India INC responding to decarbonising call by putting a price on GHG emissions
The ICP or carbon fee is the monetary value of each ton of carbon emissions and the amount pooled will be used to fund the company’s emissions reduction efforts.
CHENNAI: India INC is responding to the decarbonising call and shaping businesses for an impending carbon-constrained future. Last year, 122 Indian companies voluntarily disclosed their greenhouse gas (GHG) emissions, of which 42 incorporated Internal Carbon Pricing (ICP), one of many strategies companies across the globe are increasingly adopting to reduce GHG in their operations and supply chains.
The ICP or carbon fee is the monetary value of each ton of carbon emissions and the amount pooled will be used to fund the company’s emissions reduction efforts. For instance, Mahindra & Mahindra Ltd (M&M), the world’s largest manufacturer of tractors, was the first Indian company to launch an internal carbon fee of $10 per metric ton in 2016. It was also the first company to sign on to the EP100 initiative, a global corporate energy efficiency initiative.
According to Dr Pawan Goenka, former M&M managing director and current chairman of the Indian National Space Promotion Authorisation Centre (In-Space), climate change is a major concern for our planet and if left unchecked, it will become unsustainable, especially as emerging economies like India become prosperous and more carbon-intensive.
“As one of the high-polluting industries, we (M&M) needed to do our job to make our operations emit less carbon, and that is how we started looking at an internal carbon price,” he was quoted as saying in the report titled “The Business of Pricing Carbon” published by Centre for Climate and Energy Solution. The company is already reaping benefits. It reportedly saved 58 million kWh of energy from more than 700 energy efficiency projects that were funded by the carbon fee. About $4 million from the carbon fee was used to convert all 17 manufacturing plants to LED lighting, yielding a return on investment in less than a year.
The latest Carbon Disclosure Project (CDP) India report published in February this year detailed how Indian companies are preparing or having a transition plan aligned with a 1.5 to 2 degree Celsius world, which is an acceptable average global temperature rise under the Paris Agreement. Transition plans are a vital tool to demonstrate to investors and stakeholders that an organisation is committed to achieving a 1.5-degree pathway, and that its business model will remain relevant (i.e., profitable) in a net-zero carbon economy.
Out of 122 companies that made the disclosures via CDP, 104 have confirmed the influence of climate-related risk and opportunities in at least one of their key business areas. The financial impact reported from climate-related risk was estimated to be Rs 2,842 billion. As per the disclosures, these companies reported total carbon equivalent emissions of about 1,429 million tons of CO2 e (MtCO2 e).
Prarthana Borah, Director, CDP India told TNIE: “In 2022, according to CDP India disclosure data, 42 companies in high emission sectors like metal smelting, refining, cement and chemicals harnessed the potential of internal carbon pricing as an effective tool for decarbonisation. It is noteworthy that 14 of these companies pledged their commitment to Science-Based Targets (SBTi), and 13 secured SBTi approval for their emissions reduction targets. This highlights the important role of ICP in climate action strategies of India Inc.
In the last two years, we also see continuous requests from companies for support with setting a price to carbon.” This is important considering India is the world’s third largest energy-consuming country where more than 80% of its demand is met through coal and oil. In the latest Emissions Gap Report, the UN Environment Programme (UNEP) acknowledged there is ‘no credible pathway to 1.5 degree Celsius in place.’ Indeed, current policies point to a world where temperatures rise at 2.8°C, and national commitments (even if fulfilled) would only reduce this to 2.4-2.6°C. India ranks among the top seven emitters, yet remains far below the world average at 2.4 tCO2 e. Home to 18% of the global population, India’s emission reduction rate will play a major role in determining whether global emissions can reach net zero by mid-century.
Last year, India updated its Nationally Determined Contribution (NDC) and communicated to the United National Framework Convention on Climate Change (UNFCCC) that the country now stands committed to reducing the emissions intensity of its GDP by 45% by 2030, from 2005 level and achieve about 50% cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030, which is a step towards achieving the long-term goal of reaching net-zero by 2070.
Earlier this year, the Union government announced that it would develop a national carbon market to decarbonise the economy by pricing the GHG emissions through trading of the carbon credit certificates. This many say would be a path-breaking one.
Vaibhav Chaturvedi from the Council on Energy, Environment and Water (CEEW) told TNIE: “This will be the most powerful instrument when the market matures. Around 50% of India’s carbon emissions are from the energy sector and another 10-15% would be from big industries. If they are covered under cap-and-trade, we will see significant improvement.” Abhay Bakre, DG, of the Bureau of Energy Efficiency, said: “The Indian carbon market will enable the creation of a competitive ecosystem that can provide incentives to climate actors to adopt low-cost options by attracting technology and finance towards sustainable projects that generate carbon credits. It can be a vehicle for mobilising a significant portion of investments required by the economy to transition toward low-carbon pathways.”
Meanwhile, state governments in their own capacity are also taking several initiatives to achieve carbon neutrality. For instance, Tamil Nadu Chief Minister M K Stalin has unveiled Chennai’s first-ever climate action plan to become carbon neutral by 2050, well before the national net-zero commitment by 2070.
Supriya Sahu, Additional Chief Secretary to the Tamil Nadu government in the Environment, Forest and Climate Change Department, told TNIE: “The government is taking several measures for decarbonising different sectors. A GHG emission inventory for the state is in the final stages of preparation, which will give us help in making certain policy decisions. ”