India is projected to be among the fastest-growing economies. The country has set itself the target of becoming net zero by 2070. There is a need to further grow the energy sector and for that, it needs to create a clean energy system with reliability, affordability, sustainability, and energy independence as the keystones. Anish De, Global Head for Energy, Natural Resources, and Chemicals (ENRC), KPMG while speaking to Queenie Nair of ET Edge Insights discusses India’s energy transition journey, the role of green energy, and the recently concluded COP27.
What are some of the main concerns or challenges that companies are facing now and how are they dealing with those challenges in the sense of energy transition and carbon emissions? Your thoughts on this?
Anish De: This is a new term in the sense that companies were looking at renewable energy for example earlier they were looking at the green greening of the supply chain. But they were looking at more in terms of costs and how renewables can reduce their costs, renewables have become cost-effective, but now, we are looking at a broader energy transition, which means it’s not just about green power. It’s not just about the cleanliness of the energy, but fundamentally the whole portfolio of processes and technologies which they use must become much more energy efficient and wherever they’re using energy, they use as much green energy as possible. This is bringing in almost entirely new technologies like green hydrogen, which has been talked about, and storage which uses renewable energy but then stores that green energy and supplies it at the right time.
Energy efficiency is becoming very, very important, scaling up energy efficiency, all of these make the energy transition. And this must happen at a very large scale and very swiftly. This is not a journey that corporates have travelled through. As I said, they have travelled only on an energy journey, more from a cost optimization standpoint. But when they’re looking at a very large-scale reduction in carbon emissions and hence the energy transition, it encompasses many things. Something they have done, some things they have not done, some technologies they have, some technologies they do not have, pulling it all together to create that low-carbon basket. I think this is a very novel journey. So, they’re learning on the way.
Both in the sense of challenges and opportunities, what do you see? What is your perception?
Anish De: The opportunities are substantial, particularly when it comes to the energy transition because you can create new assets, bring new efficiencies, and generate new revenue streams. This is true for energy providers and sometimes even true for energy consumers. You can also reduce your material intensity because that also relates in some sense to energy, and that becomes more efficient. Your costs can come down. So, there are some very good prospects, and all of this is happening on a very large scale. So those who can make the most of these opportunities are set to thrive.
But that’s where the rub comes because many of them will not be able to do it or will struggle to do it. Small and medium enterprises don’t necessarily have the capital or the technology resources as large organizations have. Their bankrolling needs are very large. That is something that is going to be a task for many of those who don’t have access to that kind of finances, even the financial system is not ready and not mature to fund some of these projects for that to permeate down to many of these industries is going to be a challenge. Processes will change, and core technology will change. For example, if you’re looking at steelmaking and looking at green steel, then the processes will change, and the technology will change quite radically. So, these are all implementation challenges that will be a challenge for many of these organizations, even for mature organizations, it would be a challenge. But there will be a whole swath of organizations in between who will find it even more challenging.
Speaking about India’s progress toward decarbonization, how would you draw a parallel between the global landscape and India?
Anish De: I’m very bullish about India and the energy transition. India is one of the few growing economies in the world. No other nation of scale is growing at our kind of growth rate. So, it gives us the kind of ability to absorb a lot of these costs and take benefit of the opportunities which are there. Globally, if I must segregate into three buckets, there is the developed world which is not growing and is sometimes degrading also, particularly in energy terms, and it must transform its energy basket. That’s a set of opportunities and challenges. Then you have the other end, countries which are going to struggle because they don’t have the resources, the technologies, they are already in debt, neck deep in debt and they will find it much more difficult. The countries like India and there are only a few handfuls of countries like India, of course, China also has a unique advantage at present in that there is already scaling. There is already an established ecosystem that can support the next level of change. And subject to the right kind of policy initiatives can take this as an opportunity.
So, I’m very optimistic about India. I’m not so bullish about many other parts of the world, at both the extremes, because people who are not growing are suddenly going to find economic challenges in general, including the mature economies and people who are on the peripheries, the countries which are at the other end of the peripheries, which are already challenged, are going to find it very difficult to entice new investments and new technology.
Are there any steps that you could recommend to accelerate this transition?x
Anish De: There are many things to do. As I said, it’s a very complex set of changes that we need. I’m going to bucket it into three or four areas. The first area is the policy, how does policy take a whole system view rather than, a technology-by-technology view? It’s sometimes very ostensibly easy to take a view of the slice. But then that doesn’t work because you must pull all of it together. Let me make this real for you now. For example, if you’re looking at green hydrogen, it is not just about providing green energy for hydrogen, it’s also about the user industries which must adopt green hydrogen so that must be a policy not just for the energy sector, but for the user sectors as well. That must come together so that policy challenge is quite difficult to solve at that time because there are various players, several ministries, and numerous legacies, which are there which must be liberated. So real effort must go into that. The second part is on financing because energy transition is a very capital-intensive endeavour. So, one must find the right finances and financial instruments. And related to that is the risk because risk can be quite high. These are new technologies, and some of them are in the prototype stage. So, the risk can be quite high in that sense.
This brings me to the third point on the technology itself because some of these technologies are in the prototype stage and they have to yet come very quickly some of them are yet to be conceived also and those technologies will also come, they will need special attention and the world has not paid that kind of special attention in the past, but it needs to happen. So that is very important. The kind of venture funding which is at present available is never going to be adequate for that, so we need new mechanisms for that.
And the fourth area is, I would say the institutions, we need much stronger institutions to manage their energy transition and the overall climate change challenges because these are very significant challenges and rushing toward us. The world has tried to turn the climate clock and it has not happened yet. In fact, in the last year, our emissions went up by 1% instead of reducing globally, and yet the target was to reuse it by 45% by 2030. So, it’s a big challenge and we need institutions to deliver to that challenge. So that needs specific focus in terms of the regulatory institutions, the policymaking, the funds which must be deployed, and the right kind of institutions for helping those funds come into the right places. I think those are very, very important issues that need to be worked done.
