exposed to either hazardous or unsafe levels of air pollution, specifically PM2.5 aerosols as per the WHO standards.

Citing analysts, Hindustan Times reported that interior Maharashtra faces greater air pollution compared to coastal regions because it is industrialising and expanding at a very rapid pace. The Madhya (central) Maharashtra and Vidarbha face harsher winters which worsens the pollution. Maharashtra is planning to install 47 new air quality monitors across the state in the next few weeks, HT reported.

The paper — ‘Air Pollution and Poverty: PM2.5 Exposure in 211 Countries and Territories’, used remote sensing data for aerosol concentration, population numbers from the WorldPop Global High Resolution Population data set (WPGP) and a chemical transport model to ascertain the movement of PM2.5 pollutants.

NGT orders Adani thermal power plant in coastal Karnataka to pay up for pollution

The Adani-owned Udupi Power Corporation Ltd (UPCL) thermal power plant in Udupi district of Karnataka landed on hot water this week as the NGT slapped a Rs52 crore fine for damage caused to the environment and health of those living close to the plant. The NGT also found that the company had illegally tampered with pollution monitoring systems and directed officials to take action on the matter. Half of the compensatory sum will be used to “evolve a scheme for providing necessary environmental infrastructure improvement water supply, sewage, STP, Solid Waste Management, Health facility and skill development programme.” While UPCL has already deposited ₹5 crore in compliance with an interim order, the remainder is to be paid within three months. The NGT also instituted a joint committee comprising deputy commissioner, director of agriculture and horticulture and a senior scientist from CPCB to look into the agricultural impact of the plant within a 10km radius. The state and central pollution control boards (KSPCB and CPCB) have also been directed to initiate prosecution or impose additional compensation for tampering with the Online Continuous Emission Monitoring System.

Subsiding: Subsidies provided by the Indian across energy sector have dropped substantially following the pandemic | Photo: Pixabay

RE subsidies fell by 59% since 2016 in India: Study

India has recorded a 59% decline in renewable energy subsidies to ₹6767 crore after peaking at ₹16312 crore in 2016-17, according to the study by the Council on Energy, Environment and Water (CEEW) and the International Institute for Sustainable Development (IISD). The fall was a result of developmental slowdown during COVID-19 pandemic-induced lockdowns, the study said, adding that over this period grid-scale solar and wind achieved cost parity.

Compared to RE, the country’s subsidies for fossil fuels fell by 72% to ₹68,226 crore during the seven-year period between 2014 and 2021 the analyses concluded. Researchers said overall, India provided over ₹540,000 crore to support the energy sector in FY 2021 with around ₹218,000 crore in subsidies. Meanwhile, electric vehicle subsidies have more than tripled since FY17 to ₹849 crore in FY21 the study stated.

India plans to shift 81 thermal units from coal to RE by 2026

India’s Power ministry has identified 81 thermal units which will replace coal with renewable capacity by 2026 including units of state-owned NTPC, and privately owned units of Tata Power, Adani Power, CESC, Hindustan Power among others.

India is chasing an ambitious 500GW RE target while facing the annual issue of coal demand supply mismatch, the report added stating that coal-based power generation units which have high tariffs have been identified which will operate at a technical minimum (operating ratio) of 40% and balance generation capacity will be met by a renewable energy source.

Reuters quoted a ministry letter stating that about 58,000 million units of thermal power generation in the central, state and private sector can be substituted with renewable energy (RE) generation. Substitution of the capacity of the 81 thermal power utilities would lead to the saving of 34.7 million tonnes of coal and help cut carbon emissions by 60.2 million tonnes, according to the letter.

Average cost of large-scale solar rose by 19% in India, solar imports up 374% in Q1 2022

According to analysis by Mercom, the average cost to set up large-scale solar projects rose by 19% in first quarter of 2022, to $56,0512 per MW from $47,1603 same period last year. India installed 2.7 GW of large scale solar in the first quarter of 2022. The average selling price (ASP) of polycrystalline modules from China increased by 25% compared to last year. Similarly, the ASP of Chinese mono PERC modules increased by 20% compared to Q1 2021. The ASP of Indian polycrystalline modules increased by 26% compared to last year, and the Indian mono PERC module ASP also increased by 20% compared to Q1 2021, Mercom reported. Experts expect the overall project cost to increase as Indian module manufacturers mainly rely on Chinese cells for their modules.

