By Prof Neelam Rani and Jatinder Handoo

India’s recent budget announcements regarding incentivizing energy transition and climate-friendly policy initiatives are the reinforcement of her commitment towards a 100% net-zero economy by 2070 and reducing its reliance on fossils-based energy to renewable energy up to 50% by 2030. To put it in perspective China and the USA, the world’s first and second-largest producers of Green House Gases (GHGs) have committed to attaining net-zero emissions by 2060 and 2050 respectively. As a fast-growing economy with the lowest per capita emissions in the world coupled with an aim of attaining $5Trillion GDP by 2025, India’s commitment toward global commons (climate), shows her leadership, resolve, and sensitivity to mitigating deleterious effects of global warming and progression towards Decarbonized Indigenous Economic Transition (DIET). The action of India, be it at the Conference of Parties 26 (CoP26) in Paris in 2015 or at Glasgow in November 2021 demonstrates how seriously India takes its collective global responsibilities amid its own economic growth targets.

Global commitments and national policy initiatives towards Net Zero:

Indian Prime Minister, Mr. Narendra Modi, to mitigate risks arising out of climate change, at CoP26 in Glasgow in November 2021 presented to the global leaders India’s Panchamrit mantra (five ambrosia). While he reinforced India’s commitment to further limit global warming to 1.5 degrees Celsius of the pre-industrialized era, he also exhorted developed nations to support India financially by issuing funding of USD 1 Trillion.

PM Modi assured the world leaders that India shall voluntarily make the following transitions all by 2030.

• Enhancement of the non-fossil energy capacity to 500 Gigawatts (GWs),

• Using renewable sources, to fulfill 50 percent of energy needs,

• Decreasing carbon intensity of the economy by 45 %,

• Minimising carbon emissions by 01 billion tonnes

India Budget 22:

In tandem with the Glasgow commitments, Indian finance minister Ms. Sitharaman in her annual budget (FY2022-23) speech made some much-needed policy announcements to reinforce the Government of India’s (GoI’s) commitments to reducing the harmful effects of climate change. As a policy tool, she chose to make an investment announcement worth INR 195 billion as production linked incentives (PLIs) to promote domestic make-in-India manufacturing of the high efficiency photovoltaic (PV) modules to meet the goal of 280 GW of installed solar power by 2030. Shift for using public transportation in urban areas complemented by clean-tech, special mobility zones with zero fossil-fuel policy, and promoting Electric vehicles (EV) by the implementation of battery swapping policy through ‘Battery as a Service’ business (BaaS) model are a welcome move.

Another noteworthy announcement is regarding the launch of Sovereign Green Bonds (SGBs). Although the issuance of green bonds is not a completely new idea. In India, many corporate sector firms have already issued green bonds, but an announcement to issue the SGBs in 2022-23 for mobilizing resources (INR 240 Bn. as per a Bloomberg report) for green investments in infrastructure is a policy announcement that shows a strong intent and commitment of Indian Government towards building green and climate-resilient infrastructure As per a survey on sovereign bonds (Sovereign Green, Social, and Sustainability (GSS) Bonds ) conducted by climate bonds initiative, London in November 2020, it was revealed that around 22 countries had already issued sovereign GSS bonds totaling USD96Bn. The same report also informed that at least 14 other sovereign governments across the world had expressed their intention to issue GSS bonds.

At present, there is no single ministry in the country that is responsible for moving India towards net-zero the Environment, Forest and Climate Change (MoEFCC), Ministry of New and Renewable energy (MNRE), and Ministry of Heavy Industries (which implements the Faster Adoption and Manufacturing of Hybrid & Electric Vehicles in India (FAME INDIA) scheme to promote electric vehicles), have largely been the driving force behind India’s effort in this direction. However a single “Net Zero Ministry” would be highly desirable.

Why Does It pinch to be Green: Challenges at home in Implementing Green Prescription

While the whole climate narrative is aimed at attaining net-zero status, for a layperson in India (and elsewhere), it is pertinent to understand what is the meaning of net-zero emissions and what it takes to reach there? why net-zero is so important for us in India, the costs associated with it, and finally, willingness to absorb a pinch of the green.

