Climate Financing, India Holds Promise for Rest of the World

Climate Financing the only way to save earth
India, l
ike many of its peers in the developing world, has been facing the brunt of climate change. India estimated to have lost USD 87 billion last year due to climate events such as tropical cyclones, floods and droughts, according to the World Meteorological Organization (WMO). Worse, Indian companies could lose about USD 100 billion over the next five years from the risks posed by the climate crisis, estimates CDP India which runs disclosure systems for investors.

At the 26th Session of the Conference of Parties to the UNFCCC
(United Nations Framework Convention on Climate Change) in Glasgow in November 2021, Prime Minister Narendra Modi made a courageous declaration that India would achieve the target of net-zero emissions by 2070. It meant that its greenhouse gas emissions to be less than the total removal and absorption of emissions.

No country is more stretched than India in its endeavour to pull millions of people out of poverty. India’s energy needs, a large part of which is dependent on fossil fuels, are paramount to fuel an ambitious economic growth of over 8 per cent for the next decade or two in order to improve the standard of living for its 1.3 billion citizens. Therefore, India’s climate and economic policies must align with each other to the extent possible to move towards the path of sustainability.

According to
the CEEW Centre for Energy Finance, India would need cumulative investments of USD 10.1 trillion to achieve net-zero emissions by 2070. Out of this, USD 8.4 trillion would be required to scale up generation significantly from renewable energy and associated integration, distribution and transmission infrastructure. Another USD 1.5 trillion needs to be invested in the industrial sector for setting up green hydrogen production capacity to advance the sector’s decarburization.

In another study, CEEW
has said that India’s total installed solar power capacity would need to increase to 5,630 gigawatts by 2070. The usage of coal, especially for power generation, would need to peak by 2040 and drop by 99 per cent between 2040 and 2060. Similarly, crude oil consumption across sectors would need to peak by 2050 and fall substantially by 90 per centbetween 2050 and 2070. Green hydrogen could contribute 19 per cent of the total energy needs of the industrial sector.

Under the Paris Agreement, India has submitted
its Nationally Determined Contribution (NDC) with quantified targets to reduce the emissions intensity of its gross domestic product (GDP) by 33 to 35 per cent by 2030 from the 2005 level. This is to achieve about 40 per cent cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030, and to create an additional carbon sink of 2.5 to 3 billion tonnes of CO2eq (Carbon dioxide equivalent) through additional forest and tree covers by 2030. In its national statement at Glasgow, India has announced that its non-fossil energy capacity would to reach 500 GW by 2030 and would meet 50 per cent of its energy requirements with renewable energy. India will reduce the carbon intensity of its economy by 45 per cent by 2030, over its 2005 levels.

the need to compete for resources, India has done well so far in terms of incremental progress in achieving various climate goals set for the country. With the commitment of the developed countries in providing USD 100 billion annually from 2020 falling short, India has to create a sound financial system to pool in resources from domestic as well as global investors.

Notwithstanding the consistent stress on the government finances owing to the need to provide succour to people during the ongoing Covid-19 pandemic, and to invest more in infrastructure development to sustain higher economic growth, it must unveil more fiscal incentives in the forthcoming budget for creating a conducive environment for green financing.

The policy makers could consider offering subsidies on interests, sovereign guarantees and credit enhancement mechanisms to pool in global capital to supplement public finance.

In order to promote adoption of green economy through tax incentives, the government may consider extending a concessional tax rate of 15 per cent to companies that invest in green technologies (now available only to new manufacturing units). It could also allow full tax deduction towards investment or purchase related to green technology assets to encourage the replacement of obsolete technology with greener technology.

India, which aspires to be a frontrunner in climate action, should grab the opportunity to become a hub for climate financing also. GIFT- International Financial Services Centre can be modelled as a global hub for sustainable finance to channelize foreign capital into India.

For roping in more resources for green projects, India has to bring innovative products such as debt swaps, insurance, green bonds, rupee-denominated bonds, municipal bonds and corporate bonds. The Reserve Bank of India should also increase coverage of more green lending in priority sector lending by banks and consider setting up of green banks.

In order to address the economic impact of environmental, social and governance (ESG) issues, India has set up a task force under the chairmanship of the Economic Affairs secretary to lay out a road map to boost India’s sustainable finance architecture. Hopefully, the task force will firm up recommendations to further strengthen the resilience of the country’s financial sector against risks emanating from various climate and ESG issues.

At the same time, India will have to explore ways
and means so that businesses are resilient in dealing with big shocks such as the global financial crisis. As sustainability disclosures by companies grow, such information could be used by banks, credit rating agencies, and other financial institutions, along with financial information to assess the credibility of a business.

Indian businesses are increasingly becoming conscious of the environmental issues that could affect their ventures if corrective action is not taken now. Joining hands with the government, some of India’s biggest companies including Reliance Industries, Tata Consultancy Services, Mahindra & Mahindra, ITC, ACC, Adani and Dalmia Cement, HDFC Bank, Wipro, JSW Energy and Indian Railways have already declared their net-zero targets.

The drastic change in the way businesses operate is coming at a time when India is trying to expand its manufacturing sector
by offering production linked incentives such as in eco-friendly advanced chemistry cell batteries to shift the surplus workforce from the farm sector. While the cost of adopting environment-friendly technologies is very high as of now, India can’t afford to lose time.

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