Author: CD Staff

Context

• Recently, the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC)  hiked the repo rate by 35 basis points (bps) to 6.25 per cent with immediate effect.
• The RBI policy rate is now at its highest level since August 2018 and this is the fifth rate hike by the central bank in this financial year.
• In this context, this edition of the Burning Issue will talk about the Monetary policy of RBI, the tools used by it and its analysis.

What is monetary policy?

• Monetary policy is the macroeconomic policy laid down by the central bank. It involves the management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity.
• Economic statistics such as GDP, the rate of inflation, and industry and sector-specific growth rates influence monetary policy strategy.
• A central bank may revise the interest rates it charges to loan money to the nation’s banks. As rates rise or fall, financial institutions adjust rates for their customers such as businesses or home buyers.
• Additionally, it may buy or sell government bonds, target foreign exchange rates, and revise the amount of cash that the banks are required to maintain as reserves.

Goals of Monetary Policy

• Control Inflation: Contractionary monetary policy is used to target a high level of inflation and reduce the level of money circulating in the economy.
• Reduce Unemployment: An expansionary monetary policy decreases unemployment as a higher money supply and attractive interest rates stimulate business activities and expansion of the job market.
• Manage Exchange Rates: The exchange rates between domestic and foreign currencies can be affected by monetary policy. With an increase in the money supply, the domestic currency becomes cheaper than its foreign exchange.

Types of Monetary Policy: Expansionary and contractionary

• Contractionary policy: A contractionary policy increases interest rates and limits the outstanding money supply to slow growth and decrease inflation, where the prices of goods and services in an economy rise and reduce the purchasing power of money.
• Expansionary policy: During times of slowdown or a recession, an expansionary policy grows economic activity. By lowering interest rates, saving becomes less attractive, and consumer spending and borrowing increase.

Monetary policy in India and the Role of RBI

• Aim of Monetary Policy: In India, the monetary policy of the Reserve Bank of India is aimed at managing the quantity of money to meet the requirements of different sectors of the economy and to increase the pace of economic growth.
• Tools of Monetary Policy: The RBI implements the monetary policy through open market operations, bank rate policy, reserve system, credit control policy, moral persuasion and through many other instruments. Using any of these instruments will lead to changes in the interest rate or the money supply in the economy.
• Types of Monetary policy: It can be expansionary and contractionary in nature. Increasing the money supply and reducing interest rates indicate an expansionary policy. The reverse of this is a contractionary monetary policy.
• For instance, liquidity is important for an economy to spur growth. To maintain liquidity, the RBI is dependent on the monetary policy. By purchasing bonds through open market operations, the RBI introduces money into the system and reduces the interest rate.

Monetary policy tools of RBI

[A] Quantitative tools

Bank Rate Policy

• The bank rate is the minimum rate at which the central bank of a country provides a loan to the commercial bank of the country.
• Bank rate is also called discount rate because the central bank provides finance to commercial banks by rediscounting bills.
• The RBI uses bank rate to control credit in the economy.

Open Market Operations

• OMO are another important instrument of credit control.
• OMO means the purchase and sale of securities by the RBI.
• For instance, in an inflationary scenario, the RBI will start selling government securities, the selling of securities will reduce the money supply from the system (Since the buyer of the securities will pay for them in Rupee, hence currency from the system goes out), reduction in money supply will lead to a reduction in funds with the commercial banks, which further reduce their lending capability. A fall in lending thus contracts credit in the economy.

Cash Reserve Ratio

• Banks in India are required to keep certain proportions of their deposits in the form of cash with themselves as reserves.
• If the legal CRR is 10%, then the bank will have to keep Rs 100 as reserves against the deposit of Rs 1000.

Liquidity Adjustment Facility

• LAF is a monetary policy instrument which allows commercial banks and primary dealers to borrow money through repurchase agreements or Repos/reverse repos.
• LAF is used to aid banks in adjusting day-to-day fluctuations in liquidity.
• RBI extends LAF facility only to commercial banks (excluding RRBs) and Primary dealers.
• LAF allowed banks to park their excess money with the RBI in case of excess liquidity or to avail liquidity from the RBI at the time of deficit on an overnight basis against the collateral of government securities.

