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Sector in Focus



                                  inflation print within target   hikes done so far work
         GLOBAL BORROWING         are likely to keep borrowing   through the system.                                           Empowering
         COSTS COULD STAY         costs higher for longer than                            Outlook and
         HIGHER FOR LONGER        expected.                   Further, the People’s Bank of
                                                              China, too, maintained its   Prospects
        With the easing of        Most central banks including   lending rates steady in its
        inflationary pressures, central   the US Fed, Bank of England   latest meeting in February at   for 2024               India's Green
        banks across the globe have   and the European Central   a record low of 3.45 per cent,
        somewhat scaled down the   Bank have kept their interest   as the central bank continued   The global economy’s
        pace of monetary tightening.   rates on pause in recent   its attempt to revive the   future health in 2024 rests
        However, continued interest   meetings to let the impact of   economy.            critically on the successful
        rate hikes to bring the
                                                                                          calibration of monetary              Hydrogen
                                                                                          policies across countries,
                                                                                          geopolitical stability as well
                                Policy Rates of Major Global Central Banks (%)            as effective global
                  6.0                                                     4.0
                                5.50                                                      cooperation.
                  5.0                                5.25                                                                      Revolution
                                          4.25                                            Experts believe, with signs
                  4.0
                                                                                          of easing of inflationary
                  3.0                                                                     pressure, it would be                                                                       Green Hydrogen             sunshine days, wind energy,
                                                                          3.5                                                                                                                                    vast wasteland, long coastlines,
                  2.0                                                                     ‘premature’ to pivot                 Challenges, Potential, and
                                                                      3.45                                                                                                                                       and a skilled workforce, India
                  1.0                                                                     towards cutting of interest                                                                 Growth Potential           has the potential to produce
                                                                                          rates. The Fed has also
                  0.0                                          -0.10                      indicated a gradual                  Key Strategies for                                                                green hydrogen and its
                 -1.0                                                     3.0             reduction in policy rates                                                                                              derivatives at scale to cater to
                                                                                                                                                                                                                 both domestic and interna-
                       Q4 2022  Q1 2023  Q2 2023  Q3 2023  Q4 2023  Q4 2022  Q1 2023  Q2 2023  Q3 2023  Q4 2023  Q4 2022  Q1 2023  Q2 2023  Q3 2023  Q4 2023  Q4 2022  Q1 2023  Q2 2023  Q3 2023  Q4 2023  Q4 2022  Q1 2023  Q2 2023  Q3 2023  Q4 2023  by end of 2024. This would   a Sustainable Future  HYDROGEN AND   tional demand. However,
                                                                                                                                                                                       AMMONIA ARE
                                                                                          impact the slowing down
                                                                                          of overall growth of the                                                                     ENVISAGED TO BE           realizing this potential
                          US      Eurozone    UK        Japan    China (rhs)                                                                                                                                     necessitates coordinated
                                                                                          major economies.                                                                             THE FUTURE FUELS
                                          Source: National Sources                                                                                                                                               efforts from various stakehold-
                                                                                                                                                                                       TO REPLACE FOSSIL         ers, including governments,
                                                                                          Geopolitical scenario is                                                                     FUELS                     industries especially in the
                                                                                          another big risk on the                                                                                                hard-to-abate sectors, and
         GLOBAL TRADE LIKELY      are a lot of downside risks to   quarterly data, exports have   horizon. The ongoing             s the entire world     complete decarbonisation is                            financial institutions, among
         TO REMAIN WEAK IN        the forecast for the current   started to lose momentum as   tensions such as the            A   grapples with a severe   only possible through     According to Strategy &    others.
