Sahana Sarma, co-author of McKinsey report on India's cost of reducing emissions

Sahana Sarma, co-author of McKinsey report on India's emission reduction costs

For background to this interview, read the recent Eye on Earth article: India Could Halve Emissions Growth, But at a Cost, Study Finds.

The McKinsey & Co study  was co-authored by Sahana Sarma. Below is an interview with Ms. Sarma, conducted by  Anna da Costa, a Worldwatch Institute Fellow based in New Delhi.

What do you hope will be the main impacts of this report?

The aim of this analysis is to provide a fact base on measures that could have the greatest potential to reduce emissions for India. Our report has three key messages. First, India has the opportunity to reduce its energy consumption by 22 percent, and halve its emissions by 2030. Second, this will not be easy, given that only 10 percent of the abatement opportunities outlined in the report is readily feasible. Third, embarking on such a path has several benefits for India, including reduced energy consumption, improving energy security, numerous societal benefits such as reducing pollution, and business opportunities where India could take a leadership role such as in clean technology products and services.

We hope that this report provides a fact base for both policymakers and the business community and helps point to key opportunities to reduce India’s emissions.

Having conducted such an exhaustive analysis, what, to your mind, are the “biggest wins” in terms of single technologies, policies, or other measures that could help reduce India’s emission growth?

There are five major areas where significant emission reductions are possible for India: clean power, energy efficient industry, green transportation, sustainable habitats, and sustainable agriculture and forestry.

Are there any transformative technologies on the horizon that were not included in the analysis but that you feel could be of significance to future abatement scenarios?

We didn’t assess how technologies might evolve in the future in this case, but certainly innovations that could reduce the costs of these technologies over time, for example through increasing their scale of production, would be on the list.

To what extent was India’s National Action Plan on Climate Change taken into account in your mapping of India’s emission pathway today? And if it was not entirely incorporated, what sort of emission reductions do you believe could be achieved through the implementation of the full National Action Plan as it stands?

Our analysis does factor in certain existing initiatives undertaken both by government and industry across a range of sectors. We do not take a view on government institutions but really aim to have created a fact base to support further prioritization.

One of the remarkable things about the McKinsey cost curve is its revelation of so-called “negative-cost” opportunities. Could you explain why, if they are truly negative, these costs are not being captured automatically?

The first part of our analysis focused solely on making it clear which are the negative and positive cost solutions. However, in order to actually capture these cost savings, there are a number of barriers that would have to be overcome. These include market imperfections that do not transfer cost savings to the appropriate people, need for a supportive regulatory framework to incentivize such change, and supply-chain and skill-level challenges. All of these would need to be addressed to allow the cost savings of the negative-cost solutions to be captured.

Considering that energy-efficiency levers form a significant proportion of the negative-cost opportunities, how far do you think that the Indian government’s newly launched Energy Efficiency Trading Scheme will go to capture these opportunities?

It’s too early to comment on that particular policy, but we would agree that energy efficiency is a very important solution.

The analysis did not include transaction costs in its estimation of the total cost of each abatement opportunity. Given that transaction costs vary for each lever, can the curve really help policymakers prioritize opportunities if their “order” could be rearranged with the inclusion of these costs?

There are obviously many ways to look at costs. Our aim here was to look at societal costs to create more comparability between different solutions India could adopt, and their cost implications.

But wouldn’t their cost implications potentially change if transaction costs were incorporated?

It is still helpful in providing some form of comparability. It gives us a directional view on cost, but specifics would have to be provided over time, including transaction costs.

Will McKinsey be doing a follow-up study to look at what the transaction costs for the identified abatement levers are?

Climate change is a special initiative for McKinsey in India and globally, and it will continue to be a focus area of our work. I can’t really say what we may look at in the future, other than to say we will look at the entire spectrum of issues across this space.

What are the key ways in which you believe the private sector could facilitate and benefit from this significant abatement and market opportunity?

We believe that there are clear business opportunities to be captured through addressing climate change. For India, the particular areas identified were solar energy generation and manufacturing, smart buildings, smart grids, and electric two-wheelers.

Even in these cases, however, a combination of action from both the business and policy communities will be needed to capture the opportunities, creating the right enabling environment. Again, policy frameworks, supply chains and skills, and market imperfections will need to be addressed.

Do you think this report could influence India’s international positioning on finance?

Our focus with this study was to provide a fact base on the absolute potential for emission reductions in India. We would leave it to policymakers and others as to how to use the information in that context.

The report, as you explain in the Introduction, focuses solely on mitigation, but for developing countries, adaptation is often a more primary concern. Given the potential impact of adaptation requirements on GDP, as well as the importance of this aspect of climate change for developing countries, will McKinsey do something similar on this front in the future?

As I mentioned, climate change is an important initiative for McKinsey in India and globally. We have not concluded yet whether there will be a similar report on adaptation; we have not looked at it closely.

The report lays out a series of options that India could consider over the next 18 months to address 75 percent of the abatement opportunities. However, one concern is that recommendations from civil society, policymakers, and the corporate sector often appear, highlighting great opportunities for change. What in your view are the most important next steps to ensure that there is a shift from theory to practice in this case, to enable India to implement as many of these options as possible?

Based on the study findings, I would say that it is important for both governments and businesses to prioritize areas where the highest impacts are possible, which are energy efficiency, clean sources of power, energy-efficient industry, agriculture and forestry, and the creation of new industries. It is also important to recognize that most of the opportunities won’t be easy to capture, with only 10 percent being readily achievable.

In terms of taking words to action, coordination across different government departments, public-private collaboration, and the creation of skill bases will all be important. However, the specific measures needed will depend on who is going to capture the opportunity.

The Ministry of Environment and Forests recently released a series of five studies that estimate India’s emission growth over the next two decades, of which this was one. The range of estimates is fairly large, from 4 billion tons to 6.5 billion tons. How does the methodology you used ensure that this is a robust dataset?

Our methodology is consistent with what we have used in 18 other countries so far, and we have used India-specific data and Indian expertise. It is possible to define what you are measuring (for example, the reference case versus the abatement case) in various ways, which leads to differences in estimates. However, we are comfortable with the methodology, as it has been well tested.

Related Posts with Thumbnails