July 2023 was the hottest month in living history, and maybe in the past 120,000 years. This same month also saw scientists sound the alarm over the unprecedented retreat of Antarctic ice, and the potential collapse of the Atlantic Ocean’s climate-moderating currents. This was the backdrop under which G20 energy and climate ministers held a series of meetings across India, ahead of September’s G20 summit in New Delhi, as they attempted to forge an agreement on how to conduct the global energy transition away from fossil fuels. One of the most important initiatives at these meetings was a push to end the commissioning of more traditional coal-fired power plants, given that coal is by far the most greenhouse gas-intensive of energy sources. This boils down to securing co-operation from India and China, which together account for 80 per cent of the world’s current active coal plant projects, and together burn 70 per cent of world’s coal. Beijing has shown little indication of changing course on coal, and New Delhi’s position in climate talks long matched that of China. But India broke that pattern in a very big way just before the G20 climate meetups. India’s National Electricity Policy (NEP) released on June 1 dropped all plans for the construction of additional coal plants over its five-year span. The earlier draft of the NEP, released in 2021, had proposed an additional 8,000 MW in coal-powered energy production; this was replaced with 8,600 MW in battery-based energy storage systems, which will perform the same load-balancing function for the national grid when solar and wind are unable to meet the demand for power. What accounts for this major change of direction? It is unlikely that external diplomatic considerations towards Washington or Brussels had much impact. Successive Indian governments have prioritised energy security far ahead of keeping Americans and Europeans happy. Nor have there been any major technical breakthroughs in the past two years in terms of the performance and reliability of energy storage systems. Instead, it seems that India’s deepening integration with global financial markets means the economics of coal are being transformed in ways that are making the fuel increasingly unattractive. The government of Prime Minister Narendra Modi has aggressively pursued economic growth since coming to office in 2014. This has been a core source of its legitimacy both with the business community and the general public, and expectations have not abated. Mr Modi has publicly promised that India, now the fifth-largest economy in the world, will rise to third place during his current term as prime minister. Two of the pillars powering this growth programme are major investments in physical infrastructure, particularly transportation and energy, and attracting private capital – domestic and global – to participate in areas of the economy that the state had previously dominated. Coal was a place where both of these drivers intersected; 87 coal mines were auctioned off over the past three years, as part of a programme called “Unleashing Coal”. The idea was that private capital would be able to support the greater domestic energy production needed to keep up with growing energy demands. However, it appears that only four of these mines are functioning. The chief problem, it seems, is that banks are increasingly reluctant to finance coal projects of any kind. In an era where environmental, social and governance guidelines have become a standard process within mainstream banking and finance, a highly polluting commodity like coal has become a liability that few in the private sector want to touch. Even India’s largest conglomerate, Reliance Industries, has been unable to turn a profit with its coal-powered plants. Renewables like wind and solar on the other hand have proven to be extremely attractive to operators and investors. This growing reliance on private capital is the key difference from China. The Chinese energy and banking sectors both remain largely state-owned, and China’s energy sector continues to rely on domestic state-owned banks for financing. These banks in turn are insulated from global market trends and pressures, and instead largely respond to policy directives from Beijing. As long as Chinese decision-makers choose to favour coal, Chinese banks will continue to make capital available for such projects. But the privatisation of the energy sector is not the only factor. India has weathered the economic pressures coming out of the Ukraine war better than its South Asian neighbours in part because of its consistent focus on energy security. Coal was supposed to offer greater security than oil and gas, but it, too, has proved vulnerable to external shocks. Over 20 per cent of India’s coal consumption is met by imports, and it is the world’s second-largest coal importer by dollar value. Coal prices tripled in 2022, and India spent an eye-watering $49 billion on coal imports from Indonesia, Australia, Russia, South Africa and the US. In this light, further expansion of India’s coal-generating capacity is an expansion of its fiscal and energy liabilities, especially since domestic production cannot be easily ramped up. It has often been argued by critics that capitalism is the single greatest driver of climate change; economic disasters like Covid-19 do more to curb emissions than any other measures. But India’s momentous policy shift is an example of just how the complexity of the real world defies simple explanations. India’s opening up to market forces have brought about a change in policy that no amount of state to state diplomacy was able to achieve. Of course, we cannot count on the same process and the same outcome to be repeated everywhere. Given the catastrophic dangers that lie ahead and the limited amount of time left to avert them, a healthy amount of agnosticism about just how we achieve energy transition by the 2050 deadline is essential. As Deng Xiaoping, China’s former supreme leader, put it during the tumultuous debates over ideology after Mao’s passing: "Whether a cat is black or white makes no difference. As long as it catches mice, it is a good cat."
