Indian climate policy and decarbonized indigenous economic transition
By Professor Neelam Rani and Jatinder Handoo
India’s recent budget announcements on incentivizing energy transition and climate-friendly policy initiatives reinforce its commitment to a 100% net-zero economy by 2070 and reduce reliance on fossil fuel to renewables until to 50% by 2030. putting things into perspective China and the United States, the world’s largest and second largest producers of greenhouse gases (GHGs), have pledged to reach net zero emissions by 2060 and 2050 respectively. As a fast-growing economy with the lowest per capita emissions in the world, coupled with a goal of reaching a GDP of $5 trillion by 2025, India’s commitment to global commons (climate) shows its leadership, determination and sensitivity to mitigating the deleterious effects of globalization. global warming and progress towards a Decarbonized Indigenous Economic Transition (DIET). India’s action, whether at Conference of the Parties 26 (CoP26) in Paris in 2015 or in Glasgow in November 2021, shows how seriously India takes its global collective responsibilities under its own economic growth goals.
Global commitments and national policy initiatives towards Net Zero:
India’s Prime Minister, Mr. Narendra Modi, to mitigate risks arising from climate change, during CoP26 in Glasgow in November 2021, presented India’s Panchamrit (five ambrosias) mantra to world leaders. While he reinforced India’s commitment to further limit global warming to 1.5 degrees Celsius of the pre-industrial era, he also urged developed countries to financially support India by issuing funding of $1 trillion.
Prime Minister Modi assured world leaders that India will voluntarily make the following transitions by 2030.
• Increase in non-fossil energy capacity to 500 Gigawatts (GW),
• Use renewable sources to meet 50% of energy needs,
• Reduce the carbon intensity of the economy by 45%,
• Minimize carbon emissions by 01 billion tonnes
India Budget 22:
Alongside the Glasgow Commitments, Indian Finance Minister Ms Sitharaman in her Annual Budget Speech (Fiscal Year 2022-23) made much needed policy announcements to reinforce Government of India (GoI) Commitments to reduce adverse effects of climate change. As a policy tool, she chose to make an investment announcement worth INR 195 billion as Production Linked Incentives (PLI) to promote India’s domestic manufacturing of PV modules ( PV) with high efficiency in order to reach the objective of 280 GW of installed modules. solar energy by 2030. Change to the use of public transport in urban areas, complemented by clean technologies, special mobility zones with a zero fossil fuel policy and the promotion of electric vehicles (EV) by the implementation of a battery exchange policy via the “battery as a service” (BaaS) business model is a welcome initiative.
Another notable announcement concerns the launch of Sovereign Green Bonds (SGBs). Although issuing green bonds is not a completely new idea. In India, many companies in the corporate sector have already issued green bonds, but the announcement of the issuance of GBS in 2022-23 to mobilize resources (INR 240 billion according to a Bloomberg report) for green investments in infrastructure is a political announcement that shows a strong intention and commitment of the Indian government towards the construction of green and climate resilient infrastructure According to a survey of sovereign bonds (Green, Social and Sustainable Sovereign Bonds (GSS)) conducted by the climate bonds, London in November 2020, it was revealed that around 22 countries had already issued GSS sovereign bonds for a total of $96 billion. The same report also informed that at least 14 other sovereign governments around the world have expressed their intention to issue GSS bonds.
Currently, there is not a single ministry in the country tasked with moving India towards Net Zero for Environment, Forests and Climate Change (MoEFCC), the Ministry of Energy New and Renewable Vehicles (MNRE) and the Ministry of Heavy Industries (which is implementing the Faster Adoption and Manufacturing of Hybrid & Electric Vehicles in India (FAME INDIA) program to promote electric vehicles), have largely been driving the efforts of the India in this direction. However, a single “net zero ministry” would be highly desirable.
Why it’s hard to be green: challenges at home in implementing green prescribing
While all the climate talk is about achieving net zero status, for a layman in India (and elsewhere) it is relevant to understand what is the meaning of net zero emissions and what it takes to get there? why net zero is so important to us in India, the costs associated with it and finally, the willingness to absorb a pinch of green.
