IEA (2021), India Energy Outlook 2021, IEA, Paris https://www.iea.org/reports/india-energy-outlook-2021
India’s energy choices matter. They have direct and far-reaching effects on the lives of a growing population, and major indirect effects on the rest of the world through their impact on energy markets, emissions, and flows of technology and capital.
In the STEPS, India accounts for nearly one-quarter of global energy demand growth from 2019‑40, which is more than any other country. Already a heavyweight in solar PV, India becomes a world leader in battery storage. By 2040, India’s power system eclipses the European Union’s and becomes the world’s third-largest, and it is the second-largest growth market for renewable energy after China.
India’s growing strength in the global industrial economy has important implications for coal and gas markets[ZPI1] . India leads global oil demand growth in the STEPS on the back of a fivefold increase in per capita car ownership, and also becomes the fastest-growing market for natural gas. India is in addition one of the very few sources of growth for coal in this scenario, largely for industrial use.
India already imports around 40% of its primary energy and overall reliance on imports remains at this level to 2040 in the STEPS. However, India’s combined import bill for fossil fuels triples over this period, with oil by far the largest component. The SDS sees an oil import bill which is $1.4 trillion smaller over the period 2019‑40 than in the STEPS: these savings offset entirely the additional costs of clean energy investments required in the SDS.
The rapidly rising requirement for flexibility in the operation of its power system is a potential hazard for electricity security in India. One additional systemic risk comes from the poor financial health of discoms. Improving billing and collection efficiency and reducing technical and commercial losses are key to reforming the sector. Stepping up investment in renewables also means tackling risks relating to delayed payments to generators, land acquisition, and regulatory and contract certainty.
In the STEPS, the combined markets in India for solar PV modules, wind turbines, lithium-ion batteries and water electrolysers grow to over $40 billion per year by 2040; in the SDS they grow to twice this size. With a 10-35% market share for some of these products, India has the opportunity to capture more of the value from these supply chains by positioning itself as a hub for innovation and research expertise. In order to support this transformation, India’s clean energy workforce grows by 1 million from 2020 to 2030 in the STEPS, and by 1.6 million in the SDS.
Policies to improve air quality and expand access to clean cooking in the STEPS help to limit pollutant emissions, but a rising urban population means that more people are exposed to air pollution and suffer its ill effects. The IVC and especially the SDS see a lasting reduction in premature deaths from poor air quality, with several related co‑benefits for energy security and trade.
Growth in India’s annual CO2 emissions slows steadily over time in the STEPS, largely because power sector emissions plateau after 2030 due to the rising share of renewables in electricity generation. A cleaner power mix also strengthens the case for the electrification of transport; at present, the carbon intensity of electricity in India means that there is no CO2 benefit from switching to an electric car.
Despite a steady slowing in their overall rate of growth, India’s total emissions in the STEPS are around 50% higher in 2040 than in 2019, though per capita CO2 emissions remain low by international standards. Enhanced efforts to cut coal use in power generation and to improve the efficiency and carbon intensity of industrial output bring about lower emissions in the IVC, together with higher GDP. The SDS sees even more far-reaching improvements in efficiency and in the penetration of low-carbon technologies, cutting emissions much further.
The SDS demonstrates that robust economic expansion is fully compatible with an increasing pace of emissions reductions and the achievement of other sustainable development goals. India’s energy-related CO2 emissions flatten out in this scenario in the 2020s and go into steady decline by the 2030s, on track to reach net-zero by the mid-2060s. This decisive break with historical trends requires tackling emissions from existing infrastructure while also avoiding new sources of emissions wherever possible. In the STEPS, by the late 2030s most of India’s annual emissions come from factories, vehicles, buildings and power plants that do not yet exist.