Repo and reverse repo

• Repos or Repurchase Agreements is an instrument which allows banks to borrow money from the RBI to manage short-term needs of liquidity against the selling of government securities with an agreement to repurchase the same government securities at a predetermined date and rate. The rate at which the RBI lends to the banks is called Repo Rate.
• Reverse Repo is an instrument which allows the RBI to borrow from the banks by lending government securities. The rate at which the Banks lend to the RBI is called Reverse Repo Rate.
• Repo injects money into the system whereas Reverse Repo takes money out of the system.
• The RBI increases the Repo Rate during the time of inflation and decreases the Repo Rate during the time of deflation and low growth.

Marginal Standing Facility

• MSF is a new scheme announced by the RBI in the year 2011-12.
• MSF is a penal rate at which banks can borrow money from the RBI over and above what they can borrow from the RBI under the LAF window.
• MSF is a penal rate and is always fixed at a higher rate than the Repo rate.
• The MSF would be a penal rate for banks, and the banks can borrow funds by pledging government securities within the limits of the statutory liquidity ratio.
• The scheme has been introduced by RBI with the main aim of reducing volatility in the overnight lending rates in the inter-bank market and enabling smooth monetary transmission in the financial system.

Statutory Liquidity Ratio

• SLR is the percentage of the deposits that the banks have to hold with themselves in highly liquid government securities.
• SLR is one of the many arrows in the RBI’s monetary policy quiver. These are used, sometimes in isolation, sometimes in combination, to manage the money supply, interest rates and credit availability in the country.
• The SLR is an important tool of monetary policy, and its primary aim is to ensure that banks always have enough liquidity (cash and cash equivalent securities) to honour depositors’ demands and that they don’t lend away all their funds.

Bank Base Rate

• The Base Rate is the minimum interest rate of a bank below which it is not permissible to lend, except in some cases if allowed by the RBI.
• BR is the minimum interest rate that a bank must charge because below the base rate it is not viable for the bank to lend.
• The base rate, introduced with effect from 1st July 2011 by the Reserve Bank of India, is the new benchmark rate for lending operations of banks.
• Thus, all categories of domestic rupee loans should be priced only with reference to the Base Rate.

[B] Qualitative Measure of the RBI

Fixing Margin Requirements

• The margin refers to the “proportion of the loan amount which is not financed by the bank”. Or in other words, it is that part of a loan which a borrower has to raise in order to get finance for his purpose.
• For example, If the RBI feels that more credit supply should be allocated to the agriculture sector, then it will reduce the margin and even 85-90 per cent loan can be given.

Consumer Credit Regulation

• Under this method, consumer credit supply is regulated through hire-purchase and instalment sale of consumer goods. Under this method, the down payment, instalment amount, loan duration, etc., is fixed in advance. This can help in checking credit use and then inflation in a country.

Publicity

• This is yet another method of selective credit control. Through it, Central Bank (RBI) publishes various reports stating what is good and what is bad in the system. This published information can help commercial banks to direct credit supply in the desired sectors. Through its weekly and monthly bulletins, the information is made public, and banks can use it for attaining goals of monetary policy.

Credit Rationing

• Central Bank fixes credit amount to be granted. Credit is rationed by limiting the amount available for each commercial bank. This method controls even bill rediscounting. For certain purpose, the upper limit of credit can be fixed, and banks are told to stick to this limit. This can help in lowering banks credit exposure to unwanted sectors.

Moral Suasion

• It implies pressure exerted by the RBI on the Indian banking system without any strict action for compliance with the rules. It is a suggestion to banks. It helps in restraining credit during inflationary periods. Commercial banks are informed about the expectations of the central bank through monetary policy. Under moral suasion, central banks can issue directives, guidelines and suggestions for commercial banks regarding reducing credit supply for speculative purposes.

New Monetary Policy Framework: The MPC and Inflation Targeting

What is Monetary Policy Agreement?

• In 2015 The Government of India and the Reserve Bank of India signed a Monetary Policy Framework Agreement. The new monetary policy framework was formed following the recommendations of a committee headed by RBI Deputy Governor Urjit Patel.
• The objective of monetary policy framework is to primarily maintain price stability while keeping in mind the objective of growth.
• As per the agreement, RBI would set the policy interest rates and would aim to bring inflation below 6 per cent by January 2016 and within 4 per cent with a band of (+/-) 2 per cent for 2016-17 and all subsequent years.
• The central bank will be deemed to have missed its target if consumer inflation is at more than 6 percent or at less than 2 percent for three consecutive quarters starting in the 2015/16 fiscal year.
• If the central bank misses the inflation target, it will send a report to the government citing reasons and remedial actions.
• The central bank will also need to give an estimated time period within which it expects to return to the target level.

