As India continues its rapid economic development, the challenge of balancing industrial growth with environmental responsibility has become increasingly important. The country’s manufacturing and heavy industries, while crucial for economic progress, are also significant contributors to carbon emissions. Achieving the net-zero goal by 2070 will require a significant reduction in emissions from these industries. In addition, the adoption of decarbonisation solutions in industries must increase, especially as the Indian government pursues ambitious plans to promote domestic manufacturing under the Aatmanirbhar Bharat and Make in India initiatives. This focus on self-reliance presents an opportunity to integrate sustainability and decarbonisation into the country’s industrial growth strategy.
Renewable Watch provides an overview of the current state of decarbonisation in Indian industries, and the challenges and opportunities in this space…
Current scenario
India’s industrial sector encompasses a diverse range of enterprises, from micro, small and medium enterprises (MSMEs) to large-scale heavy industries. According to the Center for Study of Science, Technology and Policy (CSTEP), MSMEs account for 31 per cent of the country’s GDP, nearly 50 per cent of its exports and 57 per cent of manufacturing employment. MSMEs are notably energy- and emission-intensive, making them vulnerable to rising energy prices, which constitute a significant portion of their overall manufacturing expenses. Therefore, decarbonising MSMEs is crucial for reducing fossil fuel reliance in the industrial sector.
India’s large-scale industrial landscape is also significant, with the country being the world’s second-largest producer and consumer of both steel and cement. As per a recent report by XYNTEO titled “Decarbonisation of Heavy Industry: A Good Growth Imperative for India”, published in July 2024, the steel industry alone contributes 2.5 per cent to India’s GDP and employs 2.5 million people. The cement industry is expanding rapidly, with plans to add 150-160 million tonnes of capacity between 2025 and 2028. The chemical sector, currently the sixth-largest globally, is projected to grow from $178 billion in 2019 to $304 billion by 2025.
However, industrial growth comes at an environmental cost. By 2050, India’s annual steel demand is projected to reach 489 million tonnes, potentially adding about 500 million tonnes of carbon emissions. The cement and chemical industries are also significant contributors to the country’s carbon footprint. As of 2022, electricity comprises only 11 per cent of the total energy consumption in heavy industries, with the remaining 89 per cent reliant on fossil fuel-based thermal energy. Thus, there is significant potential to increase the share of electrification in India’s industrial and manufacturing sectors in order to decarbonise.
Strategies to decarbonise the MSME sector
A recent study by CSTEP titled “Scope for decarbonisation in the MSME manufacturing sector”, published in June 2024, identified significant decarbonisation opportunities across seven MSME clusters in India. According to the study, implementing a combination of energy efficiency measures, renewable energy solutions and advanced technologies across those clusters could result in potential savings of 136,581 tCO2 in emissions, 385,383 GJ in energy usage and Rs 370 million in energy costs annually. However, it also highlighted that decarbonisation strategies need to be tailored to each location.
The study identified several challenges in decarbonising the MSME manufacturing sector, including limited access to financing, lack of compliance requirements for smaller industries, low awareness, constraints on adopting renewable energy solutions, apprehension towards advanced technologies and a shortage of skilled workforce. To address these challenges, CSTEP recommends developing state-wise MSME policies with emission reduction targets, creating a reliable ecosystem for biofuel production and supply, promoting renewable energy adoption, and providing regulatory incentives to encourage fuel switching.
The study evaluated 66 MSME units across five energy- and emission-intensive sectors, revealing the potential for substantial reductions in energy consumption and carbon emissions. The seven clusters examined in the study are:
Delhi-NCR (aluminium die-casting): With an initial investment of Rs 90 million, this cluster could achieve a 36 per cent reduction in energy consumption, annual emission savings of 3,123 tCO2 and energy cost savings of Rs 110 million per year.
Bengaluru (aluminium die-casting): An investment of Rs 150 million could result in annual fuel cost savings of Rs 65 million, emission savings of 4,106 tCO2 and a 26 per cent reduction in energy consumption.
Ludhiana (textiles): An initial investment of Rs 71 million could lead to annual emission savings of 91,876 tCO2 6 per cent energy savings and annual fuel cost savings of Rs 140 million.
Tiruppur (textiles): With an investment of Rs 13.1 million, this cluster could achieve 13.5 per cent energy savings, annual emission savings of 31,302 tCO2 and annual fuel cost savings of Rs 77 million.
