Financing of climate projects by India’s international partners can augment its growth while also ensuring minimal growth in its GHG emissions.
As the world warms rapidly, global society must contend with its implications. The adverse impact of extreme weather phenomena like wildfires, cyclones, floods, and heatwaves exacerbates contemporary global challenges like inequality, poverty, food insecurity, diseases, mobility, and connectivity. Climate change is a threat multiplier that permeates every aspect of life on earth. To prevent irreversible damage to the environment, governments and businesses are taking important steps towards addressing climate change.
The most prominent effort has been the Paris Agreement of 2015 signed at the 21st Conference of Parties (COP). The agreement served to underline the climate emergency and provide a framework within which national action could be designed. It emphasised the need to reduce greenhouse gases (GHGs) like carbon dioxide and methane that are primarily responsible for climate change. However, the release of these gases is inextricably linked to essentials like electricity and power generation, transport, agriculture and livestock, global e-commerce, and the internet itself. To continue reaping the benefits of these conveniences and essentials, while also reducing the risk to the planet, a paradigm shift in how humans interact with carbon is imperative.
COMMON BUT DIFFERENTIATED RESPONSIBILITIES
The Paris Agreement provides an element of this paradigm shift. Given that carbon emissions vary per country and the consequences of climate change are experienced differently across the world, the Paris Agreement puts forth the principle of common but differentiated responsibilities. This that seeks to balance the consequences of climate as experienced by individual countries and their ability to mitigate or adapt to these effects. For instance, developed countries have mostly led (and continue to lead) global emissions levels; China, the United States and the European Union are together responsible for 46% of total GHG emissions in the world. Data from Climate Watch by World Resources Institute estimates that India emits 7.1% of global emissions, the fourth highest in the world. Notably, however, India’s per capita emissions, at about 2.47 tCO2e (tonnes of carbon dioxide equivalent), are seven times lower than that of the United States, 3.4 times lower compared to China’s and three times lower compared to the EU. The global average for per capita emissions is also higher, at 6.45 tCO2/per capita.
At the same time, adverse weather events, cyclones, droughts and flooding, wildfires, among others, are disproportionately experienced in developing countries of the Global South and small island nation states. The Agreement, therefore, stipulates that “[t]he efforts of all Parties will represent a progression over time, while recognising the need to support developing country Parties for the effective implementation of this Agreement.”
The Paris Agreement also asserts that developed countries must take the lead by “undertaking economy-wide absolute emission targets” and in providing financial assistance to developing nations for mitigation and adaptation efforts. Both, building climate resilient systems and reducing emissions, are expensive propositions. With financial assistance, low middle income and low-income countries could take necessary steps towards these efforts. The agreement recommends climate financing through various sources and instruments that can help countries’ strategies to achieving their emission reduction targets.
UNDERSTANDING INDIA’S POSITION
India, the world’s fifth largest economy, is also its fastest growing major economy. Despite the setbacks of the Covid-19 pandemic, India’s growth trajectory has not been derailed and, according to projections by the International Monetary Fund (IMF), the country is estimated to grow at a pace of 9.5% in the 2021-22 fiscal year. Meanwhile the global growth projection is 6%.Policy changes across the central and many state governments have enabled India to become a leading destination for global investments and to carve an integral place for itself in global value chains. India’s manufacturing potential is unmatched and largely untapped. A series of Production Linked Incentives (PLI) announced by the central government over the last 10 months hope to change that. In a short time, India will be manufacturing countless consumer products whose markets are likely to be oceans away. India’s growth is, therefore, the growth of the entire global community.
Given this centrality of India to global manufacturing, global investors must help secure India’s assets against the compounding challenges of climate change. India is among the most vulnerable to rising sea levels and changing precipitation patterns while also being among the least per capita contributors to global greenhouse gas (GHG) emissions. Decarbonising India’s economy, while also ensuring continued growth and development, requires extensive international participation through project financing and transfer of technology.
Deeply committed to the principles of the Paris Climate Agreement, India has internationally championed the cause of climate change mitigation and sustainable development on multiple occasions. Its most notable contribution to collective global action is the International Solar Alliance (ISA) set up along with France. However, India is also a developing nation with unmet growth needs. Net zero emissions target, as is understood globally, does not account for the twin urgency of development and addressing climate change. India has, therefore, devised domestic mechanisms for ensuring clean growth and reducing carbon emissions. It has set ambitious clean energy targets for the next decade, taken measures to reduce emissions in the transport sector, and continues to modernise Indian agriculture to reduce its carbon footprint. These sectors also account for rapidly developing investment opportunities in India.