Significance of Monetary Policy Agreement 

• While the agreement gives a free hand to the RBI Governor to decide on the monetary policy measures to achieve the inflation target, it also requires the RBI to give out to the Central Government a report in case the target is missed for some time. Thus, it is a fine balance between autonomy and accountability.
• The World over, the Central banks are moving towards an inflation targeting based criteria for managing monetary policy. The MPA is a step in that direction.
• The MPA will put India into the League of Nations that followed a rule-based monetary policy mechanism.

Monetary policy committee

• The monetary policy committee framework will replace the current system where the RBI governor and his internal team have complete control over monetary policy decisions. While a technical advisory committee advises the RBI on monetary policy decisions, the central bank is under no obligation to accept its recommendations.
• The committee will have six members, with three appointed by the Reserve Bank of India (RBI) and the remaining nominated by an external selection committee. The RBI governor will have the casting vote in case of a tie.
• According to the Finance Bill, the committee will consist of the RBI governor, the deputy governor in charge of monetary policy and one official nominated by the central bank.
• The other three members will be appointed by the central government through a search committee.
• This search committee will comprise the cabinet secretary, the secretary of the Department of Economic Affairs, the RBI governor and three experts in the field of economics or banking as nominated by the central government.
• The members of the MPC appointed by the search committee shall hold office for a period of four years and shall not be eligible for re-appointment.
• The idea to set up a monetary policy committee was mooted by an RBI-appointed committee led by deputy governor Urjit Patel in 2014.

Assessment of the Monetary Policy of RBI

Achievements

• The overall requirements of expanding economic activities have been met adequately.
• In respect of priority sectors, for example, the objective of providing 40 percent of the bank credit has been met.
• Again, the funding of several important development programmes for the weaker sections of the population has been reasonably satisfactory.
• Even in respect of the control of inflation, the monetary policy has fared well. Overall, inflation has remained in the desired bracket except in a few instances.

Failures

• The most unsatisfactory result has been in respect of the expansion of the money supply. The growth rate of money has been much more than the growth in real products.
• Another shortcoming lies in the allocation of funds to various areas of sectors. The imbalances in credit allocation are more pronounced when one considers agriculture and small industry on the one hand and the large, organised industry and service sector on the other.
• Agriculture continues to be dependent upon money lenders to a considerable extent for its credit needs. Very small industries, mostly in the unorganised sector, have virtually no institutional source for funds.
• Also, there has been criticism that the new monetary policy framework has reduced RBI’s role to just inflation manager with little help from government fiscal policy.
• Transmission of changes in policy rates is not fairly transferred by commercial banks to consumers. For example, In terms of the marginal cost lending rate (MCLR) by the banks (as per the data released by the RBI), the rate reduction was only 10 bps against the reduction of 250 bps by the RBI.

Conclusion

• Thus, monetary policy holds an important role in a country’s growth and development.
• Till now, the monetary policy has fared well but there is a need to enhance the transmission of changes made to it by RBI to get better outcomes and impacts on the economy.

Click and get your FREE Copy of CURRENT AFFAIRS Micro Notes

(Click) FREE 1-to-1 on-call Mentorship by IAS-IPS officers | Discuss doubts, strategy, sources, and more

Context

• On November 23, 2022, the premier medical institute in the country, the All India Institute of Medical Sciences New Delhi (AIIMS) was crippled by a major cyber-attack.
• A few days later, another premier hospital, Safdarjung hospital also witnessed a cyber attack. In the past also, witnessed several cyber attacks on its critical infrastructure assets.
• In this context, this edition of the Burning Issue will analyze the issue of cyber security and threats to India.

What is cyberspace?

• A global domain within the information environment consisting of the interdependent network of information technology infrastructures, including the Internet, telecommunications networks, computer systems, and embedded processors and controllers.

The situation of Cyber Connectivity in India

• 3^rd highest internet users: India ranks 3rd in terms of the highest number of internet users in the world after the USA and China, the number has grown 6-fold between 2012-2017 with a compound annual growth rate of 44%.
• Rapid digitalization under progress: India has witnessed rapid digitalization in almost all spheres of public life. There is greater and easy access to financial services even for rural populations. Missions like Make in India and Digital India are creating a positive ripple effect across the economy.

What are Cyber Security Threats?

