CFI Newsletter #15: The Coal Crisis

+ carbon neutral travel destinations; EVs funding boom; the beef with beef; financing nature conservation

The Climate Finance Initiative Newsletter offers quick digests and insights around what is happening in climate finance. While the Climate Finance Initiative’s current focus of work is India-centric, we will capture a global perspective of climate finance in this newsletter on a fortnightly basis.


As borders slowly open up, we, at CFI HQ, have let our minds wander to potential travel destinations. Machu Picchu has been high on our bucket list, and it has become a bit more prominent after being certified as the first carbon neutral international tourist destination in the world by the Green Initiative. But is it?

Read past the headlines, and you will see that the Peruvian citadel has been awarded this based on commitments to achieve carbon reduction targets in the future: 45% of CO2 emissions by 2030 and carbon neutrality by 2050. It seems the award should be tweaked to the not as catchy: “Machu Picchu is the first international tourist designation in the world to have a carbon neutral plan.”

Machu Picchu does have a track record of being a sustainably-inclined location, but things like this do make us skeptical about the trappings of such certifications. There’s also the likely unaccounted for llama-in-the-room: the Scope 3 GHG emissions of visitors' air travel (1.5 million annually in the good ‘ol days pre-2020) to get to Machu Picchu which is likely to dwarf any amount of CO2 emissions generated from activities at the site.

But the award does give us the excuse to put up a stunning photo of this Incan monument at the top of this edition of the CFI newsletter, and kickstart travel plans for the near-distant future (and a mental reminder to research offset programs for carbon-neutral travels).


Climate Finance by the Numbers

US$ 232 million

The amount of funding raised by 3 electric vehicle companies in India in September

85% of that sum might have been from Ola Electric, but the funding raised by 3 companies operating in 3 different parts of the EV ecosystem is a mark of the wider sector’s bullish growth potential.

Ola Electric’s US$ 200 million raise is targeted at expanding its product lines beyond its recently launched S1 and S1 Pro electric scooters, that have said to have clocked up US$ 147 million in sales over 2 days. Blusmart, an electric vehicle fleet only ride hailing company, raised US$ 25 million in a Series A round to expand their operations to other cities. Zypp raised US$ 7 million for expanding its EV scooter delivery fleet that is leased to companies and other startups for last-mile deliveries.

There is a couple of things in particular that caught our eye about these rounds:

  1. They are all focused on scaling and increasing the supply of EVs in their respective approaches, which indicates bullishness about imminent growing demand

  2. The 3 companies operate in 3 distinctly delineated areas of the EV ecosystem with little overlap, a sign that EVs are finding a footing and growing in wider ways.

August 2021 was the month with the highest ever sales ever of EVs in India, but we should be cautious that it is still early days - the 28,919 EVs sold (mainly two and three wheelers) are only about 2% of the total number of vehicles sold.

There are still quite fundamental gaps that need addressing for EVs to become more mainstream: uniformity of the messy world of charger systems, power distribution system having the ability to manage energy demand, short battery and EV lifespans, and of course affordability as compared to internal combustion engine vehicles.

Still the future is looking promising. Tackling the gaps in EVs may be more a matter of when, and not if.

US$ 5 billion

The amount pledged by 9 philanthropic organizations to protect and conserve 30% of the planet by 2030

This also happens to be the largest philanthropic commitment to nature conservation ever undertaken.

Announced as part of the High Ambition Coalition for Nature and People’s 30x30 target, it is aimed at propelling momentum for concrete action at the crucial 2021 United Nations Climate Change Conference - COP-26 - in Glasgow in November and its lesser-known cousin the Conference of Parties on Biodiversity; the 15th edition of which is taking place in Kunming, China.

It is quite the momentum starter, with a raft of announcements from countries and international government organizations amounting to almost 20 billion Euros falling in suit, even if there is the common refrain that finance commitments are still falling short of what is needed (the Campaign for Nature estimates that up to US$ 80 billion per year is needed to safeguard nature globally.)

