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Issue Brief

Sustainable Manufacturing for India's Low-Carbon TransitionFour Bets for Hard-to-abate Sectors

Tirtha Biswas, Karthik Ganesan, Arunabha Ghosh
September 2019 | Industrial Sustainability & Competitiveness

Suggested citation: Biswas, Tirtha, Karthik Ganesan, and Arunabha Ghosh. 2019. Sustainable Manufacturing for India’s Low-carbon Transition:Four bets for Hard-to-abate Sectors. New Delhi: Council on Energy, Environment and Water.

Overview

This brief analyses four key sectors of the manufacturing industry: iron and steel, cement, ammonia and chemicals (primarily petrochemicals), which have the highest emissions intensity of production. The analysis reveals that the opportunities to decarbonise the manufacturing sector are aplenty. It suggests that India’s competitiveness in manufacturing iron and steel, cement, ammonia and petrochemicals needs a boost. Shifting to low-carbon technologies provides the opportunity for a large manufacturing economy like India to take the lead. The brief also points out why a big bet on the essential trinity of growth, jobs and sustainability is needed urgently.

Key Highlights

  • Iron and steel, cement, ammonia, and chemicals (primarily petrochemicals) together contribute to about 27 percent of value addition and about 23 percent of employment, but 74 per cent of emissions from India’s manufacturing sector.
  • Globally, even if these sectors were to achieve the best-in-class energy efficiency levels within the next 10 years, cumulative emissions between 2010 and 2050 would consume about 13 percent of the global carbon budget required to achieve 2DS by 2100. This would be against approximately 15 percent in the current business as usual scenario.
  • Much effort is needed in R&D and commercialisation of technologies to abate emissions from those manufacturing sectors and processes - like clinker making - which will continue to emit significantly even by mid-century.

The hitherto impossible trinity of the manufacturing sector (growth – jobs – sustainability)

Source: The World Bank. (2019a). Manufacturing, value added (% of GDP); The World Bank. (2019b). Employment in industry (% of total employment); and authors’ analysis

Iron and steel

  • While availability of low-carbon fuels like natural gas/ CBM is not a challenge, absence of a pricing structure, which does not reflect the true environmental costs, is a barrier to low-carbon transition.
  • Tax of USD 32 per tonne of CO2 would bring parity for industrial consumers between the cost of natural gas (imported as LNG) and coal on a delivered energy basis. Such an emissions tax would make zero-carbon energy sources like green hydrogen competitive in the market.
  • In a carbon constrained global-economy, green hydrogen-based steel production could provide for ~4 million direct manufacturing jobs by 2050. Further, it would create another 1.6 million jobs along the hydrogen supply chain, far replacing the fewer jobs involved in import and transport of coal.

Cement production

  • In India, the emissions intensity of cement production decreased by 32.4 kg CO2/tonne of cement (a decrease of only 5 percent) between 2010 and 2017. While clinker substitution is responsible for much of the reduction in emissions intensity, use of alternative fuels in the clinker production process has been limited so far.
  • In 2050, the total demand for cement globally is likely to hit 4.4 billion tonnes – a 100 percent increase from the present capacity. Even assuming a clinker factor of 0.66 is achieved globally, and all of the fuel- related emissions are negated, process emissions from cement alone would amount to 1.6 billion tonnes of CO2.
  • There will be a need for dedicated carbon sequestration (either on site or from air) to at least ensure that process emissions from cement are abated. There is no development on the horizon on a material that will replace the need for clinkerisation in its entirety.
  • The cement industry supports 600 direct manufacturing jobs for every million tonne of cement manufactured. Supporting the domestic manufacturing to transition towards low-carbon cement would ensure that the sector would support 0.54 million jobs in 2050, and a significantly lower emissions intensity and zero import dependency on limestone imports.

Ammonia

  • Recent studies indicate that green ammonia production would reach cost parity with conventional production in the near-term.
  • For India, a transition to green ammonia production would help the fertiliser industry break away from the vicious cycle of natural gas supply and demand while achieving near-zero emissions footprint from production.
  • Further, by 2050 ~200,000 jobs could be created along the hydrogen supply chain replacing the 20,000 jobs involved in the domestic natural gas supply chain.

Petrochemicals

  • By 2030, the green methanol process would likely have lower cost when compared to both natural gas and coal-based production processes in India.
  • Green methanol based petrochemical process could create an additional 160,000 jobs along the hydrogen supply chain. These would otherwise be lost in the conventional production process as both the fuel and feedstock requirement would be met through imports.
  • As for any new technologies or processes, mainstreaming them into commercial production comes with a lot of initial challenges, especially in terms of costs (business bottom lines), logistical challenges (new production facilities) and social acceptability (what new technologies mean for existing jobs and incomes).

Regulatory drivers for a clean energy transition

  • Make clean energy affordable and available
  • Tax environmental externalities
  • Introduce other non-economic drivers for energy transition
Emission from the manufacturing sector would need to peek well before 2050 if India were to align with the 2 degree scenario. It will come at a cost of decreased industrial output compared to business-as-usual growth, resulting in a loss of economic value addition of USD 230 billion and about 19 million jobs in 2050.

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