• Cyber Security is protecting our cyberspace (critical infrastructure) from attack, damage, misuse and economic espionage.
• Cyber Intrusions and Attacks have increased dramatically over the last decade, exposing sensitive personal and business information, disrupting critical operations, and imposing high costs on the economy.
• While traditional businesses are adopting e-platforms to widen their reach, new businesses based solely on new technologies like social, mobile, analytics and cloud (SMAC) are growing at breakneck speed. The Internet of Things (IoT)1, where interconnected devices could monitor various aspects of professional and personal life using internet-based technology, is fast becoming a reality.
• Although smart devices connected to the internet will make lives simpler, they are also likely to expose individuals and organizations to cyber threats.
• Cyber-attacks can vary in nature and include scenarios – such as the introduction of malicious software like trojans, worms, viruses and spyware; password phishing; and denial-of-service attacks intended to crash websites.
• Any successful cyberattack on a critical asset such as a power grid will have a multiplier effect, crippling communications, and transportation and even endangering the health and safety of citizens.

Cyber security situation in India

• Top 10 spam-sending countries: India secures a spot amongst the top 10 spam-sending countries in the world alongside the USA.
• One of the most affected countries: India was ranked among the top five countries to be affected by cybercrime, according to a 22 October report by online security firm Symantec Corp.
• India witnessed over 18 million cyber-attacks and threats, at an average of nearly 200,000 threats every day, in the first three months of 2022, according to the cyber security firm, Norton.

Famous examples of Cyber-Attacks in India

• In May 2021, the national airline Air India reported a cyber-attack in which the data of 4.5 million of its customers across the world, was compromised.
• In October 2019, there was an attempted cyber-attack on the Kudankulam Nuclear power plant.
• In February 2022, a suspected ransomware attack briefly knocked out the management information system (MIS) at Jawaharlal Nehru Port Container Terminal (JNPCT), one of five marine facilities in India’s top container gateway of JNPT (Nhava Sheva).

Impacts of Cyber Security Breaches

• Compromise integral defense systems: Tactical teams trained in cyber warfare have been deployed to attack critical infrastructure to compromise integral defence systems and infrastructure. 
• Huge ransom demands: A growing number of miscreants are holding large companies ransom through systemic attacks and ransomware. Recently, in India, a large power company’s operations were compromised due to a ransomware attack.
• Increases risk of fraud, data breaches: These incidents increase an organization’s risk of fraud, intellectual property theft, network incapacitation and damage to brand and corporate reputation – all of which can have far-reaching and expensive consequences.

Steps taken to bolster cyber security infrastructure in India

• Legal framework: There are two legislations: The Information Technology Act 2000, provides the legal framework for addressing cybercrimes and cyberattacks. Criminal countermeasures include the use of this Act along with the Indian Penal Code.
• Administrative: The Ministry of Electronics and Information Technology (MeitY) is responsible for cyber security. The Computer Emergency Response Team, CERT-IN, an office within MeitY, is the nodal agency for dealing with cyber security threats. CERT-IN also augments the security-related defence of the Indian Internet domain.
• Institutional: Several other government agencies are involved in dealing with cyber security and allied issues. The National Security Council Secretariat is the central coordinating body for cybersecurity and internet governance. The National Critical Information Infrastructure Protection Center (NCIIPC) focuses on cyber threats to critical information infrastructure and has been successful. The Cyber and Information Security Division (C&IS) of the Ministry of Home Affairs, is also concerned with cybersecurity and cybercrime
• Policy: India’s National Cyber Policy, 2013 is up for an overhaul and a new National Cybersecurity policy will be announced in the near future.
• Coordination with states: The Indian Cybercrime Co-ordination Centre (I4C) established by the Ministry of Home Affairs, acts as a nodal point in the response against cybercrime by coordinating with state police forces across the country. It also co-ordinates the implementation of mutual legal assistance treaties (MLAT) with other countries.
• Intelligence wing: The National Technical Research Organisation (NTRO) is a technical intelligence agency under the National Security Advisor in the Prime Minister’s Office. The NCIIPC works within the NTRO.
• Improved rankings: With continuous efforts at improvement, India has moved up 37 places to be ranked 10th in the Global Cybersecurity Index 2020 (GCI), according to a report by the International Telecommunication Union (ITU)

