Opinion How an orderly transition to net zero could propel growth

Deeper decarbonisation — an “accelerated scenario” that would reduce emissions to just 0.4 GtCO2e by 2050, or close to net zero — would require $12 trillion in total green investments by 2050. Under this scenario, India could create 287 gigatonnes (GT) of carbon space for the world, almost half of the global carbon budget, for an even chance at limiting warming to 1.5 degrees Celsius.

Decarbonisation will drive many changes, from how we source energy to how we manufacture materials; from how we grow food to how we move around; from how we treat waste to how we use our land.

An orderly transition to net zero could help India decarbonise while creating an engine for growth. To take just one example: If India shifted to a predominantly renewable (and hydrogen)-based energy and materials system, it could save as much as $3 trillion in foreign exchange by 2070 (largely crude oil and coking coal). While the investment is large, a vast majority of the abatement projects are in the money.

This is because India is in a special place. Three-quarters of the buildings, infrastructure, and industrial capacity of India in 2050 is yet to be built. We have a choice — to invest in current technologies or to invest futuristically. Futuristic investment will need India to take urgent actions in this decade — on regulation, technology development, and on technology adoption — to make the right investments.

This is something that India has done before. In renewable power, the right policies, strong institutions and industrial capabilities built in the last decade are providing India with the base to scale up four to five times in this decade. India also has other advantages. For example, its high taxation on automotive fuels translates to an imputed carbon tax of $140 to $240 per tonne of carbon dioxide. This makes electric vehicles competitive against petrol or diesel ones, explaining the recent rapid growth of electric two-wheelers.

Such an “orderly” transition for India is not just desirable, but necessary. The risks of a disorderly transition are significant: Think about the recent distress from the coal shortages as demand bounced back after the pandemic. We outline four seldom-discussed ideas for India’s orderly transition:

Set out five-year, 10-year, and 25-year national decarbonisation plans. High-emission industrial assets like steel plants cost billions to build and run for 30 to 50 years. The green route requires higher upfront investment and will also sometimes cost more overall. Yet, policies that enable carbon prices or blending mandates can make the economics viable. Such policies need to be held steady and require coordination across sectors like power, hydrogen and steel. A national decarbonisation plan would enable timely investment decisions. If we do not act now to set up and enable such a plan, more fossil fuel-driven infrastructure will be built, locking India into higher emissions for decades. Without decarbonisation plans, it is possible that companies, fearful of getting stranded at a later point, do not invest enough in building capacity, thus leading to shortages, inflation and greater import dependence — in other words, a disorderly transition.

Second, define a national land use plan. India risks being land-short for its dual goals of growth and decarbonisation. For example, McKinsey estimates that renewable power and forest carbon sinks need 18 million additional hectares of land. India would need to maximise the use of barren land for renewable power, urbanise vertically, improve agricultural productivity, and increase forest density. This forms the case for establishing a national authority, in consultation with the states, to set land-use guidelines.

Third, accelerate compliance with carbon markets. Pricing carbon creates demand signals that accelerate emissions reductions, especially in hard-to-abate sectors. Let’s illustrate this through steel, demand for which could multiply eight times by 2070; right now, much of the new capacity is likely to be added using high-emission coal. With a price on carbon emissions, more expensive green steel becomes competitive against high-emission steel. For example, a carbon price of $50 a ton could make green steel cost competitive by 2030, leading to the possibility of the next 200 million tons of capacity being created through low-emissions technologies.

Companies can aim to play on the front foot, investing in opportunities like recycling, hydrogen, biomass, electrolysers, rare earths, battery materials and battery making. Some of these opportunities would take time to mature. Meanwhile, companies could invest in opportunities opened up by decarbonisation of other countries, such as exporting green hydrogen derivatives like ammonia.

To embark on an orderly path to net zero, India needs imagination, realism, determination — and a sense of urgency. We must take steps this decade to set things up, to establish momentum, and to build India right for generations to come.

Gupta is a senior partner, and Unni is a partner, at McKinsey & Company in India. They are co-authors of Decarbonising India: Charting a pathway to sustainable growth