CODEL PELOSI HEARS FROM INDIAN INDUSTRIALISTS THAT MARKET

UNCLAS SECTION 01 OF 04 MUMBAI 000113

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: PREL SENV ENRG TSPL ETRD IN
SUBJECT: CODEL PELOSI HEARS FROM INDIAN INDUSTRIALISTS THAT MARKET
FORCES ARE DRIVING BUSINESS INTO CLEAN TECH

MUMBAI 00000113 001.2 OF 004



1. (U) Summary: In an open and wide-ranging discussion,
India's leading businessmen told Speaker Pelosi and her
delegation that they prefer market incentives rather than tax
policy to promote environmentally-friendly technology. They
also stressed that, given high energy prices, large Indian
companies were already shifting to energy-efficient technologies
to save money, but smaller companies were in the need of
assistance. Furthermore, Speaker Pelosi and the panel agreed
that India, given its rapid rate of growth and lack of legacy
issues, was in a stronger position than developed countries to
adopt green solutions. The panel and the delegation also
concluded that given the U.S. strength in creating innovative
technology and India's strength in frugal engineering that the
two were natural partners in making clean technology
cost-effective. However, Indian panelists cautioned that
voluntary rather than mandatory action was preferred in regards
to the adoption of such technology. On the civil nuclear
initiative, Indian industrialists thought that while the top
layers of government are committed to it, in the near-term the
survival of the federal government would take precedence. In a
separate meeting, the CODEL also heard about the Essar Group's
plans to develop renewable energy solutions and minimize its
carbon emissions.

Incentives Rather than Carbon Tax Preferred by Indian Industry
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2. (U) On March 24, Nancy Pelosi, the Speaker of the House, and
nine other members of Congress engaged with senior Indian
business leaders in Mumbai to discuss clean energy and energy
efficiency. Speaker Pelosi initiated the discussion by stating
that her delegation realizes that private sector participation
was essential to stop global warming, and solicited the group's
opinion on the levy of a carbon tax to check carbon dioxide
emissions. Mukesh Ambani, the Chairman & Managing Director of
Reliance Industries, said that an incentive system rather than a
carbon tax should drive clean energy and energy efficiency. V.
Raguraman, the Confederation of Indian Industries (CII)
Principal Advisor on Energy, Water and the Environment, pointed
out that energy prices in India are administered and not
market-driven, and both industry and consumers pay heavily to
subsidize the agricultural sector and the poorer sections of
society. A market-determined rational pricing system is
essential for the energy chain before a carbon tax is necessary,
he emphasized. Ambani pointed out that the quality of life and
income levels of many Indians had drastically improved over the
past two to three decades which had created a power shortage
throughout India. He admitted that there was a great temptation
to take the "easy" way out to solve this problem -- use the
country's large coal reserves for thermal-based power plants, to
use small cars with inefficient engines - but that he is
confident that energy efficiency will become the way of life for
Indians, provided the right incentives and the right market
structure is in place. Jamshyd Godrej, the Chairman of Godrej &
Boyce and the moderator of the round-table discussion, concurred
with Ambani, suggesting that low carbon emissions should be
encouraged through market incentives rather than disincentives.
Ashok Ganguly of the Government of India's Investment Commission
added that the high energy prices paid by industry were forcing
it to become more energy-efficient while it incrementally used
more energy.

3. (U) Anand Mahindra, the Vice-Chairman and Managing Director
of Mahindra and Mahindra, claimed that the consumer's demand for
clean technology has forced industry to innovate and deliver
energy efficient solutions or lose market share to competitors.
He cited the production of the Mahindra diesel hybrid SUV -
which he hopes to launch in the U. S. by 2010 -- as an example
of green technology driven by consumer demand. Green energy in
India will be driven by the voluntary responsibility of the
people and industry, he claimed. Joint partnerships -- and not
taxes -- are the solution, he continued. Further explaining
these points, Godrej mentioned that Indian industry is not
opposed to India signing international agreements, as Indian
industry knows how much it can already do to make itself
environmentally friendly and make profits from these actions.
On the contrary, Godrej explained that the Indian government
will not do anything until it sees what other governments are
willing to do.

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4. (U) Rep James Sensenbrenner recognized that global policies
on climate change have to be sensitive to political realities.
He pointed out that policies had to be geared at winning
elections, as most of the major countries in the world,
excepting China, are democracies. He expressed agreement with
Indian interlocutors that technology and market forces would
solve the problem of global warming and climate change, and not
carbon taxes and regulations. He added that he believed that
the private sector would be the driving force to effect changes
and that entrepreneurs would be motivated if money could be
saved and made from the use of green technology. He emphasized
that strong intellectual property protection was essential to
encourage people to invest in innovation.

