In the face of the global climate crisis there is an increasing commitment to decarbonise the global economy. This is highlighted by a shift towards renewable energy sources, the energy transition. Energy transition is the process of reducing reliance on fossil fuel across the economy and moving toward greater use of cleaner energy sources such as renewables.
Globally, countries, including those in the European Union, are introducing legislative measures to accelerate the decarbonisation of its economies. In January 2021, the European Union (EU) introduced a Carbon Border Adjustment Mechanism (CBAM). CBAM is part of the EU’s efforts to reduce greenhouse gas emissions and achieve climate neutrality by 2050. It will put restrictions at the borders on goods produced with carbon and Greenhouse gas emissions (GHG)
While the carbon price will be levied from 2026 onwards, the reporting of emissions on imported goods has stated in January 2023. CBAM is initially focusing on some key sectors only, but is expected to expand over time. Sectors for which CBAM applies include:
- Iron and steel
- Pulp and paper
- Basic metals
Other countries or regions that consider introducing similar mechanisms include: Canada, United Kingdom, United States, Japan and South Korea.
The EU is a key export market for India, it is India’s third largest trading partner. India’s exports to the EU were worth EUR 46.20 billion in 2021. Compliance of Indian companies with the EU CBAM will require monitoring, calculating and disclosure of the GHG emissions embedded in the products covered under CBAM.
Tamil Nadu has the second largest state economy in India. The Tamil Nadu Government has set a goal of becoming a USD 1 trillion economy by 2030. The state has a diversified manufacturing sector and features among the leaders in several industries like automobiles and auto components, engineering, pharmaceuticals, garments, textiles, leather, chemicals, plastics, etc.
The role of Micro, Small and Medium enterprises (MSMEs) in the economic and social development of the country is well established. Tamil Nadu has the third-largest number of MSMEs in the country with a share of 8% or about five million enterprises (MSME Department 2022). MSMEs form an important and growing segment of the state’s industrial sector, contributing 12.09% to the GSDP. However, the growth of the state’s MSME sector has been severely impacted by Covid and has been stagnant.
As Tamil Nadu aspires to be a leading export state in India at a time when more countries are proposing Carbon Border Adjustment Mechanism (CBAM) decarbonisation will become an imperative for export-oriented industries to stay completive. For the exported goods from Tamil Nadu to be compliant with regulations it is important to decarbonise the production. The decarbonization will also be paramount for the MSME sector, which forms the backbone of the state’s industry. Creating an enabling environment for the MSME sector to decarbonise will require, amongst other things access to affordable and clean energy.
There are contradicting announcements about the state’s long-term trajectory in regards increasing the share of renewables. The State Government’s target of 20 GW of solar, or the recent RPO announcement by the Ministry of Power of achieving a renewable energy share of 43% by 2029 are not reflected in the 2022 electricity tariff order (TNERC 2022). As per this tariff order, TANGEDCO’s energy procurement plan indicates that 88% of the increase in energy demand will be met from thermal power, a majority of which is expected to be sourced from TANGEDCO’s own coal power plants. This clearly indicates that MSME’s that have a need to reduce their carbon footprint cannot achieve this if they rely on electricity sourced from the public grid without a clear and predictable carbon reduction trajectory.
MSME’s in Tamil Nadu have several procurement options for clean electricity. These are:
- Green tariff electricity
- Behind-the-meter renewable energy (RE) (e.g. rooftop solar)
- Open Access (OA)
- Green Open Access (GOA)
The cost of energy can be considered as an important element for the location attractiveness of a state. Access to affordable energy is essential for MSMEs to compete on national and international markets. Increasingly so, access to clean and affordable energy is required for a state to be an attractive location for industries. While Tamil Nadu is counted as a renewable energy leader among the Indian States there is scope to fine-tune regulations and policies and support the MSME sector to gain access to affordable clean energy.