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Urbanisation and industrialisation in India

Summary

The Covid-19 pandemic has introduced major new uncertainties into the outlook for India’s energy sector, but it has not altered the key underlying drivers. Chief among them are urbanisation and industrialisation. Up until now, India’s economic growth has been driven mainly by the services sector, rather than the more energy-intensive industry sector, and the rate at which India has urbanised has been somewhat slower than in other emerging countries. How fast India urbanises and industrialises over the coming decades, and which policies govern these processes, will be of crucial significance for its energy future and for global trends.

India energy balance in

Over the period to 2040, an estimated 270 million people are likely to be added to India’s urban population, the equivalent of adding a new city the size of Los Angeles every year. Even with such rapid urbanisation on a very large scale, the share of India’s population living in urban areas in 2040 is still expected to be less than 50%.

Relationship between GDP per capita and the urbanisation rate in selected economies

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Most of the buildings that will exist in India in 2040 have yet to be built. Urbanisation underpins a massive increase in total residential floor space from less than 20 billion square metres today to more than 50 billion in two decades’ time. This prompts huge growth in demand for energy-intensive building materials. In the STEPS, demand for steel more than doubles to 2040, and demand for cement nearly triples.

Drivers of India’s industrial energy consumption in the Stated Policies Scenario, 2015-2040

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Urbanisation is also a spur for a transition in household energy use away from solid biomass and towards electricity. Rising ownership of appliances and demand for air conditioners mean that the share of energy demand taken by electricity in India’s buildings sector rises from a quarter today to around half by 2040 in the STEPS. There is considerable scope for India to expand the application of its Energy Conservation Building Codes and further tighten appliance standards to limit future strains on its energy system.

Change in energy demand in residential buildings in India in the Stated Policies Scenario, 2019-2040

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Transport is currently the fastest-growing end-use sector in terms of energy demand, and urbanisation will foster further growth. In many Indian cities, increasing demand for transport has so far led to much congestion and poor air quality. This has prompted a range of policy initiatives on fuel efficiency and quality, mass transit, and the electrification of transport. However, today’s policy settings are not yet enough to avoid a large projected increase in oil demand for road transport, which doubles in the STEPS by 2040.

Road transport energy demand by fuel and technology in India in the Stated Policies Scenario compared to Sustainable Development Scenario, 2040

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Changes in road transport energy demand by fuel, technology and scenario in India in the Stated Policies Scenario, 2019-2040

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Industry is the end-use sector that currently uses most energy, and its share in total final consumption rises from 36% today to 41% by 2040 in the STEPS. As coal use for power generation flattens out, industry accounts for almost two-thirds of the growth in India’s coal demand and becomes the major source of growth in emissions. Moreover, since the majority of goods transported in India move by road, industrial expansion translates into rapid growth in diesel use for road freight, despite initiatives to shift more of the freight market onto the railways.

Industry share in total final consumption, coal demand and CO2 emissions growth in India in the Stated Policies Scenario, 1990-2040

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Efforts to promote energy efficiency and material efficiency, and greater use of natural gas and electricity, in particular for lighter manufacturing, all mitigate the rise in industrial energy use in the STEPS, but there is considerable potential for further efficiency gains. These gains are seen to some extent in the IVC and more comprehensively in the SDS.

Different scenarios inevitably produce different outcomes. In the DRS, energy demand and emissions are suppressed by a lower level of economic activity. Positive environmental outcomes therefore come at a very high cost. By contrast, the IVC delivers both higher economic growth and lower emissions than the STEPS as a result of policy actions which increase efficiency and achieve a faster transition to clean electricity and natural gas.

Relative differences in key energy system indicators in India in the IVC and DRS, compared with the Stated Policies Scenario, 2040

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The SDS goes further in the direction of improving efficiency and the use of low-carbon technologies. Alongside improved air quality and enhanced energy access, India sees an early peak in energy-related CO2 emissions and a rapid subsequent decline, putting the country on track for net zero emissions by the mid-2060s.

Energy sector CO2 emissions and reduction levers in India in the Sustainable Development Scenario, 2010-2040

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