Even as India has pledged to reduce carbon emissions by 20% by 2020 from 2005 levels, Prime Minister Manmohan Singh has made it clear that it won?t be at the cost of the country?s efforts to lift millions of people out of poverty. India accounts for about 4% of the total carbon emission in the world, and any effort to reduce carbon emissions is set to affect a large number industries, and incidentally benefit another section of industries. Since the effect will be spread over a long period, many analysts feel it will be practically difficult to quantify the impact.
One of the effects of India?s support to the Copenhagen summit, even as it came in the last moment, is an expected rise in investment in alternative energy sources and cleaner power. Renewable energy companies like Suzlon, and ?clean? energy producers like GAIL will gain from the move but many expect the conventional energy companies like Cairn and IOC be adversely hit. Another remote beneficiary will be the automobile industry as the demand for replacement of older, and less environment-friendly vehicles will increase, significantly boosting the toplines of a large number of automobile companies, including Tata Motors, Ashok Leyland and Maruti Suzuki. This is because the cost for upgrading vehicles to comply with new norms is usually passed on to consumers. Old trucks and taxis will be phased out to improve on vehicle emissions. Also, the demand for public transport vehicles will rise as state transport units run by the government will be required to upgrade.
The expected increase in investment in clean energy, however, does not come without its side effects. Most manufacturing companies, especially in the small- and mid-cap sector, will find it difficult to bear the cost of investments in new fuel-efficient technologies.
By far the most important sector to watch will be the power sector. India is among the fastest growing energy- consuming counties in the world. The government is taking a number of steps to increase efficiency and reduce effects on climate change. From the 11th to the 13th Plans, it is laying emphasis on a shift from subcritical to more efficient supercritical coal-fired plants. Also on anvil are greater percentage of imported higher quality coal for power plants, and a move to double wind generation capacity to over 20gw by 2022 and set up 20gw of grid-linked solar power by 2022.
?Given that renewable energy is a policy-driven sector, this could prompt a Copenhagen rally in renewable energy stocks in our view. Among these are Suzlon, the largest wind turbine manufacturer in India, and Moser Baer, a manufacturer of solar panels. However, the likelihood of any meaningful global consensus looks increasingly unlikely with key countries sticking to their well known positions,? said a report by Macquirie.
The oil and gas industry is, however, poised to have a mixed impact with some companies benefiting and some losing out. Overall, the impact will be positive for gas based companies since gas is cleaner than oil. Complex refiners like Reliance Industries will take advantage of the Indian fuel market?s accelerated move to Euro IV and Euro V.
?As efficiencies kick in oil demand growth should moderate. This will be negative for oil prices, thus for Cairn India. Moderately negative for oil marketing companies,? said the report. A collateral beneficiary in India?s shift towards natural gas will the pipleline laying sector where WGS, JSAW, and PSLL are active because more pipelines will be required to be built.
Among the sectors that are going to take a major hit, basic material manufacturers are right on top. The outlook for the sector is, said the Macquirie report, ?sentimentally negative as all the large companies are well below the emission norms. And in most cases meeting even global standards.? In this sector where large conglomerates such as Tata, SAIL, NACL, JSP, Hindustan Zinc, and Grasim are present, it will be the smaller companies that will be more affected because they will need to provide for additional capital expenditure.
The bigger companies already have capex plans under way, and will not be affected much. The key provisions of the Kyoto Protocol, adopted in 1997, will expire at the end of 2012, and nations are hurrying to put together a framework to save the world from climate change.
Tough the Copehnagen summit provisions are voluntary and not binding, it is set to significantly influence how the industry functions in countries like India.