If left unchecked, according to a Deloitte paper presented at the World Economic Forum’s 2021 Sustainable Development Impact Summit, India’s economy could lose $35 trillion by 2070 (equivalent to 12 times nominal GDP (2020) of India according to World Bank data). Needless to say, this will have a negative political, social and economic impact on the livelihoods and lives of millions of Indians, further deepening socio-economic inequalities and widening disparities. However, at the same time, if India leads the way in climate action, it could gain $11 trillion in economic value. It is therefore clear, is the third polluter and emitter of GHGs. It is not a question of choice but a constraint for India to lead the way.
The Critical Role of India’s Financial Sector in Facilitating the Transition to Net Zero – Public Policy Announcements on Finance in Action.
The transition to net zero savings is easier said than done. According to a recent report by independent London-based think tank ODI, When we look at India’s energy-intensive sectors, primarily coal-based power generation, energy-intensive manufacturing which involves petroleum, cement, chemicals and primary industries (metals), quarries and mines, etc., all these activities contribute up to 60% of GHG emissions. Not just issuance, but these sectors together account for around 12% of all bank lending in India. Even more surprisingly, almost half of these loans are destined for a few large companies, hence the concentration of risk. Added to this are additional foreign borrowings amounting to USD 76 billion, which further accentuate the density of investments in the GHG emitting sector. This is rare, but, if a mapping of emissions against proportional investments is made, a clear picture would be obtained. It is deplorable that on the one hand Indian policy makers are making strident announcements, but on the ground only 17% of power generation loans go to pure-play renewable energy companies.
It is important to realize that the cost of DIET is directly linked to the exposure of the Indian financial sector to fossil-intensive sectors. In India, the power sector and other coal-intensive sectors rely heavily on fossil fuels for power generation, manufacturing, etc. not to mention the transition itself. The multi-year viability of projects will drop like a deck of cards.
Commercial banks are not alone in facing transition risks. Even companies in the oil, manufacturing and energy sector, including independent power generation companies, also issue corporate bonds promising lucrative returns to retail and institutional investors, it is the investors who hold such bonds who are also face similar risks. If this happened at any time during the transition, it could shake investor confidence in the economy.
And, when we discuss the role of the financial sector, it is imperative to look at the actions taken by India’s banking regulator – the Reserve Bank of India (RBI). For all scheduled commercial banks (except regional rural banks) on 20th December 2007, for the first time, the RBI issued a notice on corporate social responsibility, sustainable development and non-financial reporting to ensure ensure that sustainable development is not lost sight of by financial investors. institutions in pursuit of respective financial objectives. RBI has indeed advised banks to give importance to the triple bottom line approach. However, until recently, the main focus has been on creating opportunities in the area of green finance rather than managing financing linked to the risk of issuance of large projects such as in the sectors of energy or manufacturing. The first meeting of the Sustainable Finance Task Force set up by the Department of Economic Affairs, Ministry of Finance, Government of India was held in January 2021, which adopted a holistic framework for sustainable finance and mobilized new sustainable finance for sub-projects. As part of a global coalition and cross-learning, RBI became an official member of the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) on April 21. Immediately on the following May 21, RBI established a Sustainable Finance Group (SFG) to lead regulatory initiatives in the area of climate risk investments and sustainable finance.
Finally, an interconnected and mutually coordinated effort is needed to achieve DIET. A developing country like India would need external support in terms of access to clean technologies and green finance, especially from its developed counterparts to meet its climate obligations despite all good intentions. As India moves towards adopting a DIET economy, the pinch of green must be reduced through multilateral and bilateral cooperation in the climate space. As Prime Minister Modi summed up during his speech in Glasgow, as discussions on climate change continue; owning responsibility in the same vein is a must. He called on developed countries to enable immediate access to climate finance and technologies needed to achieve a net-zero emissions economy by the year of commitment.
(Prof. Neelam Rani is Associate Professor and Jatinder Handoo is Research Fellow at Indian Institute of Management Shillong)