RENEWABLE ENERGY
India is a global leader in energy transition. At present, it boasts of 147 GW of installed renewable energy (RE) capacity (including large hydro)—the fourth largest in the world. We also have the fourth largest wind and fifth largest solar capacity. Furthermore, the United Nations designated India as one of the global champions in energy transition for the UN High Level Dialogue on Energy. The Indian energy sector contributes nearly 69% of the country’s total emissions. Decarbonising energy generation in India not only positively impacts the sector’s emissions but also reduces emissions of end-use sectors like heavy industries, agriculture, household electricity, among others. Merely electrifying the economy without decarbonising the source of the electricity yields only a marginal improvement in total GHG emissions. In recognition of this, India has set ambitious targets for its renewable energy (RE) sector, aiming to generate 175 GW (100 GW Solar PV, 60 GW Wind, 10 GW Biomass and 5 GW Small Hydro) by 2022and 450 GW by 2030or 40% of installed electric power capacity.To achieve these targets, the government of India estimates that business prospects of USD 20 Bn will be generated every year over the next decade.India has already received over USD 70 Bn investment in the RE sector over the last decade and has opened the sector to 100% foreign direct investment (FDI) through the direct route. Foreign investors will find India’s emerging RE sector brimming with economic opportunities. The government’s recent PLI scheme for domestic manufacturing of solar photovoltaic cells has also made market entry in RE allied sectors cost competitive.
TRANSPORT
Emissions from India’s transport sector have grown consistently, doubling since 2010 and tripling since 2000. Today, the sector accounts for 13.5% of the total energy-related CO2 emissions in India and is the country’s fastest-growing source of carbon emissions. Road transport accounts for 90% of these emissions, followed by rail and domestic aviation both of which contribute 4% each.
Vehicle penetration in India is growing at a rapid rate as consumers are offered more and increasingly affordable options. This has led to congested urban road networks and poor air quality, caused by Internal Combustion Engines (ICE), or vehicles run on fossils, that have more than doubled the sector’s energy consumption and related emissions. Electric vehicles (EV) are an immediately available answer to decarbonising the sector. Thus, EVs have tremendous potential in India and with government incentives promoting them, the uptake of such vehicles is nascent but growing swiftly. Two-wheelers and three-wheelers constitute a major chunk of vehicular sales in India.
Major reductions in emissions can be made if long-haul trucks are replaced by freight trains that are greener, safer, and cheaper. The government of India has already commenced the construction of two railway freight corridors, connecting Ludhiana in Punjab with Dankuni in West Bengal and Dadri in Uttar Pradesh with Jawaharlal Nehru Port Trust (JNPT) in Mumbai. This project, along with the Railway’s ambition to electrify its routes by 2023 will make India the largest green railway network with net-zero carbon emissions reached in 2030.
For investors, the Indian transport sector offers widespread business potential, especially since the projects in the pipeline greatly enhance India’s logistical efficiency and reduce logistical costs. Creating a transport sector of the future serves India’s future where it is sure to emerge as a global manufacturing hub.
AGRICULTURE
Agriculture still plays a significant role in the Indian economy. Not only do agriculture and allied sectors contribute 17.1% of India’s Gross Value Added (GVA), but they also employ 54.6% of the country’s workforce. At the same time, agriculture contributes 17% of India’s total GHG emissions. Of these, 54.6% were due to enteric fermentation (livestock), followed by 19.1% from agricultural fertilisers, 17.5% from rice cultivation, 6.7% from poor manure management, and 2.2% from burning crop residue.
Indian agriculture is structurally vulnerable to climate change and related disasters. The sector is largely dependent on monsoon rains and Himalayan glacier fed rivers for irrigation. Climate change has already altered monsoonal patterns and reports suggest that it threatens to make monsoons harsher which can, in turn, have a debilitating effect on Indian crops. Furthermore, a global rise in temperature will lead to rapid melting of glaciers which can cause rivers to flood across the entire Gangetic plains, effectively making the farmland inarable. Rising sea levels could inundate coastal farms where much of India’s cash crops are grown.
India is, at present, the world’s largest producer of spices, pulses, milk, tea, cashew and jute, and the world’s second largest producer of food grains, fruits, and vegetables. To protect the health of its agricultural economy and the global food market, investments in building resilience into the sector and adapting it to a changing climate is imperative. Research and development of climate resilient seeds, undertaken by the government of India already, can be augmented by foreign players with experience in the field. Investors can also be involved in deployment of technology across India’s farmlands so that effects of climate change on crop yield, precipitation patterns and soil conditions can be recorded for analysis and further adaptation.
For developing countries, like India, the actual share of carbon space available is limited even though their developing needs are unmet. Additionally, it is important to notice the inherent lack of access to and gaps in adaptation infrastructure technology and financing in developing and least developed countries. Therefore, India has created its own pathway to ensure clean growth and minimal increase in its carbon emissions.
In September of 2015, while addressing the United Nations Summit for the adoption of Post-2015 Development Agenda, Prime Minister Narendra Modi reiterated; “We should forge a global public partnership to harness technology, innovation and finance to put affordable clean and renewable energy within the reach of all. Equally, we must look for changes in our lifestyles that would make us less dependent on energy and more sustainable in our consumption. It is equally critical to launch a global education programme that prepares our next generation to protect and conserve Nature. I hope that the Developed World will fulfil its financing commitments for development and climate change, without in any way putting both under the same head.”
India is an important link in the global value chain with a rapidly growing economy. It is also still a developing country with certain unmet growth that have traditionally increased a country’s GHG emissions. However, India recognises the threats of climate change and has committed itself to a clean growth and sustainable development. It has set ambitious targets and is well on its way towards achieving its commitments. Financing of climate projects by India’s international partners can augment its growth while also ensuring minimal growth in its GHG emissions.
The writers are researchersat the Strategic Investment Research Unit of Invest India. Views are strictly personal.