Phasing down, not phasing out: Why is India locked into coal?

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As COP26 wrapped up, the hope was that a definitive statement would be made that would consign coal-fired power to the history books. However, objections by India and China led to a watering down of this key commitment. Instead of phasing out coal, it was to be phased down.

To understand the rationale behind this decision, we must understand the position India is in. As a developing country with a growing population of 1.38 billion, India's energy demand is on an upward trajectory.

According to the International Energy Agency (IEA), it will make up the biggest share of energy demand growth, at 25%, over the next two decades, overtaking the EU as the world’s third largest energy consumer.

Much of this energy is provided through coal power plants. Of the country's total power generation during 2020-21, including renewable energy sources, coal-based generation accounted for around 69%. Coal contributes decisively to India's energy security due to its abundance, especially compared to oil and gas production, which is below average.

Indian officials have argued that completely phasing out coal in the timeframe of Western nations is impossible while it is still critical to the energy needs of much of its populace. Therefore, India is likely to rely on coal well into the 2040s while it attempts to upscale its renewable infrastructure.

This has led critics to question whether the country will ever successfully pivot away from coal. Only China outpaces India's use of coal, and despite the global push to divest from the energy source, Indian coal production is set to rise from 753.94 million tonnes in 2019 to 1,078.63 million tonnes in 2025 in order to secure the country's energy requirements.

India's production of coal is very much a state enterprise. The largest coal producer in the country, Coal India Limited (CIL), is owned by the Ministry of Coal and currently contributes 82% of total coal production in India.

The current Indian Government has prioritised a domestic energy supply line, aiming to secure all of India's energy demand through domestic sources. Currently, 80% of India's energy supply and over 90% of coal supply is produced domestically.

Achieving such high domestic energy production is easier for a country such as Canada, which has proven oil and gas reserves. India, on the other hand, is plentiful in coal, but its reserves of gas and oil are not plentiful enough to support the country's huge population and come from ageing wells that have become less productive over time.

As a result, India has become incredibly reliant on coal and the CIL for its energy needs. Coal consumption has been growing at about 4.8% per year, and this rate is expected to increase in the future. Additionally, coal-fired plants worth $60bn are under construction. By 2040, despite projections for huge increases in renewables, coal will still be a big part of India's energy mix.

The reliance on domestic coal has led to a dilemma within India. The state of Jharia is a microcosm of this. The state holds the largest known coal reserves in India. The coal sector directly employs 300,000 people, and indirectly over a million, in coal supply chains and service sectors in Jharkhand; several million more work as illegal miners, constituting nearly 10% of employment in the state.

According to a recent study authored by Sandeep Pai, a senior researcher at the Centre for Strategic and International Studies in Washington, DC, without intervention, the decline of Jharkhand's coal industry could result in a loss of local jobs, falling local and state government revenues, and a decrease in corporate social responsibility funds from the industry.

"There is also fear that unplanned closure would turn coal-dependent districts into ghost towns, with severe consequences for people and communities," warns Pai's study.

Subsequently, Indian officials have argued that it is unjustified for Western nations, who have disproportionately contributed to climate change, to insist that developing nations stop using coal, given the central role that coal mining plays in regions such as Jharia.

Since the Earth Summit in 1992, India and other developing nations have argued for an equity-based approach to greenhouse gas reduction, commensurate with domestic capabilities and historical emissions.

India's power minister, RK Singh, has criticised developed nations' distant net-zero targets, arguing they need to quickly bring emissions below the global average and go "net negative", absorbing more carbon than they emit. This would allow India and other developing nations leeway to continue industrialising, providing greater energy access to their populations.

IEA chief Fatih Birol has supported this view, arguing that it is unfair to ask developing nations like India to stop using coal without giving international financial assistance to address the economic challenges that will result from such a move.

At COP26, a number of agreements were signed to support developing nations in this respect. Alongside Britain and the EU, the US announced a multi-billion-dollar partnership to help South Africa finance a quicker transition from coal. Additionally, 40 countries – including top emitters such as Canada, Poland, Ukraine, and Vietnam – committed to phasing out coal-fired power plants by 2040 at the latest.

Agreements such as these will be instrumental in the phasing down and eventual phasing out of coal. However, without the right policy inducements from the central government, renewable energy's upscaling to replace the energy produced by coal will be hampered. Currently, India's subsidies to oil, gas, and coal are seven times more than the value of subsidies to renewables and electric vehicles.

Unless India fully commits to an exit strategy, its lofty claims of 50% renewables by 2030 will not come to fruition, putting the goal of net zero by 2070 under threat.

Therefore, according to the Energy and Resources Institute, India must progressively reduce coal's share in its energy mix towards removing it altogether by 2050.

In turn, the share of renewables in the power mix needs to climb to 90%, a more than eight-fold increase from now. Currently, renewable energy production languishes at less than 10%.

However, Amitabh Kant, chief executive officer at NITI Aayog, a public policy think tank of the Government of India, has argued: "With the geographic advantage and the availability of vast potential of renewable energy, India can definitely aspire to become a net-zero emission country, and we will drive all administrative actions as well as investments towards that target."

India can phase out coal, but it is still uncertain whether the political will exists to achieve this goal before 2070.