Alathur (pharmaceuticals): An investment of Rs 90 million could result in 13 per cent energy savings, annual emission savings of 2,308 tCO2 and fuel cost savings of Rs 30 million per year.
Asansol–Chirkunda (refractories): While requiring a higher initial investment of Rs 480 million due to process electrification, this cluster could achieve annual emission savings of 3,583 tCO2 and a 57 per cent reduction in energy consumption.
Coimbatore (bakeries): With an investment of Rs 13.6 million, this cluster could achieve annual emission savings of 283 tCO2, 5.5 per cent energy savings and energy cost savings of Rs 7.4 million.
Strategies to decarbonise heavy industries
By 2030, the electricity demand from heavy industries is projected to increase by 45 per cent, reaching 253 TWh. Meeting this demand entirely through renewable energy sources could reduce carbon emissions by 180 million tonnes. A report by Ember titled “Green Electrification of Indian industries for clean energy gains”, published in June 2024, highlights the significant potential for green electrification in reducing carbon emissions from India’s most energy-intensive heavy industries. In a more ambitious scenario for 2050, the share of electricity in the industrial energy mix could triple from 11 per cent to 34.5 per cent. This shift would necessitate nearly 700 GW of renewable energy capacity to meet an estimated electricity demand of 1,468 TWh.
Different industries show varying potentials for electrification:
- Ammonia production is expected to lead with 94 per cent electrification.
- Steel could reach 26 per cent electrification through scrap-based electric arc furnaces and hydrogen-based direct reduced iron.
- Cement and petrochemicals could see electricity’s share increase to 15 per cent and 14.5 per cent respectively.
- Aluminium, already heavily electrified, aims for 96 per cent electrification by transitioning alumina refining processes to electric power.
For heavy industries, several pathways for decarbonisation are being explored. Green hydrogen is emerging as a key low-carbon fuel. It serves as a clean feedstock for hard-to-abate sectors and is suitable for meeting heating requirements in various processes. In the short term, energy efficiency improvements, such as optimising energy use and adopting more efficient technologies, offer significant potential for reducing carbon emissions. Electrification powered by renewable energy sources is another strategy, with technologies such as electric arc furnaces in steelmaking and electric kilns in cement production showing substantial promise for emission reduction. Meanwhile, carbon capture, utilisation and storage (CCUS) will play a key role in managing residual emissions, particularly in processes where carbon production is inherent. Finally, increasing circularity through the use of recycled materials, such as steel scrap, can dramatically reduce the need for virgin materials and their associated emissions. These diverse approaches, when implemented in combination, present a comprehensive strategy for decarbonising India’s heavy industries.
Challenges and the way forward
Despite the availability of solutions to decarbonise Indian industries, several challenges hinder their widespread adoption. Many of these technologies are still not mature and have high costs, limiting their uptake. For example, green hydrogen, its derivatives and CCUS technologies require continuous research and development to become economically viable. The long lifespan of heavy industry plants, typically 30-40 years, complicates rapid transitions and requires careful, phased implementation of new technologies. Increased production costs associated with green technologies could undermine competitiveness in global markets, highlighting the need for supportive policy measures and financial incentives. The higher costs of green products have also limited market demand, highlighting the importance of promoting green procurement and raising awareness. Access to financing remains a significant hurdle, particularly for MSMEs, which could be addressed through blended finance models and sustainability-linked loans. A shortage of skilled workforce capable of implementing and managing new green technologies underscores the need for partnerships with educational institutions and comprehensive training programmes. Overcoming these challenges requires a coordinated effort by the industry, government and educational sectors.
To address the challenges of decarbonising India’s industries, a multi-faceted approach is essential. This includes strong policy and regulatory measures, such as standardising definitions for low-carbon products, promoting green procurement practices, implementing carbon pricing and setting clear efficiency targets. Financial measures are also critical, such as blending grant capital with mainstream financing to reduce the cost of capital for green projects. Additionally, sustainability-linked loans and bonds can incentivise the adoption of cleaner technologies. Technological innovation must be prioritised through continuous R&D to lower costs and enhance the efficiency of emerging technologies. Collaborative efforts are key to driving innovation and effectively implementing decarbonisation strategies.
Going forward, the energy transition in India’s industrial sector presents an opportunity to create green jobs and develop new markets for green products. The role of carbon trading will be crucial in decarbonising India’s industrial sector, making it necessary to develop a mature carbon market. While the path to decarbonising Indian industries is challenging, the potential economic and environmental rewards in the long run far outweigh the difficulties.
By Preeti Wadhwa
