Finance

Inflexion Points: To reduce or remove emissions, a carbon price is necessary

This involves capturing emissions from a power plant or industrial unit and either reusing it for another purpose or sequestering it in geologically feasible location. (Representative image)

By Arunabha Ghosh

India’s economic future is severely threatened by the climate crisis. With the rapid rollout of renewables, its energy transition is well underway. But two other aspects need closer attention: reducing industrial emissions and removing atmospheric carbon dioxide. Both are laden with uncertainties and risks, yet require more attention from policymakers, innovators and investors.

One controversial technology is carbon capture, utilisation and storage (CCUS). This involves capturing emissions from a power plant or industrial unit and either reusing it for another purpose or sequestering it in geologically feasible location.

In modelled scenarios, CCUS makes a big difference to a country’s low-carbon goals. In order to reach net-zero emissions by 2050, Europe would need capacity to capture 230–430 million tonnes of CO2 per year (MtCO2/yr) by 2030, and raise it to 930–1,200 MtCO2/yr by 2050. If, as promised, China reaches net-zero in 2060, it would still need 16% of energy from fossil fuels. In other words, net-zero would be impossible without carbon capture.

My colleague calculates that if India aimed for net-zero by 2070, fossil share in primary energy (even with high hydrogen penetration) would be 21% with CCS but would have to drop to 5% without CCS. The contrast is more evident for a 2050 target. With CCS, fossil energy share in primary energy could be 30% but would have to drop to 5% without CCS.

Renewables, alone, will not suffice. Heavy industries need high-intensity heat. Industries will account for nearly a third of India’s emissions in 2050, at which time nearly two-thirds of industrial energy would still be derived from fossil fuels. Without CCS/CCUS, the path to decarbonising the industrial sector becomes that much harder. The push for green (renewables-derived) hydrogen is certainly helpful, but CCS would play a role in bending the emissions curve.

Some Indian private and public enterprises are putting up CCS pilots. Dalmia Cement has a carbon footprint of 546 kgCO2/tonne (40% lower than the global average). In order to drop to 30 kgCO2/tonne by 2040, it plans to use CCUS starting with a 0.5 MtCO2 per annum facility. Tata Steel just commissioned a CO2 capture facility of 5 tonnes per day at Jamshedpur. BHEL, NALCO and ONGC are also in the CCUS fray.

Despite decades of development in fits and starts, CCUS continues to faces three key challenges: It is still too expensive, risky (public concerns about safe carbon storage), and not enough to solve the climate crisis. Critically, even if carbon could be embedded in products like synthetic fuels, CCUS does not remove atmospheric CO2. While emissions would be reduced, the climate would continue changing.

Hence, the other controversial set of technologies is carbon dioxide removal (CDR), or pulling carbon out of the atmosphere and storing it for long periods. The options range from nature-based solutions, like forests and regenerative farming, to converting biomass, burning it in power plants and capturing carbon, to more engineered solutions like direct air capture via mechanical processes, or enhanced weathering of rocks or ocean alkanisation.

CDR cannot substitute for hard emission mitigation efforts. As the Intergovernmental Panel on Climate Change noted recently, CDR can deal with the residual emissions to reach net-zero. Some might even consider CDR only after complete decarbonisation to remove legacy carbon in the atmosphere.

Moreover, CDR options vary not only in costs but also social and environmental impacts. For instance, a marginal farmer practising agroforestry is able to sequester atmospheric carbon and retain soil carbon. Her impact on land, water or infrastructure would be very different from a solution that converts farmland for foodgrain into growing plants merely to capture carbon without considering consequences for food security or biodiversity. Ocean-based CDR has some advantages over terrestrial options, particularly because of the vast areas available. But these might also adversely impact marine ecosystems and the high seas are almost entirely ungoverned. Each CDR technology should be carefully assessed across several dimensions lest new crises emerge in solving for the climate one.

Despite the technological uncertainties, both CCUS and CDR are likely to gain in prominence. The imperative of responding to a rapidly changing climate is evident. There will be rising threats of trade barriers related to climate action or inaction. Countries and companies would have to demonstrate that they are capturing or removing carbon and storing in order to access export markets. Tens, perhaps hundreds, of billions of dollars are likely to flow.

The most important driver will be a carbon price. Carbon prices cover about a fifth of global emissions. Some firms are already experimenting with internal carbon prices before choosing technologies. But the values are generally too low to budge the needle. India will need a carbon price of $57-$68/tCO2 for CCS to kick in depending on whether the net-zero target year is 2050 or 2070. To have just 10% CCS in fossil plus biomass in the primary energy mix, these values jump to $108-119 ($239-271 for 25%). This is assuming that hydrogen also plays a role.

Variations in carbon prices create trade uncertainties for firms operating in different geographies. Greater transparency of prices imposed and actions taken (with credible verification) will be needed.

The transition to a low-carbon future is both necessary and complicated. After renewables, industrial emissions reduction and atmospheric carbon removal will be frontiers of climate technologies. As climate targets evolve, investment criteria change and trade barriers emerge, India would do well to start seriously considering its technological options for business competitiveness.

The author is CEO, Council on Energy, Environment and Water

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