What more can be done: The Way Forward

• Private sector participation: Companies like Mastercard which have decades of global expertise in managing such risks and creating architecture that mitigate them can help build and strengthen cybersecurity systems.
• Active roles of governments: Governments, both at the state and central level as well as industry will need to play an active role in spreading awareness and training individuals.
• Strengthening the trifecta of policy, infrastructure and awareness: A large part of India’s population is digitally literate but unaware of basic security measures. As India embarks on its Techade of growth and global leadership, the trifecta of policy, infrastructure and awareness will be imperative to ensure that digital growth does not come at the cost of compromised cybersecurity.
• A whole-of-nation approach must be followed: This requires a comprehensive national risk assessment in line with the criticality of Indian assets and capabilities of the adversaries. It must be done by engaging stakeholders and creating a trusted information-sharing mechanism.
• A clear governance structure for organizations: mandated with cybersecurity and cyber crisis management, with a proper mandate clarifying the roles and responsibilities of different bodies, should be established to take stock of existing policies practices and capabilities.
• Creating a massive information-sharing mechanism: Stakeholders Including different state and central government departments, law enforcement and even corporates should also be engaged through a wide consultation and information-sharing mechanism to create baseline security benchmarks, and test them by organizing regular security drills, thereby augmenting incident response capabilities.
• Promote PPP model: The government must act as a facilitator and create a public-private partnership and lay adequate stress on user awareness and education. Most importantly, privacy and security should be balanced while handling cybercrime and fostering R&D to maintain a position of dominance in cyberspace.
• International cooperation: India must be a part of international cooperation efforts to promote responsible behavior in cyberspace. The country is still not a signatory to several conventions including the Budapest Convention. The two-decade-old Budapest Convention can be updated and made more democratic by taking into account the concerns of the developing world, where the majority of the world’s future consumers are from.

Conclusion

• As cybersecurity will continue to remain a potent factor in India’s digital ecosystem, all stakeholders must focus on a collaborative approach to develop formidable solutions that can create safer digital spaces.
• The role of policymakers will be equally crucial as they can help the industry in catalyzing innovation and bringing new solutions to the market at a faster pace and with enhanced agility.

Context

• A report titled ‘Carbon Capture, Utilisation, and Storage (CCUS) Policy Framework and its Deployment Mechanism in India’ has been released by NITI Aayog.
• The report explores the importance of technology as an emission reduction strategy to achieve deep decarbonization from the hard-to-abate sectors. This edition of Burning Issue will highlight the key aspects of this report.   

What is CCUS?

• The International Energy Agency (IEA) defines Carbon Capture, Utilization and Storage (CCUS) as a group of technologies for capturing CO2 from large and stationary CO2 emitting sources, such as fossil fuel-based power plants and other industries.
• CCUS also involves the transport of the captured CO2 (typically by pipeline and in certain situations through shipping, rail or trucks also) to sites, either for utilization in different applications or injection into geological formations or depleted oil & gas fields for permanent storage and trapping of the CO2.

Significance of CCUS technologies

CCUS can contribute to decarbonization and transition to clean energy systems in various ways:

• Hard-to-abate sectors: CCUS offers the only known technology for the decarbonization of hard-to-electrify CO2-intensive sectors such as steel, cement, oil & gas, petrochemicals & chemicals, and fertilizers.
• Creation Low carbon hydrogen economy: CCUS is expected to play a major role in enabling the hydrogen economy in India, through the production of blue hydrogen based on the utilization of our rich endowments of coal.
• Removal of the CO2 stock from the atmosphere: The race towards net zero and containing global temperature within 1.5 degrees from pre-industrial levels is not possible without the removal of excess CO2 from the atmosphere through Direct Air Capture (DAC).
• Sustenance of existing emitters: Existing thermal power plants and industrial plants (such as steel and cement production facilities) can be retrofitted with CO2 capture infrastructure.

