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July 05, 2011

Sierra Club India Environment Post: India's Coal Crisis

There is currently a struggle being waged across India against a coal rush that saw the approval of 173 coal-fired power plants last year alone -- nearly one project every working day. This rush has been met with local opposition leading to violent repression, war zones, death, and arrest. While crushing social and environmental impacts have not restrained the rush, it now seems that harsh economic realities may as a full fledged coal crisis arises from  domestic coal shortages, skyrocketing international coal prices, and a wave of sub prime coal loans so great that Indian banks worry it poses systemic default risk. With many in Indian civil society openly questioning this destructive coal rush, the crisis provides an excellent opportunity to reassess the folly of importing as much as 57 percent of all future coal supply simply to add fuel to this growing fire.

Perhaps the saddest and most emblematic story of the coal struggle comes from Andhra Pradesh where 63 power plants totaling 56 GW of coal fired power are proposed. This represents an 8 fold expansion compared to currently installed capacity in AP. The sheer scale of this expansion has left local communities to bear the brunt of an increasingly violent onslaught of land acquisition and displacement, corruption and intimidation, and a toxic legacy of localized pollution (for a recent Sierra Club piece on AP read The Struggle against India's Coal Rush).

The saddest irony of the struggles in AP and across India is the sizeable risk that the plants will be forced to shut down and become "stranded assets" due to a lack of domestic coal supply, prohibitively high international coal prices, and an inability to pass on costs to consumers –- the exact situation that UBS warned international investors of in its 2011 global utilities outlook.

Despite the harsh reality that these new plants simply don't make economic sense, India is planning on adding a ninth mission to its National Action Plan on Climate Change –- clean coal –- and Jairam Ramesh is being pressured by Prime Minister Singh himself to further soften his stance on coal mining and begin greenlighting forest zones.

However, signs are emerging that the crisis has awakened policy makers, civil society, and the business community to the plethora of risks that this coal rush poses. For instance, the government may now be considering ditching its heavy reliance on expensive (mostly imported) coal in favor of renewable energy for rural areas. With as many as 400 million Indians lacking access to the grid, a focus on small scale decentralized renewable energy projects in rural areas will deliver energy faster, cheaper, and more effectively than failed grid extension efforts. For those with access to the grid, the Bureau of energy efficiency has said that the cost of new power built through ‘energy efficiency power plants’ (a bundling of energy efficiency programs whose energy savings are equivalent to the creation of a new power plant) are one quarter as much as building new power plants. With some of the highest losses in the world India has tremendous scope for building "power plants" that generate social, environmental, AND economic returns. 

As government officials respond to this coal crisis it is clear that there are alternatives that do not create war zones, ravage environments, or pose systemic economic risk. An accurate assessment of these options makes a position in defense of coal simply untenable. With the coal rush already leaving a tragic legacy in its wake, it's time to reassess and halt the rush.

-- Justin Guay, Sierra Club International Program

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