But it is a statement, and it is hopeful to note that the US$5 billion can trace its roots to an initial US$ 1 billion pledge by an individual philanthropist, Hansjorg Wyss, 3 years ago, that is claimed to have inspired the others to follow suit.

As a climate finance newsletter, we do have to give some focus to the philanthropic funding angle here. There is a reason why it dominates the conservation space - return potential and business models are not high on the agenda in the work undertaken, and for good reason. It also often comes with it the question on whether initiatives are sustained. Which is where the indigenous stewardship and local communities angle comes in.

There is certainly a gap in translating intent to effective action, but a combination of past mistakes, urgency to act, and increasingly greater resources being pledged, may yet turn up that winning combination we are waiting for.

9%

The contribution of beef to global GHG emissions

It is not necessarily new news that beef and cows are a significant contributor to GHG emissions. Its staggering 9% contribution comes from methane produced from cows, emissions due to land-use change when forestland is cleared for grazing or growing feed for cows, and the many activities that bring beef from farm to table. (We covered a bit about tackling methane for climate action in our last newsletter.)

What caught our interest however was a call from The Economist’s for beef to be treated the same way as coal in tackling greenhouse gas emissions: reducing / eliminating / moving away to other sources.

There is a big difference between an energy source in its raw form that is invisible to most people and a juicy food item that one poll in 2014 found was Americans’ favourite. Coal cannot claim to create the same joy or pleasure to an individual the way food can.

But take the GHG emission perspective, and it is an interesting parallel.

Coal emits 24 more times CO2 per unit of energy output than hydropower does. Beef emits 31 more times CO2 per calorie than tofu does.

Reducing beef can be a compelling answer to the common introspection people have on: how can I reduce my individual carbon emissions?

But it is tricky. Avoiding beef might be one of the most efficient ways to reduce one’s carbon footprint, but it barely registers to the larger population as a significant contributor - being rated as less significant than activities such as producing non-recyclable products, which are often less-emission intensive. (This does also throw a light on how technology solutions are lot easier for people to adopt as it does not tend to involve changing habits and ways of living.)

Banning beef as well can be problematic given the role beef plays as an important part of the diet and culture of communities around the world. Avoiding beef is not a feasible option.

A more credible approach could be to reduce the emission impact of beef. The MooLoo we covered in the last newsletter may be a quite out there approach, but credible serious options are in place. The Dutch health and nutrition giant DSM’s feed additive Bovaer has been found to reduce methane emissions by 55%, and has received approval for use in the world’s largest beef supplier, Brazil. There is also the growing insect feed as a replacement of soy and corn for cattle feed industry which can cut emissions related to land-use change.


THE BIG READ

The Coal Crisis

Different parts of the world have been facing energy crises. We take a look at the extended blackouts and shutdowns faced in India this past week, and why addressing means rethinking our entire grid system


For a group of people valiantly advocating a move away from fossil fuels to renewable energy, we surely spent a lot of time this week looking at newspaper headlines about coal shortages in power plants around the country. Simmi just came back from a trip to Punjab where 4-hour power cuts seem to be norm. Shravan seems slightly better placed in Chennai but that might be thanks to the lead acid batteries that provide backup power to most residences in India.

The energy crisis has been grabbing global headline for several weeks now, with news of skyrocketing prices and energy rationing coming from Europe as well as China. In Europe, the high energy prices seem to be a transitionary phase as grids move away from fossil fuels to a majorly renewable powered energy. That, unfortunately, is not the case for India where coal continues to be the dominant power source.

Why then, do we have a sudden shortage of this critical raw material that drives India’s power plants. We dive into the maze that is the Indian power sector to demystify the coal supplies: both the short term impact of shortages and what we could do to build a more sustainable grid in the long term.

Why Do We Have A Coal Shortage

Coal based power accounts for almost 70% electricity generation in India. That’s a lot of coal that our power plants need on a daily basis. India uses a mix of local and imported coal. Supply side challenges in both, combined with an increased demand has led to the present shortage.

