Last week, speaking in Gandhinagar at the first meeting of the B20 (Business 20), which brings together corporate leaders within the G20 framework, Sanjiv Puri, chairman and managing director of ITC, said, “It is important as we traverse this complex journey of energy transition that the process is inclusive. No country, no community, no enterprise should be excluded in the process. Otherwise, the whole challenge of social inequality will only get accentuated.”
The concerns that Puri raised are pervasive within industry. Speaking at the same forum, T V Narendran, Tata Steel CEO and managing director, made the concerns more specific. “There are millions of people who are working in the coal or the fossil fuel ecosystem,” he said. “How do you, as you transition into renewable energies, rescale those workers or how do you make sure that you deal with the socioeconomic consequences of the changes that we are bringing about?”
These CEOs were not criticising India’s green energy targets but expressing the worry that industry would be caught in the middle, as they have before when the governments and the people have wrestled on reordering the roles of labour and land. Economic transitions are always messy, since the cohort losing out and those benefitting are not the same. Efforts at land reform to ease acquisition in the mid-2000s are an example of the problems.
Though Finance Minister Nirmala Sitharaman is expected to dwell on India’s climate agenda and energy transition in her FY24 Budget speech, the irony is that the action to smooth the changeover on the lives of the people will have to take place in the states — and there is scant awareness of this challenge at this level.
Handling this transition will need an overhaul of the state economies, especially in eastern India. The support has to begin now, given the scale of the challenge. This means, just as the Centre has prodded the states to push capex for the past few years, it will have to engage with them on this far larger and messier changeover.
Consider this. In three of the four states most dependent on the mineral economy, especially coal —Jharkhand, Chhattisgarh and Odisha — the share of industry in their state domestic product is far ahead of the national average of 25.92 per cent. It is 33 per cent for Jharkhand, 34 for Chhattisgarh and 40 for Odisha. None of these states have offered any incentive to any sector either to promote RE or to bear the brunt of the transition.
This anomalously high share of industry in these states is principally because their value added comes from the mineral sector. This means the transition for the states, as these industries wither away or change to RE, will not be limited to only those engaged in mining, legally or illegally, which would amount to a substantial ballpark figure of a million. The impact on the state’s resources to finance the makeover, even without factoring in its execution capacity, is massive. In a Parliament reply in 2022, the Ministry of New and Renewable Energy noted that building RE infrastructure such as grids and power stations to replace current fossil fuel-based systems will cost India $100 billion each year till 2030.
Yet, the transition needs to take place for India to achieve its commitment to reduce carbon emissions by one billion tonnes by 2030, as articulated at the COP26 climate summit in Glasgow in November 2021. This target includes lowering the carbon intensity of the economy by at least 45 per cent. This amounts to reducing 2.88 gigatonnes of carbon dioxide, as of 2021, by one billion tonnes annually from now till 2030. Both will substantially impact the livelihoods of crores of people, especially in these states.
But the costs are not clear. “There is no estimate for the costs of this social transformation. It is a difficult exercise,” said Mahua Acharya, former CEO of Convergence Energy Services Limited, a power ministry arm that works on mobility solutions through renewable energy (RE).
Raghunath K, country representative of Thyssenkrupp, India, working on development of green hydrogen, noted that “while energy transition will have costs, burdening it unevenly across the value chain will not be sustainable… (a) fair apportioning of costs will be critical”.
On a somewhat positive note, of the 15 large Indian states, nearly half (eight) have a minister in charge of a department of energy, which subsumes that of electricity supply. This has been a recent development for most of them, becoming a practice only in their current cabinets.
Yet only four of the states have allotted energy as the primary responsibility of their respective ministers. These are Karnataka, Andhra Pradesh, Telangana and Gujarat. None of the eastern Indian states to be most impacted by the transition are in this list. While the distinction of being the first Indian state to have an energy minister goes to Odisha, which created the department in 1990, it has since split the role.
In the case of land acquisition, the policies were logical. It is impossible to expand manufacturing without land to set up shop. It was also expected to reduce the pressure on agriculture, drawing in people to industry. Yet there were protests from those whose land would have been acquired by the governments, at the states and at the Centre, sometimes to help private project developers for mega investments. Even now, at the Vizhinjam port project in Kerala and other places where land has to be acquired, protests snowball.
Energy transition will mean the same if not more. An S&P Global notes, energy transition is thought of as “the increasing penetration of renewable energy into the energy supply mix, the onset of electrification and improvements in energy storage are all key drivers of the energy transition”. Pressure is mounting from fund houses on power generation companies that depend on coal supplies to build other forms of generation. The costs are often estimated in terms of changing the grid, the power stations and so on, which in any case is expensive.
All of these steps mean states have to tell people some unpleasant truths and face the blowback. As of now, none are trying. The Centre may have to pitch in again. No wonder CEOs such as Puri and Narendran are worried.