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Increasing the uptake of CCUS to reach India’s net zero target

The recent advent of net zero targets has driven attention towards several forms of near term and long term carbon removal technologies. Nature-based solutions such as afforestation or reforestation, enhanced land management processes, and increasing carbon content in soil through modern farming methods are gaining importance. In addition to this, the latest catch phrase is Carbon Capture Utilisation Storage (CCUS). World Resources Institute, explains the technology to “scrub” carbon dioxide (CO2) from the emission stream, transport it permanently and safely stores it underground, reducing emissions going to the atmosphere from energy-intensive industries.

In addition to the developing solar and hydro for energy generation, CCUS could play an important role to support the country’s transition to net zero. In fact, according to CEEW’s report, India could reasonably consider the transition to Net Zero by 2050, if it considers CCUS as a part of the energy mix. However, the questions regarding the feasibility and costs remain, and as highlighted by Prof Nirvikar Singh, scaling up CCUS in India would require coming up with an entirely new ecosystem – one that focuses on testing and refining of new technologies.

The silver lining is that over the years, there has been a rising momentum in the uptake of this technology in India. Most notably, government owned corporations such as National Aluminium Company (NALCO) has commissioned a pilot-cum-demonstration CO2 sequestration plant. In 2018, Oil and Natural Gas Corporation (ONGC) signed a memorandum of understanding (MOU) with ILFS Energy and Tamil Nadu Power Company (ITPCL) to inject CO2 captured at the ITPCL plant into oil fields of ONGC Cauvery Asset. According to the Ministry of Environment, Forest and Climate Change (MoEFCC), leading companies iron, steel, and cement industries are also keen to follow the path to explore CCUS technologies to stay carbon-neutral.

To scale up CCUS in India, especially in the context of the 2070 net-zero target announced at COP 26, following are some of the recommendations:

  • Introduce market-based mitigation instruments that attract private players: Despite decades of research, the cost of CCUS continues to remain high. A good example is United States’ Section 45Q tax credit for carbon capture and sequestration. It offers a varying tax credit from $12 to $50 for each metric ton of captured and sequestered
  • Develop comprehensive guidelines which include a taxonomy on sustainable finance in India: This will bring clarity on what qualifies as “green” and it would enable asset tagging, resulting in taking targets to bring in a larger mix of green finance in portfolios
  • Specific financial commitments from developed economies to increase the uptake of this technology in India: Initiatives such as the roadmap 2030 for India-UK future relations begin to gain significance as it aims to strengthen collaboration and reduce the cost of development and deployment of clean energy projects through technologies such as CCUS. International collaboration is of utmost importance as the access to intellectual property is essential
  • Establish a new CCUS sector: Provide support to the high initial capital costs of the projects. The focus needs to be on building sufficient capacity for the projected user base and developing the transport and supply networks of the sector
  • Acknowledge CCUS as an ESG compliant technology: This would be useful to leverage the growing trend of ESG funds and green bonds in India. This would help attract grants, loans, other types of debt and equity to finance the technology
  • Leverage alternative instruments such as transition bonds for increased uptake: These are a relatively new class of debt instruments that are used to fund a company’s transition towards reduced environmental impact or lower carbon emissions. The Indian Government needs to provide a direction by introducing preferential policies and measures to support the acceleration of transition bond markets. This could be done by giving exemptions for income tax from investments in these bonds. It could also consider making interest on transition bonds tax-free for institutional investors

While CCUS has been prevalent in several developed economies, the technology is still in its nascent stage in India. Therefore, scaling it up would require a holistic approach of policy interventions and financial incentives to achieve the economic objectives along with the decarbonisation goals.