At the Sharm-el-Sheikh COP, India insisted on a new global climate finance target by 2024. In your view, how will enhanced financing facilitate the climate mitigation that we are looking at?
Anish De: The good thing about COP is that we have the loss and damage fund and the pledge to create the loss and damage fund, which was also something that India has been very vocal about, and vocal about. The developing world has been very vocal about this because we did see loss and damage happening. So that creation in concept is good. The rules and details are not yet there. Hopefully, in the next year before we go into COP 28, we’ll see a lot of detailing of that happening, but it will take some time. But more than just that fund, even for, large-scale deployment, the amount of funding that is obligatory is very large. Just to give you some numbers in the last 4-5 years, in a typical year climate finance has been to $1 trillion. Now that is way lower than what is necessary, by 2030 we need about four and a half trillion dollars in climate finance to go and that’s like a 5X surge and this has been deteriorating as I mentioned.
Unless the world finds that kind of money, decarbonization, and climate adaptation, all of these are not going to be easy. Inducting in these expensive technologies currently is not going to be easy. National budgets are not adequate to meet these things in poor countries. But the other side of the story is that even the so-called rich countries are no longer so rich. They are stressed with their books and their budgets. It’s an open question where this money will come from. We can ask, but we are almost getting a situation where those countries which were supposed to give, are no longer in the same position as they were, say in the past.
This also brings us to the historical loss and damage funding. How far do you think this would go, especially on the implementation front?
Anish De: Yes, I think getting the recognition of it in the COP 27 declaration itself was a big win because sometimes it can go on forever that it doesn’t find a place in the declaration and the fund is a specific mechanism. So, if you pledge to a fund, then you’re creating, obligating not just to a concept but to the specifics of that mechanism. This must be followed by rules, as I said, and I’m hoping that by COP 28, we will have at least a basic set of rules which will be there, and money will start eventually flowing.
In my sense is that it’s a good 4–5-year process before things stabilize and other rules are outlined and people are making their contributions, those contributions are being used in the right places, sometimes for public finances, for adaptation projects, when loss and damage happens, you’re giving the support to those countries. I think the rules must be framed and it’s going to again be contentious. I sense that you’re looking at a good 4-5 years before things stabilize.
Recently KPMG launched the report ‘Closing the climate finance gap’, what has been the driving force here? And how does it work towards leveraging its expertise?
Anish De: As a firm, we are very close to the world of finance. That’s our history. That’s our legacy. Now when we have been looking at this from our global decarbonization hub, then we are looking at climate change and decarbonization as a key area that we are focusing on. We realize that there are many missing parts of the puzzle now, there are technical issues which are missing, institutional issues, there are markets, but the biggest thing which will integrate or make all of this happen is finance. And that finance issue is in two parts – one is finding the amount of money and then taking it to where the need is. I already talked about the part that there is a challenge in finding the money, but even if you find the money getting to bankable projects, getting the investable projects is not easy because many of these are in countries where they’re not investment great countries in that sense and then there are risks like geopolitical risks, currency risks, governance-related risks. If we try to look at it from the prior lenses, then that money will never reach. So, you need completely new delivery mechanisms, which will have to take some chances, must take some risks, but must create products that will serve those emerging economy requirements which don’t meet necessarily the governance standards or the past standards, which countries must look at.
We are trying to bridge that gap in some sense, we are creating whole new product streams and thought streams which will help us to get to a better position on many of those. There are no perfect fixes. I don’t think you will have any perfect fix in any of this, but at least getting a vibrant dialogue going is our aim and then we will collaboratively work with other institutions and organizations, multilateral bilateral organizations to see that this kind of help and takes the money where it is needed.
Cop 27 ended with a lot of dissolution, the discussions were on, and they spoke of the impact, but the cause and the effect were not discussed. Would you agree to that?
Anish De: This has been a long-standing challenge. The cause and the effect and the proportionality of the responses have been long-standing challenges. Typically, till now we have expected governments to solve that challenge, but the vibe I got out of COP 27 is that this has now is not just in the arena of governments, but industry, business, and civil society all have kind of become or trying to become a part of the solution process. So, in some sense, the discussion has moved out of the governmental rooms into the open. And to me, while there is enough reason to be disillusioned about the outcome of COP 27. But there are a couple of good things. One is, of course, the loss and damage fund, which is this landmark, at least we got something going. But more prominently, the fact that society at large is standing up and taking more responsibility, I think that’s very important because society makes governments move. It’s not the other way around. Governments rarely make society move. Society makes governance move. I am a lot more positive than I went in with when COP 27 started.
Do you believe the private sector has a huge role to play here?
Anish De: Massive, because I think governments in themselves will not be able to find the funds or find the way. The private sector finally implements all of these. Just to take an example from the energy sector, more than half of the energy requirements of the country, incremental energy requirements of the country, are going to industrial users. If you take commercial users and industrial users together, it’s much more than half, you know, 65-70% is going into those kinds of users. And in an economy like ours, most of it is by the private sector. The public sector plays a comparatively small role, a progressively small role. If the private sector doesn’t sign up and act, we are not going to get to resolutions. But the good thing about it, and that’s another point about India’s sweet spot, is that the private sector is waking up and taking responsibility. Have seen much evidence of that across sectors, steel, cement, and then of course energy as well. So that makes me much more positive because if it had been just administrative action, I don’t think we would have found the solutions.
Written by: Moulin Oza
Edited by: Queenie Nair