According to government data, India imported solar cells and modules worth $1.23 billion in Q1 of 2022, an increase of 374% compared to the same period last year. Imports shot up primarily due to Indian solar developers stockpiling modules in large quantities — around 10 GW, ahead of Basic Customs Duty (BCD) on solar cells and modules, which took effect on April 1. The stockpiling was to save on module costs, which increased by 40% once BCD kicked in, Mercom reported. 

Set up energy transition panels: Power minister to states

​​​​R.K. Singh, India’s minister for power, has asked the states and Union territories to set up steering committees for the energy transition and work together to add more renewables to the electricity generation mix. 

The minister said both should also promote energy efficiency and increase the use of biomass and green hydrogen. Singh said the states should phase out the use of diesel in agriculture by 2024 by limiting financial assistance through the Revamped Distribution Sector Scheme that could be availed for adopting solar energy for agricultural feeders under the PM-KUSUM program.

States such as Andhra Pradesh, Kerala, Madhya Pradesh, and Uttarakhand already have such committees. Principal Secretaries of power and new and renewable energy departments, transport industries, housing and urban affairs, agriculture, rural development and public works departments will be members of the proposed committees. 

Govt mulls scheme for DISCOMS to pay off mounting debt

Government has announced that it is developing a scheme to help DISCOMS to pay off debt by liquidating their dues. By May 2022, the DISCOMs owed power generators around $15.20 billion in overdue payments and around $881.13 million in late payment surcharge dues. This impacts the generators who need to assure supplies like coal and other raw materials to operate their power plants without interruptions. The scheme allows payment of dues in easy instalments by the DISCOMs who will be offered a one-time relaxation wherein the outstanding amount (principal and the late payment surcharge) will be frozen on the date of the notification without the further imposition of late payment surcharges.

DISCOMS will be allowed up to 48 installments to pay outstanding debt. The staggered liquidation of outstanding dues is expected to give DISCOMs time to consolidate their finances while developers would benefit from assured monthly payments from DISCOMs.

Belated action: Amidst a flurry of fires in EV two-wheelers starting from the battery, BIS will unveil minimum operating standards for cells to be used in EV batteries | Photo: Transport and Environment

India: Government to set standards for EV batteries to ensure cell quality

The government of India announced that the country’s regulatory authority on industrial standards, the Bureau of Indian Standards (BIS), will unveil standards to ensure that the cells used in EV batteries measure up to a minimum operational quality. The standards will be developed as a response to the recent spate of EV fires across the country, where preliminary investigations revealed that the manufacturers were not using grade-A cells in their vehicles, even though they used them during the vehicles’ certification tests. The standards will cover e2Ws first and e4Ws at a later stage, and will focus on the specifications for the cells’ connectors and sizes. 

Ambassador to be resurrected as an electric vehicle 

New reports indicated that one of India’s most widely used vehicles, Hindustan Motors’ Ambassador, will be resurrected as an electric car in the near future. The new vehicle will be co-developed by Hindustan Motors and French carmaker Peugeot, and its production will commence at the former’s Chennai plant. The joint venture between the two vehicles will first manufacture e2Ws, and Peugeot’s role in the partnership comes from its acquisition of the Ambassador brand name from Hindustan Motors for INR 80 crores (~USD 10.6 million). 

Italy: Automakers’ association says switching to EVs not the only way to curb emissions 

The head of Italy’s automotive association said in a statement that the EU’s goal of curbing the industry’s emissions by 100% by 2035 was not the only way to cut emissions, and that the bloc should instead focus on alternatives, such as hydrogen, synthetic fuels and biofuels. This, he said, would preserve the country’s know-how with the IC engine and still allow for a lower CO2 footprint. The statement also includes the assessment that if the Italian automakers were forced to switch to EVs, the country would lose 73,000 jobs (vs. gaining only 6,000 from the new technology), and put 450 of the 2,200 car parts manufacturers out of business. 

BNEF: Acute lithium shortage driving up prices, forcing EV manufacturers to raise prices

A new Bloomberg New Energy Finance (BNEF) report found that the acute global shortage of lithium across the world had prompted its prices to jump by as much as 500% in the last year. The shortage is driven by rising demand for the metal — critical to current EV battery chemistries — while its production remains limited to the “lithium triangle” of Argentina, Bolivia and Chile in South America, and to the spodumene mines in Australia. The situation was forcing automakers, including Tesla and BYD Motors, to raise their cars’ sticker prices by as much as $1,000 and to get them to venture into mining the metal themselves. 