India in a Desirable Position to Make Green Energy Choices
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5. (U) Ashok Ganguly, a member of the U.S.-India CEO forum and
of the Prime Minister's Investment Commission, explained that
energy consumption in India is highly skewed and most of the
people have low to no energy consumption. Therefore, he
contended that it is unfair to control or limit energy
consumption in India. However, he believes that the low level
of domestic energy consumption also gives India the ability to
control, guide, and manage future uses of energy. V Raghuraman
also expressed the belief that India can "leapfrog" to the most
advanced technology, as the country has no legacy issues.
India's entrepreneurial talent, he claims, can develop "elegant
solutions to build a low carbon economy." Raghuraman who is
also a director of Suzlon, the fifth largest wind turbine
manufacturer, also lauded India's initiatives in wind energy.
He noted that wind energy met the goals of the Tenth Five Year
Plan (2002-07) of 6,000 MW in renewables in just three years
time. Most of the additional generation capacity of renewables
-- targeted at 14,000 MW in the Eleventh Five Year Plan
(2007-12) -- will again come from wind energy. In contrast, he
noted, India has an installed capacity of only 3 MW of solar
power but there are expectations that this could increase to
2,000 MW by 2010. He affirmed that India needs to develop
competitive and cost-efficient solar technologies, as most of
India's villages do not have any electricity, so shifting to
solar energy would be easy, he noted. Raghuraman, however,
warned that while India could become a market leader in the
manufacture of renewables and clean technology, these
technologies could be diverted to countries where there better
incentives for their use, instead of being deployed locally.
Speaker Pelosi pointed out that developing countries may be
better placed to implement clean energy solutions due to an
absence of legacy issues, rather than developed countries like
the U.S. Raguraman concurred that given India's current rate of
GDP growth, by 2030 India's energy-inefficient legacy assets
will constitute a miniscule portion of assets.

U.S.-India Natural Partners in R&D for Clean Technology
-------------- --------------

6. (U) Ganguly said that one of the points raised in the
U.S.-India CEO forum discussions was that both countries had two
inherent strengths: the U. S. as an innovator of new technology
and India as a laboratory to test and try out this technology to
bring about change. Mahindra pointed out that India's
strength's in "frugal engineering" (achieving more with fewer
resources) would aid this joint partnership. Ambani highlighted
India's technological prowess by citing India's success in the
telecom sector which was plagued with inefficiencies and poor
quality in the 1990's. Now, he pointed out, calls cost less
than 10 paisa (or cents) a minute. India is the "playground"
for the world economy and there are tremendous opportunities for
partnerships to demonstrate technological efficacy, he
continued. Mahindra added that the U.S. gave the world the
semiconductor, automobiles, the computer, and the Internet, and
it should now take the lead in the innovations necessary to
conquer the problem of climate change. Speaker Pelosi
emphasized that education was the key to innovation and
recognized that the Indian-American community in the U. S. was a
critical driving force behind innovation.

7. (U) Rep. Jay Inslee said that a globalized, largely
de-carbonized economy was essential to achieve an 80 percent
reduction of carbon emissions by 2050. This, he admitted, is a

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herculean effort and R&D investment has to be ramped up by
several factors to achieve this. He suggested that two issues
be raised in the upcoming Copenhagen Climate Conference.
Sector-based emission reductions and the creation of a clean
technology fund where developed and developing countries
contribute a certain percent for the development of clean
technology. Shashank Inamdar, the Managing Director of Praj
Industries which is a major player in bio-fuels and
ethanol-based technology, stated that the USG had allotted
nearly USD 400 million for six research-projects for the
commercialization of cellulose-based ethanol, and Praj was
collaborator for some of the projects. Rep. Rush Holt said that
India is central to the issue of whether the world can deal with
global warming and climate change. He remarked that in other
developing countries the R&D infrastructure is not in place, but
in India it is. He suggested that India's R&D infrastructure
should be scaled up, with a concurrent major increase in
investments. There should be a major commitment for
co-operation in R&D to provide the funds needed, he added. In
doing so, the thought of a billion people consuming like Western
consumers would become feasible from the stand-point of the
environment.

Voluntary Rather than Mandatory Action Prescribed
-------------- --------------

8. (U) Rep. Anna Eshoo emphasized that efforts towards clean
energy should be voluntary through "big-thinking" and
"big-action." She stated that the U. S. does not want to
"preach or penalize." She noted, however, that there is a sense
of urgency and that the window of opportunity is limited and
closing rapidly. Mahindra appreciated Eshoo's comments and
recognized the leadership role of the U.S. He recommended that
the move towards mandatory standards should be suggested by a
neutral third country. He stated that the "bargaining table
approach" would not feasible for countries like India and China
and suggested that the U.S. instead take a "leap of faith" and
not adopt a "quid pro quo" approach towards India. Ganguly also
expressed confidence that Indian private industry and
non-government bodies, cognizant of global warming and climate
change, will work towards addressing these two challenges. Rep.
Inslee assured that by 2009, the U.S. hoped to have an
aggressive carbon reduction strategy with a cap and trade system
in place. Markey added that the U.S. would then have some
credibility in negotiation once the 2009 Bill is passed, but
emphasized that a partnership with India would still be
essential. A partnership between the U.S. and India on clean
technology and energy efficiency is needed to save the world, he
concluded.