If left unchecked, according to a Deloitte document presented at the 2021 Sustainable Development Impact Summit of the World Economic Forum, the Indian economy could lose USD 35 trillion by 2070 (which is equivalent to 12 times the nominal GDP (2020) of India as per the world bank data ). Needless to say, this will have an adverse political, social and economic impact on the livelihoods and lives of millions of Indians further aggravating socioeconomic inequality and widening disparity. However, at the same time, if India leads the way forward with climate action, it could gain USD 11 trillion in economic value. It is therefore clear, is the third-largest polluter and emitter of GHGs. It is not a matter of choice but a compulsion for India, to lead the way through.

The Critical Role of India’s Financial Sector in facilitating transition to net-zero – Public Policy Announcements to Finance in Action.

The transition to net-zero economies is easier said than done. As per a recent report published by a London-based independent think-tank ODI, When we look at the energy-intensive sectors in India, primarily coal-based power production, energy-intensive manufacturing which entails petroleum, cement, chemicals, and primary metals), quarrying and mining, etc., all these activities add to 60% of GHG emissions. Not just emissions, but these sectors together account for approximately 12% of all bank lending within India. To more surprise, nearly half of this lending flows to a few big firms, thus the concentration of risk. On top of it, additional foreign borrowing to the tune of USD 76 billion is also there which further accentuates the density of investments in the GHG emitting sector. It is rare, but, if emission mapping to proportionate investments is done, a clear picture would be arrived at. It is deplorable that on one hand, Indian policymakers make vehement announcements, but on the ground, merely 17% of lending to electricity production goes to pure-play renewable energy companies.

It is important to realize that the cost of DIET is directly related to the exposure of the Indian financial sector to fossils intensive sectors. In India, the power and other coal guzzling sectors are hugely dependent upon fossil fuels for the generation of electricity, manufacturing, etc. The proportionate investment made by the Indian banking sector in financing megaprojects will face immediate risks, should there be a talk of transition let alone transition itself. The multi-year viability of projects will plummet like a pack of cards.

Commercial banks are not just alone in facing transition risks. Even Oil, manufacturing, and Power sector firms including independent power-producing firms also issue corporate bonds promising lucrative returns to retail and institutional investors, it is those investors who hold such bonds also face similar risks. Should that happen at any moment during the transition, it may shake investors’ confidence in the economy.

And, when we discuss the role of the financial sector, it is imperative to look at steps taken by India’s banking regulator – the Reserve Bank of India (RBI). For all Scheduled Commercial Banks (excluding Regional Rural Banks) on 20th December 2007, for the first time, RBI issued a notification on corporate social responsibility, sustainable development, and non-financial reporting to ensure that sustainable development is not lost sight of by financial institutions in the pursuit of the respective financial goals. RBI in fact advised banks to give importance to the triple bottom line approach. However, most of the focus until recently has been on nurturing opportunities in green finance rather than managing emission risk-linked funding of big projects like in power or manufacturing sectors. The first meeting of the Sustainable Finance Task Force set up by the Department of Economic Affairs, Ministry of Finance, Government of India took place in January 2021 which adopted a holistic framework for sustainable finance, and mobilize new sustainable funding for infra-projects. As a part of a global coalition and cross-learning, RBI became a formal member of the Central Banks and Supervisors Network for Greening the Financial System (NGFS) on April ’21. Immediately in the following month of May ’21, RBI established a Sustainable Finance Group (SFG) to spearhead regulatory initiatives in the area of investments linked to climate risk and sustainable finance.

Finally, an interlinked, mutually coordinated effort is needed to attain DIET. A developing country like India would need external support in terms of access to cleantech and green finance, especially from developed counterparts to meet its climate obligations despite all the good intentions. As India moves forward towards adopting a DIET economy, the pinch of green needs to be reduced by multilateral and bilateral cooperation in climate space. As Prime minister Modi during his speech at Glasgow summed it up, while talk of climate change goes on; owning responsibility in the same vein is a must. He called upon developed countries to allow immediate access to necessary climate finance and tech for the realization of a net-zero emissions economy by the commitment year.

(Prof Neelam Rani is an Associate Professor and Jatinder Handoo is a scholar at Indian Institute of Management Shillong)