How Budget 2023 Can Accelerate India’s Net Zero Transition

With just over two weeks to go before the announcement of the 2023 Union Budget, it is time to reflect on what would be some of the green priorities that one could expect from the finance minister Nirmala Sitharaman to support Prime Minister’s announcement at COP 26, of India’s Net Zero Transition by 2070. The climate crisis more real than ever before, India prominent in its size, growing economic position and a vocal player in world affairs emphasising the voice of the global south, must assume a more decisive leadership role in addressing climate change globally. The revision of the Indian nationally determined contribution (NDC) targets which accelerates the renewable energy ambition to an ambitious 500 GW non-fossil energy capacity is a step in the right direction as is the stand to have 50% of the country’s energy requirements met through renewable energy. Enough reason therefore for a high expectation in terms of allocation that can support the country’s net zero transition from the environmental community

Leadership in Green Energy

Energy access is the centre of India’s stand on the climate action. For a country whose per capita electricity consumption is about one sixth of the average of the Organisation for Economic Co-operation and Development (OECD) and one third of the world average approximately, increasing the availability of a reliable supply of energy at an affordable price is a development need. The share of solar and wind in India’s energy mix have grown considerably. The renewable energy (RE) programme will grow further with production-linked incentives, focus on EVs, and green financing.

However, while earlier budgets have laid emphasis on manufacturing and secondary market development, it is expected that this year’s budget focuses on enhancing capacity both by addition and integration. With an investment push towards capacity addition India can move from ambition to implementation especially now with the enactment of The Energy Conversation (Amendment) Bill, and RE grid integration. The other area that can drive accelerating India’s RE ambition is rapid technology adoption. This goes for Green Hydrogen too.  India needs to focus not just on producing Green Hydrogen but on developing the technology required for it, to prevent becoming import dependent. The demand for Green Hydrogen is expected to rise to 200 MTPA by 2030 and is an area that will pay an important role in India’s energy transition. However, 95 percent of current hydrogen is generated with fossil fuel usage so the relevance of research and development for technology becomes very essential. Investments in R&D in public institutions along with partnerships with the private sector could boost the clean energy movement. Investment in R&D has not been an area that previous budgets have allocated for but a roadmap towards this in the Budget, especially at a time when India’s is being looked towards to ideate in innovation for clean energy transition, can position the country stronger in the energy space.
 

Financing Green

According to a study by Standard Chartered, India will need investments up to $12.4 trillion for its transition to net-zero by 2060. Achieving the net zero target would require initiatives and investments in multiple areas including green electricity and decarbonization of hard to abate sectors mobility and manufacturing. Financing renewable energy with an expected investment of about $100 billion in the green hydrogen sector in the next decade, along with financing development and deployment of innovative downstream technologies is critical for decarbonizing the sectors of manufacturing and mobility.

Additionally, over the past few decades, the services sector has been the key growth driver for India. While the larger firms, are better positioned to manage net zero transition, the smaller ones which constitute a large portion of the service sector and the supply chains are more vulnerable and lack resources.

It is essential that the incoming national budget takes into consideration financing for climate mitigation and resilience as India aims to address its energy and decarbonization challenge. The establishment of a dedicated Indian Green Bank/Financial Institution could be a bold step in the right direction. An existing or a newly instituted financial institution with the required capacity and a complete understanding of methodologies for evaluation of corporate disclosures and green investments can tap global and local green finance sources and markets. To track public investments for meeting NDC targets, additionally green budgets earmarked in the central and state level can track international green finance flows and encourage relaxations on restrictions of external borrowings. A clear taxonomy around green bonds will however be required to prevent greenwashing. The development of carbon markets could also hasten the transition. India is in the process of developing a carbon market which will set a price for the highest-emitting sectors. A robust carbon market can also increase investments beyond renewable energy financing. However, to increase carbon trading and the allocation for a market stabilization fund may be crucial.

Green Lifestyles: Supporting the Prime Minister’s LIFE Mission

While Green Energy and Green Finance is a key ask for this year’s budget, decarbonization of the Indian economy will not be possible without an emphasis on the consumer as is aptly highlighted by the Prime Minister Shri Narendra Modi’s LIFE mission which highlights the role of climate friendly lifestyles.

The automotive sector that depends largely on fossil fuels accounts for 7-8% of India's total emissions. Accelerating the transition towards electric mobility means driving consumers to opt for low carbon fuels including hydrogen.  If citizens are to be engaged in India’s net zero transition, financial incentives that can drive behaviour change for a conscious reduction in the carbon footprint will be essential. EVs are slowly gaining popularity as choice of private and commercial transport. Section 80EEB of the Act was introduced in Budget 2019 to provide deduction for interest paid on loan availed for EVs. Such deductions can incentivise transitioning to a cleaner mode of transportation. Some innovation is also required to support behavioural change. Work from home emerged as a popular alternative for many organisations during the Covid -19 pandemic. This provided businesses with an opportunity to look at alternative modes of work as well as employees’ newer ways to operate. Work from home as continued to gain popularity post Covid, with organisations adopting remote working, hybrid working policies. This is also being considered a sustainable model since it restricts travel. When an employee works from office, there are costs that are incurred. Provisions in the budget to support innovative work models can support transitioning to new zero.

India needs to follow suit in the trajectory of Governments around the world actively using fiscal tools to transition their countries toward net zero. In terms of goals and strategies India has already shown leadership. India’s Nationally Determined Contributions (NDCs) submitted under UNFCCC are the most ambitious among G-20 countries and the country has already over-achieved the Paris Agreement commitment with 40 per cent of its electric installed capacity being non-fossil fuel-based ahead of its target date. What is now required is a leadership role in budgetary allocation and a greener budget to encourage key areas where climate action is necessary.

(The author is Director, CDP, India)