India must set up Compliance Carbon Markets in 3 years, says McKinsey 


A McKinsey report on ‘Decarbonising India: Charting a Pathway for Sustainable Growth’ has proposed laying out a detailed medium-term (5, 15, 25-year) plan with sector-specific priorities and policy frameworks that provide demand signals, allowing corporates to invest with a clear path in sight. While India’s emissions stand at 1.8 tons CO 2e per capita versus 14.7 for the US and 7.6 for China, it is still the world’s third largest emitter, with per capita emissions expected to rise in line with its growth trajectory, according to Rajat Gupta, Senior Partner and Leader of Sustainability Practice in Asia, and Naveen Unni, Partner and Leader of Sustainability Practice in India, McKinsey.

Third largest emitter 

With over 75 per cent of the ‘India of 2050’ yet to be built, the report presents an in-depth analysis of the mechanisms and opportunities to decarbonise five sectors that contribute to roughly 70 per cent of its overall emissions: power, transportation, steel, cement, and agriculture. It highlights the importance of implementing urgent actions within this decade, and presents outcomes India could achieve on its net-zero journey for these sectors along two scenarios – a ‘Line of Sight’ scenario with current (and announced) policies and foreseeable technology adoption, and an ‘accelerated’ scenario replete with carbon pricing and accelerated technology adoption policies.

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Action plans 

The report also discusses estimates for investment needs of this transition, the benefits of an orderly transition (reduced energy costs, improved farmer incomes, opportunity to become a ‘clean tech’ base, and $1.7 trillion forex savings) and the global carbon budget, and how these can be financed. Listing 10 action plans, the report recommended implementation of Compliance Carbon Markets within the next three years or marketplaces through which regulated entities obtain and surrender emissions permits or offsets in order to meet predetermined regulatory targets. This will create demand signals, especially in the hard-to-abate sectors, and incentivise investments in natural climate solutions and newer technologies such as Carbon Capture, Utilisation and Storage (CCUS), Gupta and Unni said while releasing the report.  

Decarbonisation investments

The report assessed that India has the potential to create 287 Gt of carbon space for the world in the ‘accelerated’ scenario. This amounts to almost half of the global carbon budget, for an even chance at limiting warming to 1.5 degree Celsius. Decarbonisation will require an estimated $12.1 trillion of green investments until 2050 for the ‘accelerated’ scenario. Tailwinds, such as reducing costs of renewables, EVs, and progressive policies, do exist. The implicit carbon tax on transportation fuels of $140 to 240/tCO₂e is helping the electrification of mobility. But, there are challenges ranging from the need to add renewable capacity of 10 GW per year to 40-50 GW and reducing battery and hydrogen costs. 

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More land needed 

Economic growth and decarbonisation combined would require 45 million hectares more land than is available. The report also highlighted the need for urgent action during in this decade for the right investments to come in the 2030s and 2040s to enable an orderly transition to low-carbon energy and net zero emissions. 

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