  1. Industrial Demand had surged more than local coal production:

    India’s manufacturing sector is starting to see a post-Covid recovery. As a result, power demand is up 17% compared to a year ago. India’s domestic coal producers have tried to keep pace; Coal India accounts for more than 80% of domestic coal supply and shipped 20% higher coal in July-August compared to previous years. However, unseasonal rains (another side effect of climate change) have led to lower production in September and October.

  2. Imported coal is unviable:

    Global coal prices have risen significantly, currently at over $200 a tonne, a 4X increase from a year ago. Add this to the record high cost of shipping, and imported coal simply becomes unviable for most power plants. At current prices, it would make sense for power plants to shut down rather than import coal and add to their losses.

  3. State DISCOMs have their own agendas:

    We do not have enough space in this newsletter to explain the complexities of how power sector is structured in India, but we want to mention two points that have added to the coal crisis.

    • Several state distribution companies (DISCOMs) are already in fragile financial health and ill-placed to pay for expensive coal.

    • When electricity shortages occur in one state, they are often able to make up for it by buying energy in the spot market.

    But because of high demand, spot prices are at INR 16 a unit. Even if state DISCOMs could afford to buy power at this price, they will incur a loss for every unit sold. Blackouts seem like a better option when you are running a DISCOM and facing these impossible choices.

Could This Happen Again

In the short term, the government has responded to the coal shortage by pushing Coal India, an entity it controls, to produce more, and pushing Indian Railways, another entity it controls, to ship more coal where it is needed.

However, like a lot of climate change derived events - typhoons, extreme heat waves, wildfires - this may just be the first of many coal crises in India. Governments around the world are shunning coal in favour of cleaner fuel sources. Financiers and insurance companies globally are now committed to not funding and insuring coal projects.

This means that even if India remains committed to running coal powered plants, the global supply of this raw material is diminishing. Keeping coal powered plants operational may soon no longer remain an option if you cannot find anyone to insure or finance it. The only way out of future crises is to reduce dependence on coal as a source of power.

Building A Sustainable Grid for India

If India was to achieve its stated policy goals, solar power generation will increase to converge with coal based generation by 2040.

However, this requires a complete rethink of how our power generation and distribution companies are structured. What we saw during this month’s coal crisis was state DISCOMs prioritising local politics and profits over national goals and consumer needs.

The same story has played out in solar so far. Starting strong as a national goal, the sector is getting increasingly mired in policies being built to protect legacy DISCOMs reluctant to shut their ageing coal based plants and those devising rules to prevent their lucrative industrial customers switching to renewable power.

The Other Side of Coal

We often think of energy only in terms of electricity or the petrol that powers our cars. However, it is worth mentioning that non-electricity consumers account for a quarter of coal consumption in India. This is coal used for industrial processes: coal goes into boilers that generate steam for aluminium, cement and steel manufacturing.

There are sustainable options here too: we would like to give a special shout out to our friends at PRESPL who are creating an ecosystem for industrial boilers to run on bioenergy. Not only is this a more sustainable option, biomass based steam generation comes with the added advantage of dealing with agricultural waste in India.

The Future Is Without Coal

Whether for electricity generation or industrial use, coal is currently the dominant energy source for India. The present crisis has led the government to focus on increasing coal production. It will be unfortunate if this leads to more coal auctions and newer coal mines. There is no scenario for India to get to net zero emissions that includes adding new coal capacities.

For the long term growth of our country and to ensure its rightful contribution to reducing global emissions, the only path is a complete move away from coal to renewables. This means an electricity sector that is structured to prioritise emission reduction through shutting down coal and focusing on renewable power. Cohesion in national and state level policy is our only option.


Engaging with CFI

As always, if you are keen to engage or talk to us on our work plans or if you have something of your own to collaborate on, reach out to us below!

Work with CFI!


That’s it for Edition #15 of our newsletter.

As always, send all feedback, compliments and brickbats our way. And of course, we do appreciate you spreading the word about this newsletter.

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Best,

Simmi Sareen and Shravan Shankar