Welcome to today’s edition of Lights On, a newsletter that brings you the key stories and exclusive intel on energy and climate change in South Asia.
Today I am writing from Sharm El Sheikh in Egypt, host of this year’s UN Climate talks COP27. Subscribe now to receive updates from the most important climate meeting of the year:
Just a few years ago, the ‘net zero’ carbon label was considered aspirational by optimists, and fanciful by most. But after some of the world’s major economies such as China, Japan, the EU and more committed to fully decarbonising by mid-century or shortly after, carbon neutrality has quickly become a buzzword: easy to promise because no one could yet detail exactly what it meant.
Today, 83 percent of the world’s global emissions are covered by net zero pledges, and thousands of big businesses, including fossil energy firms, have committed to slash their net emissions to zero within a few decades, wooing investors and the general public concerned about climate change. A vast majority of these promises, however, don't stand up to scrutiny.
What exactly is net zero?
The plethora of net zero badges that can be found everywhere from supermarket aisles to oil giants’ annual reports started to raise eyebrows in the UN climate community, which last year put together an international panel of experts to look into net zero greenwashing among businesses - described in the report as ‘non-state actors’.
The result of their work, presented this week at COP27, is a clear set of guidelines on what net zero is and isn’t, and although no names are named, the usual suspects of the corporate world may feel personally attacked.
First, the report says, a commercial entity cannot claim to be on a net zero pathway if it invests in fossil fuel expansion in any capacity. This doesn’t mean that oil and gas giants aiming for carbon neutrality should immediately get rid of all their fossil fuels, which would lead to a huge amount of stranded assets - infrastructure and resources that investors have put their money into whose value suddenly plummets to zero. But it means they should not be extracting more than they do today, not even if they claim to offset their new emissions through carbon credits. New fossil fuels, the report says, should categorically be off the table.
The experts say that businesses cannot include cheap carbon credits - that may not be robustly designed to remove as much carbon as they claim - in their plans, and even when they are independently verified, they should be used in addition to the measures delivering the net zero target.
Capturing emissions across the value chain
Crucially, a genuine net zero target should include all emissions across the value chain, known in the field as scope 1, 2 and 3. The first category indicates emissions that a company generates directly, for example by running machines. Scope 2 covers indirect emissions, such as those generated by using electricity that may be produced using fossil fuels. Scope 3 covers the far-removed emissions up and down the value chain, for example those generated by customers who use a company’s products.
As South Asia’s biggest economy, India is home to a sizeable number of big private and state-owned businesses that have jumped on the net zero bandwagon, many of which fare extremely poorly on the new greenwashing scorecard. The Economist Intelligence Unit has analysed all existing net zero pledges, and found that of the 12 Indian entities to have pledged, of which six are in the fossil fuels business, five in the service industry and one in the manufacturing sector, no one has filed a detailed plan on how they intend to get there.
India's corporates are guilty too
Among the most egregious greenwashing exercises are the largest government-owned coal producer, Coal India, which hasn’t shared a plan, doesn’t have a reporting mechanism in place and doesn’t intend to cover scope 3 emissions. The giant’s chairman confidently claimed the company would take just three to four years to go net zero. Other notable pledges come from the oil and telecom multinational Reliance Industries, the state-owned oil and natural gas corporation, Bharat Petroleum, Tata Motors and the consultancy Infosys.
As a developing country, India cannot be held to the same level of responsibility as other nations - but it is the third largest global emitter and its output is expected to grow. Thus, as well as owning a sizeable slice of present and future carbon, it’s also in the unique position of being a prime candidate for transition finance.
The benefits of transparency
Although a decision on loss and damage finance is possibly the most anticipated outcome of this COP, meaningful discussions are taking place over new ways to finance energy transition in the developing world - and, unlike the painfully slow pace of climate diplomacy, these talks could deliver rapid results.
Observers are keeping a close eye on the Just Energy Transition Partnerships (JETP), a scheme that employs climate finance money to strategically decarbonise a country's economy. The pilot project, which mobilises $8.5 billion from France, Germany, the UK, the US and the EU to help South Africa modernise its grid and deploy large renewable infrastructure, could also create 50,000 jobs.
As a coal dependent economy whose power system is under chronic financial strain, India is an obvious candidate for future JETP experiments. The size of its market has the potential to attract foreign investors and capture new energy markets such as hydrogen and batteries. However, as the architecture of the Paris Agreement on matters of voluntary carbon markets, emissions monitoring and reporting is fine-tuned this year, much of this abundant new climate finance – as well as the flow of private investments – will depend on levels of transparency and compliance with international standards.
Removing greenwashing from India’s climate action pitch would not just be the appropriate response to this week’s call for action from world’s leaders. It would get Indian corporations ready to catalyse a new wave of green investments, one that will be increasingly tied to measurable outcomes rather than flashy slogans.
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