Need for CCUS in India

• Growing CO2 emissions: India is the 3rd largest emitter of CO2 in the world after China and the US, with estimated emissions of 2.6 gigatonnes per annum (gtpa) in 2019. With rapid economic growth, infrastructure and industrial development, as well as a growing population, the total CO2 emissions are expected to cross 4 gtpa by the year 2030.
• Sustainable solutions for the decarbonization of sectors -The decarbonization challenge for India is to identify scalable and economically sustainable solutions for the decarbonization of sectors that contribute to 70% of emissions. CCUS has a critical role to play, especially for India to accomplish net zero by 2070.
• Enabling clean and green energy generation: CCUS also has a role to play in enabling clean and green baseload power and ensuring the sustenance and non-stranding of our over 210 GW of coal and lignite-based thermal power plants.
• Limit global temperature rise- The International Energy Agency points out that reaching net zero without CCUS is virtually impossible. The Intergovernmental Panel on Climate Change (IPCC) also concludes that without CCUS, it would not be possible to stabilize the CO2 concentration in the atmosphere between 450 – 750 ppmv (parts per million by volume) and limit global temperature rise between 1.5 to 2 degrees Celsius above pre-industrial levels.
• Fulfill commitments of the Paris Agreement and ‘Panchamrit Strategy’-As a signatory of the Paris Agreement 2015, India has committed to reducing emissions by 50% by the year 2050 and reaching net zero by 2070. Given the sectoral composition and sources of CO2 emissions in India, CCUS will have an important and integral role to play in ensuring India meets its stated climate goals, through the deep decarbonization of energy and CO2 emission-intensive industries such as thermal power generation, steel, cement, oil & gas refining, and petrochemicals.
• Enabling sunrise sectors- CCUS can enable the production of clean products while utilizing our rich endowments of coal, reducing imports and thus leading to a strong Indian economy. CCUS also has an important role to play in enabling sunrise sectors such as coal gasification and the nascent hydrogen economy in India.

Current usage of CCUS in India

• Presently carbon capture in India is confined to certain industries/applications where carbon capture is part of the process, viz., the manufacture of urea. India’s urea production is about 24 mtpa, where captured CO2 is utilized in the ammonia-to urea conversion process.
• CO2 is also captured as part of the gas conditioning process in the gasifiers of Reliance Industries Limited in Jamnagar (10 mtpa of petcoke gasification capacity) and JSPL in Angul (2 mtpa of coal gasification capacity), but the CO2 is largely released to the atmosphere and not utilized or stored.
• While there are few pilot-scale carbon capture projects (viz. IOCL R&D’s amine and biological enzyme-based carbon capture plant and Tata Steel Jamshedpur’s pilot-scale carbon capture plant for capturing 5 tonnes per day CO2 from Blast Furnace gases), there are no commercial-scale dedicated CCUS projects in India.

Carbon Capture and Storage Technologies

CO2 capture technologies separate carbon dioxide from gas streams that are released from industrial processes such as power plants, chemical production, cement production or steel making. There are three different broad categories of technologies for capturing CO2: Post-combustion capture, Pre-combustion and Oxy-fuel combustion.

• Cryogenic separation for CO2 capture is similar to the conventional distillation process, except that it involves the separation of components from a gaseous mixture (instead of liquid) based on the difference in their boiling points.
• In the adsorption-based CO2 capture process, the CO2 molecules selectively adhere to the surface of the adsorbent material and form a film. This is possible because of the difference in diffusivities and heat of adsorption values for the feed gas stream components.
• Solvent-based CO2 capture processes have been used for over half a century for processing natural (sour) gas, combustion flue gas and Fischer-Tropsch (FT) synthesis products. The fundamental principle on which solvent-based CO2 capture technologies work is the ‘selective absorption’ of CO2 over the other gaseous constituents.
• Microalgae-Based Carbon Capture– The basic philosophy behind the process of carbon capture by microalgae is the use of CO2 as a nutrient for the cultivation of microalgae. The selected strains of microalgae can be cultivated in ponds. The CO2 will be absorbed by the microalgae and the resulting gas will leave the cultivation system.

Utilization of the carbon captured

• Green urea: Green urea can be produced from the captured CO 2 and cost-competitive green hydrogen, from renewable energy-based electrolysis of water. Green urea can replace/complement the traditional LNG/NG-based production and import of ammonia and urea.
• Food and beverages applications: CO2 is utilized in F&B applications such as carbonated drinks, dry ice, and modified atmosphere packing; however, the scales are much lower compared to green urea.
• Building materials (concrete and aggregates): There is a large market for aggregates and concrete in a developing country like India, providing a pathway for utilizing CO2 for producing building materials through concrete curing and aggregate formation. In these applications, CO2 is injected in a liquid state without any conversion, thus reducing energy requirements.
• Chemicals (methanol and ethanol): Conversion of CO2 to methanol and ethanol from CO2 is proven at a commercial scale in different parts of the world.
• Polymers (including bio-plastics): The conversion of CO2 to polymers presents another possible CO2 utilization route.

