India's new clean-energy goals face funding, political hurdles

Then chief minister of the western Indian state of Gujarat Narendra Modi gesturing as he poses in this file photograph taken on Oct 14, 2011, at the inauguration of a solar farm in the village of Gunthawada, Banaskantha district. --  PHOTO:
Then chief minister of the western Indian state of Gujarat Narendra Modi gesturing as he poses in this file photograph taken on Oct 14, 2011, at the inauguration of a solar farm in the village of Gunthawada, Banaskantha district. --  PHOTO: AFP

NEW DELHI (BLOOMBERG) - India's Prime Minister Narendra Modi says the world's third-biggest polluter is ready to take on global warming. Money and politics stand in his way.

Following meetings with US President Barack Obama in New Delhi, Mr Modi said India, a nation with some of the dirtiest air in the world and 400 million people without access to electricity, is prepared to use renewable power to reduce greenhouse gas pollution. The leaders also announced a breakthrough that may herald an expansion of carbon-free civilian nuclear projects.

While the remarks represent a shift in India's tone on global warming, stumbling blocks remain. Indian legislation allows nuclear suppliers to be sued over accidents, a legacy of the 1984 chemical leak in Bhopal in which more than 10,000 people were killed or injured. Mr Modi's commitment to renewable power means India must build five times the current total installed solar capacity in the United States, or about 12 gigawatts a year until 2022.

"It was significant that the Prime Minister said that we don't feel external pressure on climate change but we feel pressure from inside that climate change is a significant issue for India," said Mr Navroz Dubash, a senior fellow at the New Delhi-based Centre for Policy Research. "That is important because on the back of that we have to build some serious domestic measures."

In the past, India has stressed the historical responsibility of industrial nations for worsening climate change, and the government has been ambiguous about whether it will adopt domestic targets for reducing greenhouse gases. Mr Modi's comments suggest he's ready to work with Mr Obama on a deal in Paris in December that would for the first time require all nations, rich and poor alike, to restrain emissions.

"When we think about the future generations and what kind of a world we are going to give them, then there is pressure," Mr Modi said in a news conference with Mr Obama on Sunday. "Global warming is a huge pressure."

India is the world's third-biggest polluting nation behind China and the US, making Mr Modi's participation in the United Nations climate deal crucial. In November, Mr Obama reached a landmark agreement with President Xi Jinping designed to bring China into a system limiting emissions.

Previous climate accords, including the 1997 Kyoto protocol, required cuts only from developed nations. Since then, China surpassed the US as the world's biggest polluter, and India's emissions increased rapidly.

"The President has an open line with President Xi on climate and now also with Prime Minister Modi," Mr John Podesta, an adviser to Mr Obama, told reporters in New Delhi. "It's very important to elevate that to the political level so that barriers can be opened up."

Mr Obama said he and Mr Modi agreed to keep working on a phase- out of hydrofluorocarbons, a class of refrigerants that have been discovered to be potent greenhouse-gas chemicals in the atmosphere. More importantly, he said the two established a channel for them to talk about climate before the Paris summit and that the US will provide financial support for India's solar programme.

Mr Modi's commitment to renewable power means 600 solar farms with 20 megawatts of capacity for each of the next eight years.

"Whether Modi can achieve the target hinges on funding," Mr Izumi Kaizuka, manager of the research division for RTS Corporation, a Tokyo-based consulting firm for the solar energy industry, said by telephone Monday. "The pace of solar expansion has tended to be delayed even under the previous goal which was much lower."

It's a US$160 billion (S$215 billion) funding hurdle, according to Mr Arunabha Ghosh, chief executive officer at the New Delhi-based Council on Energy, Environment & Water. Others agree.

"India has a big financing problem because its local interest rates are very expensive," Mr Xie Jian, president of Chinese solar panel supplier JA Solar Holdings, said in a telephone interview. At the same time "overseas financiers find themselves under huge pressure because India's foreign exchanges rates fluctuate widely".

Coal use presents another challenge. The International Energy Agency has said India will overtake the US by 2020 as the world's second-largest coal consumer, making it more difficult to wean India off of the fuel used for almost 60 percent of the country's electricity. The agreement on civilian nuclear reactors announced Sunday may help.

India is one of the few nations that do not exempt nuclear suppliers from accident liability. Though Mr Obama said the two countries had taken an "important step", neither leader provided details on how an earlier 2005 US decision to provide India nuclear fuel and reactor components would finally be implemented.

"We think we came to an understanding of the liability" issue, US Ambassador Richard Verma said. The deal "now opens the door for US and other companies to come forward and help India develop its nuclear, non-carbon-based energy production".

Accident Liability India plans a US$182 billion expansion of its nuclear industry to produce electricity for the almost one-quarter of the country's 1.2 billion people who routinely go without it. Modi's administration on Sunday said it will set up a 7.5 billion rupee (S$ 164 million) insurance pool to shield nuclear plant operators and suppliers from liability. The government would add to the pool at a later date "on a tapering basis," according to the foreign ministry.

US companies, such as General Electric and Westinghouse Electric, that have stayed away from India must decide whether the arrangement is adequate, Mr Verma said. Westinghouse, the nuclear builder owned by Toshiba Corp, must study the offer, said chief executive efficer Danny Roderick.

"We need to understand what I'll call the fine print of the insurance," Mr Roderick, said in a phone interview from New Delhi. "Let's look at the total package of all the things that the Indian government is talking about now on how they're going to address nuclear liability."

It remains unclear what would happen if unlimited claims come in the wake of a disaster, according to Mr Debasish Mishra, a Mumbai-based partner at Deloitte Touche Tohmatsu.

''This is a government-to-government agreement and ultimately the final deals will be signed between companies," he said. "There's a feeling that not everything has been resolved."

As part of the deal, the US dropped its earlier insistence that it be able to track the nuclear material provided to India, a requirement that went beyond standard International Atomic Energy Agency safeguards, according to Indian press reports.