9. (U) Speaker Pelosi and Rep. Edward Markey both wondered
whether there could be sector-based agreements for mandatory
standards to reduce emissions and whether this reduction surplus
could be traded in a new international market. Godrej believed
that mandatory standards work for sectors of the industry which
view it as an efficiency and cost-reduction factor; he singled
out the lighting and air conditioner industries in India who
have used this approach. He pointed out that the need for
efficiency drives industry and this in turn drives innovation.
But he emphasized that large industry has access to the large
pools of capital to make the necessary investments but the
challenge was to bring the thousands of smaller companies on
board. Praj's Inamdar explained that the "food versus fuel"
debate compelled the company to explore the economic and
commercial viability of bio-fuels as energy crops. He suggested
that the concessions given to farmers and oil companies for
corn-based ethanol should also be extended to the producers of
the ethanol blending technology. These incentives are essential
for long-term sustainability of the program for bio-fuels, he
added. Prem Jain, the Chairman of the Indian Green Business
Council, said that the main focus of the CII-Sohrabji Godrej
Green Business Center was to promote green buildings, as 40
percent of energy is consumed by buildings. He noted that the
partnership with the U.S. to make India's first platinum-rated
green building was based on technology transfers and not on
financial assistance. Green buildings can reduce energy
consumption by 40 percent and water consumption by 30 percent,
he continued.

10. (SBU) Drawing from an earlier meeting in her trip, Speaker

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Pelosi said that the U.K. Prime Minister Gordon Brown had
suggested revamping international financial institutions to have
a window for clean technology. Godrej pointed out that several
studies had shown that the more banks pursue green business
standards, the lesser their market share, similar to the way
that environmental and other conditions on World Bank and IMF
loans reduced their attractiveness to developing countries,
pushing them to borrow from other sources with few strings. He
recommended that all private banks be required to make clean
technology mandatory for project finance. Speaker Pelosi
assured him that Wall Street was cleaning up its act.

Nuclear Energy: Will Remain a Small Part of India's Energy
Portfolio
--------------

11. (U) In response to Rep. Jim McDermott query about CII's
interests in getting the U. S. -India civil nuclear agreement
passed, Raghuraman explained that CII meets regularly with the
U.S. India Business Council (USIBC) to discuss how to drive the
agreement forward, while also addressing political
sensibilities. Ganguly said that the top layers of government
are committed to the deal. However, he believes that it will
not be the "end of the world" if the deal is not passed. Godrej
pointed out that nuclear energy currently accounts for around
2-3 percent of India's total energy generation and will likely
only grow to 5-6 percent. While nuclear power is essential for
the long-term and for a low-carbon economy, it is "not worth the
government falling over this issue", he continued.

Essar Group Discusses Its Clean Energy Plans
--------------

12. (U) After the roundtable discussion, CODEL Pelosi met with
senior executives of the Essar Group, a major diversified
company with investments in steel, shipping, telecommunications,
and energy, including a recent foray into wind energy. V.
Krishnan the Head of Corporate Relations for Essar, discussed
the company's plans to improve its refinery operations and to
build 100-200 MW wind power generation plants in Tamil Nadu and
Gujarat as well as a proposed project to create a 50MW solar
energy facility in Rajasthan. When questioned about the use of
coal in their steel plants, Joshi emphasized that the company
used natural gas and electricity instead of coal for its steel
plants. The company was planning to examine the combined carbon
dioxide emitted from its business activities and look at ways to
minimize these emissions. It also planned a venture into the
production of bio-diesel.

13. (U) In terms of expansion and funding of consumer
technology, two years ago the Essar Group founded the Essar
Excellence Center, which employs over 1000 scientists and
engineers in the metal, hydrocarbon, and energy sectors whose
sole focus is to look at new technology and projects such as
carbon credits. However, Sanjay Mehta, Essar Managing Director,
told the Speaker that Essar does not have enough resources to do
serious research in renewable energy at the moment, and relies
largely on licensing these and other technologies from largely
American companies. He added that it is not always easy to
license key technologies, as some are proprietary products
designed by industry competitors.

14. (U) Comment: Members of CODEL Pelosi considered this
roundtable to be one of the best interactions that they had in
India. While they were disappointed by the lackluster
commitment to clean energy from the Government of India, the
strong dedication by industry to develop alternative energy
sources and clean technology impressed them. In contrast to
government concerns, the business leaders appeared open to
adapting their businesses to incorporate clean technology.

15. (U) The Delegation was not able to clear on this cable.
OWEN