Context
In India, the industry sector accounts for around 22% of the country’s total greenhouse gas (GHG) emissions. India’s updated Nationally Determined Contributions (NDCs) have a long-term goal to reach net-zero by 2070 and outline eight commitments, such as to reduce emissions intensity of its GDP by 45% by 2030 from 2005 level. Nationally, Small Medium Enterprises (SMEs) are responsible for about 110 MtCO2e, which is at least 15% of India’s industrial emissions. The project will enter low-carbon emission pathways for decarbonisation of SMEs in selected Indian industries in six large industrial clusters in North and West India spanning eight states. By making the sub-sector more energy efficient, the project will significantly contribute to the NDC goal.
Goals and approach to transformational change
The “Deep Decarbonisation of Selected Industrial Clusters in India” (“Industrial Clusters”, DeepDC) project has the objective to foster rapid and cost-effective decarbonisation of the manufacturing industry in India focusing on the SME sector. The project plans to demonstrate the feasibility, business case, and wide-scale uptake of nine existing but not mainstreamed mitigation technologies in six selected industrial clusters.
To enable the establishment of a pipeline of bankable investment projects in energy efficiency and renewable energy, DeepDC will set up a NetZero Platform to facilitate the linking and matching of experts/ consultants, technology providers, financial institutions, and companies. A scalable, innovative financial mechanism that incentivises GHG mitigation investments, and ensures tangible benefits at the company level will address financial barriers.
All measures will reduce transaction costs and have a sustainable impact on the flow of funds towards carbon-neutral investments. In terms of scope, initially 1.800 factories will be targeted and a total of 1.240 mitigation projects will be financed and implemented at factory level.
By creating an ecosystem and market for investment in energy efficiency, significant emission reductions are expected even after project end.
Components and support mechanisms
The core financial mechanism under the Financial Cooperation (FC) component is a results-based grant comprised of two sub-components. The first sub-component of EUR 0.7 million will be used to finance ten “lighthouse” projects to demonstrate credible business cases. The second sub-component of EUR 14.4 million will be used to reward the manufacturing factories for investing in appropriate decarbonisation technologies by borrowing from private/public lenders. Both sub-components will follow the same financial mechanism. The grant will be paid on a results-based mechanism in cooperation with financial institutions and directly be linked to mitigation success.
EUR 7.6 million will be allocated to the Technical Cooperation (TC) component of the project. Under this component the project will develop a continuous pipeline of projects, establish one Technical Support Cell per cluster, develop a NetZero Platform, and provide technical assistance and capacity development to energy services consultants, technology solution providers and financial lenders. It will also include gender equality and social inclusion (GESI) as a cross-cutting scheme, and facilitate multistakeholder public-private dialogue sessions to address the identified regulatory barriers.
Long-term impact
Total GHG emission reductions during the project are expected to reach over 1.4 MtCO2e, whereas GHG emissions reductions ten years after project end are expected to reach over 5.8 MtCO2e.
Cost effectiveness is about 4.2 EUR/tCO2e over the course of the project plus ten years.