         2024 AS WELL             year. Weaker global economic   the global economy has   lingering war in Ukraine,            climate crisis, natural disasters   technologies like green   Research, global green
                                  growth, worsening geopolitical   sustained multiple shocks   security situation in Middle                                                           hydrogen demand is expected
                                  tensions, new disruptions in   such as ripple effects from the                               wreak havoc on millions of   hydrogen and its derivatives.   to exceed 530 million tons by  Government
        Trade continues to be a key   the Red Sea on the Suez and   war and the related food &   East, disruptions to          lives and livelihoods annually   These technologies offer
        driver for building resilience in   Panama Canal are likely to   energy crisis.  Import demand   shipping in the Red Sea   across the globe. To ensure the   transformative potential for   2050, equivalent to around 7   Initiatives
        the global economy, but it is   drive the projections   too started to soften as the   and further escalation of       survival of life on our planet,   countries like India to establish   per cent of global primary
        likely to remain under    downwards for 2024.         growth slowed in major      war in West Asia which               energy transition has become   themselves as global hubs for   energy consumption. This
        pressure due to the softening   Moreover, as per the latest   economies.          could affect supply chains           more crucial, given that critical   producing green hydrogen,   would displace 10 billion   In line with this, the
        of global demand. This makes                                                      for months and lead to a             thresholds have already been   often referred to as the ‘next   barrels of oil equivalent per   Government of India has
        it even more important for                                                        shortage of tankers                  surpassed. Failing to take   oil’.                     year, approximately 37 per   launched the National Green
        governments to avoid trade             Merchandise Exports Growth (y-o-y%)        needed to transport fuel.            sufficient action will lead to                         cent of the current global oil   Hydrogen Mission with a
        fragmentation and refrain                                                         This could also have an              even more severe conse-                                production.                financial outlay of Rs 17,490
        from introducing obstacles to   40.0                                       40     impact on global                     quences. Thus, adopting a                                                         crore for supply-side
        trade.                                                                            commodity prices and                 multifaceted approach to                               However, the green hydrogen   incentives for electrolyzer
                                    20.0                                           20     international trade. In              energy transition is essential                         market in India is likely to   manufacturing and green
        The World Trade Organisation                                                      addition, the upcoming               to reduce carbon emissions.                            reach US$30-35 billion by   hydrogen production. It has
        (WTO) in its October report                                                       elections scheduled to be                                                                   2035-2040, as per ICF - a   also set targets of at least 5
        had projected the volume of   0.0               -0.6                       0      held in a clutch of major            In line with this, there has                           global advisory and technology   MTPA of green hydrogen
                                                                                                                                                                                                                 production capacity by 2030,
        world merchandise trade to              -5.8           -5.4     -3.1                                                   been increased impetus on                              services provider.         which could increase up to 10
        grow by 0.8 per cent in 2023   -20.0                                   -10.8  -20  economies next year, pose           renewable power generation                                                        MTPA with export aspirations.
        and rise to 3.3 per cent in                                                       a challenge to the global            for electricity and electric                           With an abundance of natural   Its domestic hydrogen demand
        2024. However, the head of       Q3 2022  Q4 2022  Q1 2023  Q2 2023  Q3 2023  Q3 2022  Q4 2022  Q1 2023  Q2 2023  Q3 2023  Q3 2022  Q4 2022  Q1 2023  Q2 2023  Q3 2023  Q3 2022  Q4 2022  Q1 2023  Q2 2023  Q3 2023  Q3 2022  Q4 2022  Q1 2023  Q2 2023  Q3 2023  outlook.  vehicles for mobility. However,   resources, including over 300   is expected to reach 11 MTPA
        international trade in the         US    Eurozone  UK (rhs)  Japan (rhs)  China                                                                                                                          by 2030, including a 46 per
        organisation, in a recent                     Source: National Sources                                                                                            Vineet Mittal, Co – Chair, CII Renewable   cent share of green hydrogen,
        comment has said that there                                                                                                                                    Energy Council and Chairman, AVAADA Group


        22   ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY                                                                                                                                               ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY  23
                                                                                                                                                                                                                  QUARTERLY JOURNAL OF ECONOMICS
             QUARTERLY JOURNAL OF ECONOMICS
             FEBRUARY 2024                                                                                                                                                                                                   FEBRUARY 2024

























 according to Niti Aayog and   are hesitant to   under Article 6 of the Paris   consider implementing a
 RMI. The move encourages   finance/refinance large-scale   Agreement. It will help   nationwide policy mandating
 manufacturers and project   green hydrogen projects.  create a marketplace for   the use of Green M15 fuel i.e.
 developers to invest in green   •  The production cost of   Indian green fuels like green   mixing 15 per cent green
 hydrogen and its derivatives   various green fuel   hydrogen and its   methanol with petrol, in
 like green ammonia and   technologies, such as green   derivatives, green methanol,   transportation and other
 methanol, putting India among   hydrogen and its   and SAF, among others, in   applicable sectors, supported
 those leading countries, such   derivatives, is higher.   the international market.  by incentives for producers
 as the United States and the   However, grey hydrogen,   •  There’s a need for speeding   and consumers to adopt this
 European Union, which have   alongside various grey   up strategic interventions   fuel. This could be a pivotal
 allocated public funding for   manufacturing methods, has   for the Green Hydrogen   step in India's journey
 green hydrogen.  towards a greener and more
 historically benefited from   Transition Program by
 subsidies. Without a robust   offering incentives for both   sustainable future.
