The Business of Climate Change in India

A recent India Business Initiative conference shed light on how India — a country with 20 percent of its 250 million families still off the electricity grid — can juice up its power supply.

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If India is to sustain the 7.5 to 8 percent GDP growth it needs for its expanding population over the next generation, the country needs power — whether it comes from old-fashioned fossil fuels or renewable technologies. “Per capita electricity consumption is one-quarter the level it is in China, one-tenth that of Europe and one-thirteenth the level in the United States,” said Shri Jairam Ramesh, a member of Indian Parliament at a recent India Business Initiative event in Mumbai. “We are not aspiring to European or US levels of consumption, but power generation has to increase very significantly to improve the standard of living” of India’s still desperate people, he noted.

1. Any discussion of renewables must reckon with Indian demographics.

Some panelists reiterated that, although India’s pollution quotient is high, its per capita carbon footprint is low. That, they argued, gives India wiggle room to play economic catch-up before it tackles climate issues.

“We are used to an energy-intensive model of GDP growth, which the US and Europe and China have followed,” Ramesh said. “If we get away from this business-as-usual trajectory, the concern is GDP growth will be sacrificed by 1 percent to 1.5 percent.”

He acknowledged, however, that this view does not consider dramatic drops in the cost of solar and the revolution in energy storage that pundits predict. Nor does it factor in healthcare cost savings that come hand-in-hand with lower carbon emissions. “We tend to overestimate the GDP sacrifice that comes from a renewable growth projection,” he said.

2. Some tactics developed for the industrialized world won’t play in India.

Rahul Shah, CEO of Tata Power Renewable Energy Ltd., pointed to Germany, which has pledged about double India’s target of 40 percent non-fossil fuel reliance by 2030. Ordinary German citizens are busy installing rooftop solar panels, for example. A far lower percentage of Indians own homes, and those who do often want to preserve the air space above their existing house for expansion.

However, India does have large tracts of land not suitable for agriculture, which could be used to build solar or wind farms. The stumbling block here is politics: Individual states mandate energy purchases and may require changes in local laws to approve purchase of renewable energy or grant building permits for renewable installations.

3. Climate change could mitigate some benefits of renewable energy.

In late 2017, India made worldwide headlines for the toxic smog that smothered Delhi, as levels of some particulate emissions reached more than 16 times the limit considered safe. A government-sponsored study attributed more than half the haze not to fossil-fuel pollution but to a powerful sandstorm in the Middle East.

Nature-dependent energy producers may need to revise their trajectories and develop more sophisticated practices and technologies to combat climate change. Climatologists say to expect more cloudy days, more typhoons, and other conditions that are not conducive to solar, wind and other renewable generators.

4. The success of some renewables is diverting research from other renewables.

“The low cost of solar and energy storage is shutting out research into tidal, wave, hydrogen and other types of fuel-cell batteries,” said Shah of Tata. Also, conservation strategies, such as cuts in non-peak electricity and gasification of organic waste, could be sidelined. “To me, that’s a big risk,” he said.

He also worries that lithium batteries could present a substantial environmental hazard as they pile up in landfills a decade from now.

5. Financial markets and key corporations are mispricing climate risks.

Patrick Bolton, a Chazen Senior Scholar and the Barbara and David Zalaznick Professor of Business at Columbia Business School, discussed research into how food companies hedge drought risks: “The short answer is the trend toward warming and the intensity of droughts is not reflected either in analyst forecasts or stock prices,” he said. “We can assume if companies in this industry don’t consider climate risks,” other sectors are also oblivious.

So how can investors hedge against climate change? The authors of the study recommend retail investors adopt the simple strategy of selling stock in food companies in climates with the greatest exposure and buying those in less affected areas. Bolton and colleagues devised a plan for a more passive, index-based investment approach that modifies standard market indices, such as the S&P 500. Using the companies’ own reported measures of their carbon footprint, the researchers filtered out 20 percent of the worst performers to create a low-carbon index, rebalancing the remaining stocks to minimize tracking error with the benchmark.

Even though the exercise was not designed to produce better returns, Bolton said the low-carbon index outperformed the full S&P 500 by 60 basis points, a measure he calls “a significant amount.”

6. Cheerleaders who expect the price of oil and coal to return to “more normal levels” are delusional.

Noting that oil dropped from around $100 a barrel to under $30 over the past few years and is now hovering at about $70 a barrel, Geoffrey Heal, a Chazen Senior Scholar and the Donald C. Waite III Professor of Social Enterprise at Columbia Business School, expects stabilization in the $50 to $60 ballpark. He said the recent competitiveness of renewables and especially natural gas have forever depressed the price of traditional energy sources. Although fracking may not be plausible in every geography where porous rock has trapped oil, the output of gas in the United States has increased by 50 percent in the last few years, making the country the world’s largest producer of gas.

And, despite political rhetoric surrounding coal, the stock market has basically written off the industry in the United States. “That’s partly because the price of coal is undercut by gas and partly by the Paris Climate Accords, which is meant to phase out the dirtiest fossil fuels, which is coal,” said Heal.

View photos from the event on Facebook.
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