1. Energy Efficiency An Energy Efficient Development of Indian Industry Karthik Ganesan Senior Research Associate Council on Energy, Environment and Water Climate Day: Negotiating the Climate Cliff: India’s Climate Policy and INDCs New Delhi, 03 Feb 2015 © Council on Energy, Environment and Water, 2015

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3. | India’s Industrial Sector 2SOURCE: ASI, RBI, MOSPI, CII, Fraunhofer Institute All the sectors which have a significant contribution to GDP have a significant fuel bill ▫ In sectors like Metals, Non-metallic Minerals, Chemicals and Textiles - Fuel inputs account for 9% to 23% of all input costs - Contribution of fuel to the GVA between 40% and 82% ▫ The average for the industrial sector is 5% of input costs and 25% of GVA However, overall material costs in manufacturing sector in India are staggering ▫ Account for 78% of total input costs ▫ Is such a large material cost masking the underlying need to address fuel as an important sub-component? - Material costs in Germany are at 43% of input costs To raise manufacturing contribution of GDP to 25%, current cost structure would be big barrier and energy efficiency (along with broader resource efficiency) is the only way around. ▫ The alternative will be a shift to a different industrial mix - Metal fabrication, computers and electronics, electrical and mechanical machinery, transportation equipment What should we “Make in India”?

4. | Waiting for a PAT on the back ? 3SOURCE: ASI, RBI, MOSPI, CII, CSTEP, TERI, Fraunhofer Institute, BEE PAT Scheme introduced in FY 2012-13 and up for review at the end of this fiscal ▫ Industry units covered in 1 st PAT Cycle consume only 63 MTOE of a total of ~ 160 MTOE ▫ Iron & steel and chemicals sectors have phenomenal potential for expansion of coverage ▫ Sectors like Food Processing and Textile have virtually not been covered in the first cycle – a large share of units here are in the small and medium category Average spend on energy has decreased from 7.2% to 5.1% (of total inputs) in the last decade ▫ Average spend on energy is < 2% in Germany Macro-economic and aggregated energy consumption figures suggest that ▫ Though overall energy intensity of GDP has decreased, industrial contribution may have become more energy intensive in recent years

5. | Indian Cement Sector 4SOURCE: CEEW, CMA, WBCSD A large contributor which is likely to grow manifold ▫ Constitutes ~ 7% of overall GHG emissions of India ▫ Consumes ~ 3% of the coal produced domestically - 65% of electricity needs met by CPPs ▫ More than a doubling in the production of cement by 2030 and nearly quadrupling by 2050 Industry Structure ▫ Fairly concentrated ownership – 11 companies control 60% of the capacity - Simpler to assume penetration of energy efficiency interventions ▫ More than 85 per cent of the energy consuming units accounted for under PAT ▫ The cement plant stock is relatively younger and has a high efficiency even in the baseline (2012) - The best in class in India is a mere 8 -10% off the mark when compared to global standards - 50% of the capacity only came up in the last decade

6. | Drivers for Efficiency Improvements 5SOURCE: CEEW, CDP, WRI Compliance with schemes such as a PAT which mandate the reduction ▫ More than 50% of corporate respondents in some sustainability reporting exercise indicate compliance as the major driver ▫ There is atleast one large manufacturer that has challenged the PAT scheme’s validity in court Some companies that see it as an ‘NPV +ve’ move A large stake held by a foreign entity that brings emissions to international focus and hence the drive to reduce emissions Improving the quality of air for local communities in areas where these plants operate ▫ A large emitter of particulates in addition to SOX

7. | How do the 57 units analysed fare? 6 Classified into three distinct cluster ▫ Poor performing, in-transition and advanced plants based on a combination of technology score and SEC ▫ The difference in SEC values between the advanced and poor plants was ~ 25%

8. | What are the options to reduce SEC ? 7SOURCE: CEEW No silver bullet for meeting the industries energy efficiency targets. However interventions can be broadly classified into three heads ▫ Product substitution ▫ Thermal and electrical efficiency improvements ▫ Moving to alternate fuels would bring down fossil fuel related emissions - But will probably increase energy intensity More than 19 possible technological interventions explored for ▫ Economic viability ▫ Feasibility of implementation ▫ Acceptance in India’s ‘operating environment’ Analysis carried out for existing stock of plants and an assumed trajectory of new manufacturing capacity coming on-board

9. | The outcome of pursuing targeted interventions till 2050 8SOURCE: CEEW

10. | What is the Up-side of the EE story? Industry ↓ reliance on coal linkages provided by PSU coal companies – 55% ↓ in coal demand in 2050 In 2010-11, less than 80% of the contracted supply was delivered Profitable and targeted investments => cost effective compliance process 9 Government 20% reduction in emissions intensity by 2030. Already an aggressive target Coal requirement ↓ 45 MT, ~ 10 % of current production Electricity requirement ↓ 18 BU, 2% of current consumption Investors Investments have a high NPV and an IRR ~ 35% Not sensitive to carbon price => Risk from carbon market not taking off or low carbon prices are minimal Proven and existing technologies ; barring a few regulatory clearances no risks to implementation Society Refused Derived Fuels co-processing 9MT of MSW being used up beneficially → ~ 7% of India’s waste generation in 2050 => ↓ landfill requirements Health benefits of decreased coal firing and clinker production will create added value

11. | What is the way forward for industries ? 10SOURCE: CEEW, CDP, WRI How can the current PAT scheme be strengthened, so that it captures the entire range of benefits that for all stakeholders? ▫ Can it imbibe the goals of emissions intensity and translate to clear targets for climate negotiations? ▫ Can it cover the large base of SMEs that constitute the manufacturing sector ? Can interventions go beyond the existing process of conducting energy audits and sanctioning stand-alone interventions ? Finally, what could a new industrial policy look like, if we are to transition to an energy efficient industrial sector for India ?

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