 Establishing a market for green   and liquid global carbon   green hydrogen production   •  To ensure widespread
 ammonia and methanol is a   market, pricing the value of   and electrolyser   availability of Green M15 fuel,
 global issue. In India,   carbon and embedded   manufacturing. These   there’s a need for investment
 forward-thinking standards by   emissions in the production   initiatives will catalyze   in the necessary
 the Bureau of Indian Standards,   and usage of grey hydrogen   industry growth.  infrastructure for its
 such as blending DME with   becomes challenging. This is   production, distribution, and
 LPG and methanol with diesel,   why, initially, green   •  The cost of renewable   storage.
 are significant steps towards   hydrogen seems more   energy can be further
 integrating green fuels.  reduced through energy   •  Campaigns should be
 expensive than grey   surplus banking provisions,   launched to educate the
 hydrogen.
 especially for sectors   public and other stakeholders
 •  The cost of funding remains   mandated to use green   about the benefits of using
 a persistent bottleneck,   hydrogen.   Green M15 fuel and address
 presenting a considerable   •  The government should   misconceptions.
 challenge for project   implement targeted
 developers, impacting the   incentives to boost the   By adopting these
 optimization of capital   export of green molecules.   recommendations, India can
 expenditure and project   It will help establish India as   make significant strides towards
 execution.  energy self-reliance,
 a global leader in   environmental sustainability, and
 renewable energy.
 Suggestions  •  A mechanism should be   economic growth.

 developed to facilitate   Conclusion
 Challenges  To address the challenges, we   low-cost financing and
 provide benefits like
 suggest that the government
 take several steps to provide a   accelerated depreciation   This is the time to take
 Despite government efforts   much-needed boost to the   for green hydrogen   immediate action to overcome
 to promote green hydrogen   industry, such as:  infrastructure investments.  all the bottlenecks on the road
 and its derivatives, the sector   •  The government should   towards leading the global
 is still in its infancy, and   •  As in the initial days of   expand the FAME India   transition to sustainable energy.
 acknowledging and addressing   renewable energy, the   (Faster Adoption and   With right policies in place and
 the hurdles that impede our   government mandated its   Manufacturing of (Hybrid   the development of a market for
 full potential in this critical   usage through Renewable   &) Electric Vehicles in India)   green methanol and ammonia,
 sector is essential. Among the   Purchase Obligation (RPO).   Scheme to include green   India can unlock the full
 various challenges are -  potential of green hydrogen and
 Similarly, we suggest that a   methanol vehicles in it. It   its derivatives. Moreover, it will
 •  There isn’t much existing   quota should be mandated   will not only boost the   provide a much-needed boost
 demand and a developed   for the use of green   market but also provide   for the production, distribution,
 market ecosystem for   hydrogen in sectors like   support to the green   and usage of green hydrogen and
 green hydrogen and its   fertilizers, chemicals, steel,   hydrogen ecosystem in the   its derivatives across sectors.
 derivatives like green   and power generation.   country.  Such initiatives will not only help
 ammonia and methanol, not   Creating demand through   •  There’s a need for funding   India in achieving targeted
 only in India but also   policy will spur sectoral   and support for research   climate goals but also position it
 globally, compared to other   growth and reduce the   and development in the   as a leader in the green energy
 conventional fuels.   production cost of green   areas of green hydrogen   revolution.
 hydrogen.
 •  Project developers face   and methanol-based
 difficulty in getting final   •  Leveraging its international   technologies. It will further
 offtake agreements signed.  relations, the government   help enhance efficiency and
 should expedite the signing   reduce costs.
 •  In the absence of advance
 offtake contracts, lenders   of bilateral agreements   •  The government should
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