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India's CO2 emissions

This version: September 2017. Updated: mid-October 2017. (Previous version: August 2017)

India's CO2 emissions have risen by about 1.8% in the first 8 months of 2017 compared to the same period last year.

Preliminary analysis indicates that growth of CO2 emissions in India, the world's third-largest emitter, could be considerably slower in 2017.

Monthly data on consumption of coal, oil products, and natural gas, along with production of cement, indicate much slower growth over the first two-thirds of 2017 compared with the same period in the previous year.

However, indications are that underlying drivers will pick up in the remainder of the year, lifting emissions growth. Moreover, there is no indication that this year's potential slowdown is anything more than a temporary consequence of fluid conditions in India. Significant disruptions in economic activity caused first by the demonetisation shock in November 2016 and then the introduction of a national VAT in July 2017 have left their mark on 2017's emissions. But the growth rate is not dissimilar to those in 2015 or 2013.

In early September the April-June GDP growth figures were released for India showing a rate that surprised most observers: 5.7% over the same period last year. The GDP growth rate has now declined for 6 quarters in a row, and this could continue for some time.

The biggest change since our August update is a return to higher consumption of coal.

Figure 1: Indian emissions of CO2. Historical emissions are derived from IEA and BP data supplemented with our own estimates of cement emissions.

Figure 2: Indian emissions of CO2 by category. Historical emissions are derived from IEA and BP data supplemented with our own estimates of cement emissions.

[All growth rates reported in this article have been adjusted to reflect the leap year in 2016. All years are calendar years.]

Coal

We estimate that coal consumption has risen by 2.5% to August, compared with the same period in 2016. This is a considerable decline in the growth of coal consumption compared to the longer trend (7.5% pa over 2005-16). However, Coal India's despatches in the month of August showed a significant uptick, being 19% higher than the in same month last year.

The main reason for increased coal consumption in August appears to be a lower than normal production of hydropower: August's generation from large hydro stations was down 14% compared to the average for August in 2013-16.

While domestic coal sales are up, and power stations continue to draw down stocks, imports are down. Sales of domestic coal have increased by almost 7% to August, while sales of lignite have increased by over 13%. Imports have dropped dramatically by over 16% to July, while power station stocks have been drawn down 9.3 Mt to August compared to 2.6 Mt in the same period last year.

Stocks at grid-connected, coal-fired power stations are now at levels not seen since 2014 when capacity was over 20% lower. Coal stocks at some power stations are at critically low levels. Coal India has set up a 24-hour monitoring room with the intention of reducing the possibility of power stations running out of coal.

Coal India continues to face problems scaling up production, last month announcing that 62 of its current 120 development projects were delayed because of difficulties associated with "forest clearing, land acquisition, and rehabilitation and resettlement."

Figure 3: Indian coal statistics. Coal production is the national total, of which Coal India Limited (CIL) and Singareni Collieries Company Limited (SSCL) form about 90%. Despatches (deliveries) are more important for estimating consumption. Stocks on this chart are at power stations only.

Coal production typically ramps up significantly in March in preparation for the monsoon season, when production is curtailed by flooding. But despatches (deliveries, also known as offtakes) from coal mines follow a slightly smoother pattern through the year.

Data on total national sales from mines are unavailable, so we use the very strong relationship (R2=0.99) between the combined production of state-owned Coal India Limited (CIL) and Singareni Collieries Company Limited (SSCL) – together about 90% of all Indian coal production – and national production, along with an assumption that the delivery patterns of these two companies reflect national deliveries.

While coal production continues to increase (with increased targets despite lagging demand), the Central Electricity Authority (CEA) has said that, once the current tranche of construction is complete, no more coal-based power generation capacity will be required before 2027.

This does not mean that India's coal emissions have plateaued. Capacity utilisation at India's power stations remains stubbornly low (Figure 4), and there is plenty of scope for load factors to increase, with consequent growth in emissions, before new power stations are required. Demand has experienced various hiccouphs, including as a result of demonetisation, but another key reason that utilisation is low is that the majority of regional distribution companies (known as discoms) are in severe financial distress and cannot pay for the electricity to supply their customers. In May the tariff charged by state discoms was on average 0.82 rupees below what they pay for the power, leading to huge indebtedness: over 4 trillion rupees. With power stations not being paid, they are also in debt to Coal India to the tune of 80 billion rupees (as of May this year). The government has introduced a bailout package for discoms called Ujwal Discom Assurance Yojana (UDAY), which is already showing signs of success, but the process will probably take several years.

Meanwhile, the introduction of the Goods and Services Tax (GST, a value-added tax) has reduced the taxation on coal from about 12% to 5%, and this is expected to lead to increased demand.

Figure 4: Capacity utilisation of Indian coal and lignite power stations (grid-connected only). Data are from the Central Electricity Authority.

Oil products

We estimate CO2 emissions from energy-use of petroleum products in India increased by only 1.0% to July, compared to the same period in 2016. This compares with year-on-year growth of 8.3% from 2015 to 2016, but is similar to the low growth of 2012-13.