Storage of the carbon captured

• Storage in oil wells– The injection of CO2 for Enhanced Oil Recovery has been studied and applied for years, especially in North America. CO2 is miscible with crude oil which helps in recovering oil not possible by secondary methods. This also helps in permanently storing CO2 in oil reservoirs, thus making CO2 EOR a sustainable option for abating CO2.
• Storage in coal seams- The CO2 injected is accumulated in the coal cleats in a dense gas phase. This CO2 is adsorbed and absorbed in the coal. Since CO2 has a higher affinity for coal than CBM, it pushes the coal bed methane toward production wells, thus enhancing its primary recovery. Similar to CO2 EOR, ECBMR can help in permanently storing CO2 and the recovered methane can also help offset the cost of carbon capture.
• Storage in Deep Saline Aquifers– Captured CO2 can be permanently stored in deep saline aquifers. Unlike EOR and ECBMR, injection of CO2 in deep saline aquifers has no economic benefit. Deep saline aquifers are spread across very large areas and thus have the potential to store very large quantities of CO2.
• CO2 Storage in Basalts– Recently studies have been carried out to learn about the CO2 storage potential of basaltic rocks. Basaltic rock constitutes divalent cations of Ca, Mg, and Fe. They can react with the CO2 dissolved in water to form stable carbonate minerals and thus can offer a safe CO2 sequestration method for an extended period.

Policy framework for India

Key Risks Associated with CCUS

• Technical Risks– such as Reservoir Suitability for CO2 Flooding for EOR and the extent of CO2 abatement possible through EOR depend on the comparative performance and cost-effectiveness of CO2.
• Financial Risks– Cost of Capture The main cost driver in the CCUS value chain is the capture cost. In industrial processes such as natural gas processing and gasification, carbon capture is part of the process itself and hence there is no additional cost of carbon capture. However, in the case of thermal power plants and other industrial processes, there are significant capital and cash costs, leading to financial risks for the entire CCUS value chain.
• Loss of Storage Site– Complications during CO2 injection may lead to the stoppage of operations at CO2 storage sites. Although reservoir management should provide adequate warning of such occurrences, there are technical risks in Carbon Capture Utilization and Storage (CCUS) – Policy Framework and Deployment Mechanism in India CCUS Policy Framework for India estimating/predicting the final capacity of a new storage site with certainty.

Promoting the Adoption of CCUS Technologies in India: The Way Forward

• The envisaged CCUS policy needs to adopt a multi-pronged approach to promote the adoption of CCUS technologies in India. The key elements of the approach need to incentivize the following: i) Technology transfer:
• Technology transfer, Assimilation and Adoption– Carbon capture, CO2 sequestration and CO2 EOR technologies are already demonstrated at a commercial scale in different parts of the world and particularly in the US for nearly 50 years. Hence the focus for India should be on technology transfer, assimilation and adoption of such proven technologies (TRL 8 and 9), rather than reinventing the wheel.
• Promoting R&D in novel technologies: While carbon capture technologies and technologies for CO2 EOR and sequestration are well developed and implemented at a commercial scale, technologies for the utilization of CO2 are relatively less developed.
• Private sector participation: Private sector participation is quintessential to promote the transfer and commercialization of existing CCUS technologies and also push the envelope for the development of new and emerging technologies in both capture and utilization.
• Carbon Capture Finance Corporation (CCFC)– It is proposed that the Government of India set up a financial institution for the promotion and development of CCUS projects in India. The financial institution, which can be called the “Carbon Capture Finance Corporation (CCFC)” shall provide tax and cash credits for carbon capture projects in India.
• Promoting Coal Gasification Projects with CCUS-Coal gasification (with CCUS) is an important and strategic sector for ensuring the future energy and materials security of India and reducing import-dependence for critical chemicals and commodities. It is recommended to set up a special purpose organization to drive and promote coal gasification in India, including the production of blue hydrogen to enable the hydrogen economy.

Conclusion

• Carbon Capture Utilization and Storage (CCUS) has an important and critical role to play for India to halve CO2 emissions by 2050 and accomplish net zero by 2070.
• Energy transitions take decades and hence it is important to implement the framework and policy instruments for CCUS to become a reality in India and make a meaningful contribution to decarbonization in India.

Click and get your FREE Copy of CURRENT AFFAIRS Micro Notes

(Click) FREE1-to-1 on-call Mentorship by IAS-IPS officers | Discuss doubts, strategy, sources, and more