BNEF also stated that while major miners were trying to expand their lithium mining capacities at new locations, the resistance posed by local residents (in Serbia, Portugal and Nevada) had proved to be an obstacle. Also, bringing a new mine to commercial-grade operations was time-consuming, with it taking up to 10 years from lithium being first extracted at a site. This too had prevented countries like China from ramping up its production, even though it had recently discovered lithium deposits near Mt. Everest that could hold up to 1 million tonnes of the metal. 

Almost there: Banning 90% of Russian oil imports could raise energy prices across the EU, but the bloc's determination to see it through may soon have the decision formally ratified | Photo: Fair Observer

Russia looks to channel oil supplies to other buyers as EU tightens oil embargo

The EU approved a resolution to ban nearly 90% of Russian oil imports by the end of 2022 as it continues to tighten sanctions against the country over its military offensive against Ukraine. At the moment the bloc imports around 36% of its oil from Russia, and the decision — although not yet formally ratified — was approved even though it may raise energy prices in the interim across the member nations. While Russian gas imports have not yet been banned, that too may come up for a resolution in the next few weeks. 

Meanwhile, India and China continued to purchase Russian oil at heavily discounted prices, and the Russian permanent representative to the international organisations in Vienna countered the move by saying that the ban would only “reflect negatively on the bloc”. However, the ban could give the EU more political muscle to ask China and India to stop their imports, as and when it is fully enforced. Additionally, the bloc may also cancel the insurance for almost all Russian ships to further exclude them from the West. 

UK imposes windfall tax on oil and gas drillers, may raise coal consumption to counter gas embargo

Britain’s Chancellor of the Exchequer, Rishi Sunak, announced a windfall tax of £5bn on oil and gas drillers active in the country in order to grant taxpayers an extra £400 in October 2022. The grant is aimed at helping Britons cope with the rising energy costs as the UK and the EU battle higher oil and gas prices amidst their pullback against Russian fossil fuel imports. However, the “one-off levy” is expected to remain in effect till December 2025, and the oil and gas drillers expressed their “surprise” at the decision and warned that it could stymie further investments into the UK’s oil and gas market.  

The standoff with Russia has also forced the UK’s Business Secretary to instruct the National Grid to use more coal, if necessary, during the winter if Russian gas supplies were cut off. The announcement could reportedly worsen the already high gas prices in the UK, even though less than 4% of its gas supplies come from Russia. 

Shells looks to India to offload its Russian natural gas holdings 

Oil and gas giant Shell is reportedly in talks with GAIL, ONGC and other state-owned entities for them to buy its 27.5% stake in Russia’s Sakhalin-2 LNG plant. The talks are a part of Shell’s strategy to fully exit its Russian oil and gas holdings, and India’s imports of Russian oil have risen from zero to 10% this year as it snaps up the fuel at a steep discount. Also, the country intends to greatly increase its imports of Russian gas, and refuted criticisms from the West over the imports by saying that the fuels accounted for a minor percentage of its total foreign fuel intake. Stopping the imports, it reasoned, would only raise energy prices for Indian consumers. 

India power crisis: NTPC to boost captive coal mining by 86%, Coal India to open new mine 

India’s largest power producer, NTPC, will boost the output from its captive coal mines by 86% this year as it attempts to keep its import costs down and lower its reliance on rail- and road-dependent coal supplies. The increase is massive when compared to the 10% raise in domestic coal requirement initiated by the Indian power ministry, and would allow NTPC to cover 10% of its coal needs from its captive mines alone. The move comes as India reels under a heatwave, which has sharply increased the power requirement across the country. 

Also, Coal India Ltd. (CIL) approved the opening of a new coal mine in Odisha to raise its annual output. The Siarmal mine in the east of Odisha will reportedly reach an output of 50 million tonnes in about five to seven years, and is likely to start production in October this year with an output of two to five million tonnes. However, the miner will also open two more coal mines by March 2023 as it ramps up its output and inches closer to producing a billion tonnes of the fuel every year by 2025. 

Coal prices rise by 800% amidst power crisis, new mine approved in Hasdeo forests 

India’s coal buyers reported that the spot prices of coal ballooned to over 800% of the notified price in a recent spot e-auction, as the demand for the fuel grows under strict orders by the government for power producers to keep their units operational. The situation had led to several buyers buying power from the spot exchanges instead, which was driving up power tariffs even more and worsening the crisis even further. 

Additionally, the demand for coal was reportedly at such high levels that the development of a new coal mine has started in the previously-untouched Hasdeo forests. The first signs of activity were noted on April 26, when 300 trees were logged by contractors (under police protection) before local residents could stage any resistance.