Figure 5: CO2 emissions from Indian petroleum consumption. Consumption data from the Petroleum Planning and Analysis Cell (PPAC) of the Ministry of Petroleum & Natural Gas are supplemented with data from the IEA on non-energy use and refinery emissions. Consumption in energy terms are converted to emissions using default IPCC emission factors.

While the effects of the 2016 demonetisation linger, they are most likely temporary. Other initiatives are likely to have more permanent effects. One of these is the removal of subsidies for oil products.

The Indian government has taken advantage of low international oil prices to reduce and remove subsidies on some oil products, when the effect would be less noticeable. It has also moved from fortnightly price changes to daily changes, such that each individual change is much smaller. Prices of first diesel and LPG and now kerosene have been steadily rising toward market rates. Consumption of kerosene, commonly used in rural areas for both lighting and cooking, has dropped dramatically, over 30% lower in February 2017 year on year. The government's programme to electrify villages and its distribution so far of 260 million LED light bulbs will go some way to reducing demand for kerosene, although subsidies will remain in place for the poorest households.

However, kerosene is only a small component of petroleum consumption in India, with diesel dominating. The introduction of GST in July this year is expected to greatly ease inter-state trade and transport logistics. Not only has the complexity of taxes been reduced, the overall level of tax on transportation has dropped dramatically, and freight costs are down by as much as 50% immediately following the introduction of GST. Such a significant drop in freight costs, and improvements in logistics, is likely to lead in a steep increase in the amount of road transportation and therefore emissions. In the short term, however, fully one quarter of India's trucks were idle at the end of July as their operators struggled to adjust to the new taxation scheme.

Natural Gas

We estimate that emissions from natural gas grew by 5.9% to July compared to the same period last year. However, natural gas consumption forms only a small fraction of India's CO2 emissions. Gas production remains low, and while India is already the world's fourth-largest importer of LNG, this is still at very low levels compared to overall energy consumption in the country. India does plan to increase import capacity significantly in the next few years, with one new LNG terminal already contracted and three more in the works, but there are no indications that gas consumption will rise significantly before the end of 2017.

India plans to significantly increase the share of natural gas in the energy supply, to 20% by 2025 compared with 14% in 2010, largely replacing oil. However, significant barriers are likely to hinder this goal.

Figure 6: Indian supply of natural gas. Production and import data come from the Petroleum Planning and Analysis Cell (PPAC) of the Ministry of Petroleum & Natural Gas. There is a data gap in imports in 2013. Net production excludes losses from flaring and in distribution.

Cement

Production of cement has declined by 7.0% to July compared with the same period in 2016. Much of this decline has been laid at the door of demonetisation, and levels have already begun to recover, after February's production was down almost 16% year on year. The introduction of GST in July has reduced the tax on cement from 30-31% to 28%, leading already to sales price reductions of about 3%; however, the lack of clarity about the new tax rates has contributed to lower sales. The government's massive infrastructure investment programme is expected to lead to higher cement production in coming months.

Figure 7: Indian production of cement. Data come from the Office of the Economic Advisor (OEA).

Renewables

Renewable energy generation in India has been growing sharply in recent years, with significant investment in both wind and solar generation. Reverse auctions for large solar installations have drawn particular attention for the rapidly declining prices per generated unit of electricity. But wind power capacity has also been expanding very rapidly.

These developments have had significant consequences for the future of coal in India, with already 14GW of new coal capacity cancelled in May this year. However, some of the 'credit' for those cancellations can be given to much slower growth in electricity demand than forecast.

The introduction of GST in July has also affected the solar industry, with uncertainty over the new taxes stalling new tenders. The rapid price declines are also having the perverse effect of causing some states to postpone new auctions in the hope that prices will continue to fall. Two further problems add to this difficult situation. The first is that developers submitted their tenders partly based on the expectation that prices for solar panels would continue to drop. But with increased Chinese demand, and a drop in the production of polysilicon, solar module prices have recently risen. The second is that Indian states are demanding to renegotiate contracts with developers to get even lower tariffs. This is consistent with India's 172nd ranking in the World Bank's 'Enforcing Contracts' measure in 2016 (China was 5th), and is a strong discouragement to investment.

Electricity generation from small renewables reached a record 13 TWh in July, helped by a surge in wind generation. For context, grid-connected electricity generation from coal, lignite, nuclear, and large hydro amount to about 100 TWh/month.

Figure 8: Indian generation of electricity from small renewables (excludes large hydro). Data are from the Central Electricity Authority (CEA).

Summary

India's CO2 emissions growth has almost certainly slowed down in 2017. However, the economy is in a state of significant flux, with dramatic changes driven by government policy. India's emissions are still on an upward trend, but the rate of growth is far from stable, akin to an engine that misfires frequently but still delivers sufficient power to drive the vehicle forwards.

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