What a Biden Presidency means for India’s climate goals and energy mix

November 12, 2020 11:28 AM

A Biden Presidency will have large consequences for American foreign policy and India’s relationship with the United States, but nowhere is the effect more pronounced than on the issue of climate change.

KKR has also entered into definitive agreements to acquire other operating solar projects across three different states. (Representative image)Despite the massive strides in renewables deployment, India’s current and planned energy mixes reflect an “all of the above” strategy, which includes coal, oil and natural gas, rather than a predominantly renewable energy focus.

By Aashna Mehra

A Biden Presidency will have large consequences for American foreign policy and India’s relationship with the United States, but nowhere is the effect more pronounced than on the issue of climate change. Climate change has been featured prominently in the most recent U.S. Presidential election debates and will inform not just the actions of President-elect Biden domestically, but his interactions with developing countries like India as well. This raises interesting questions about the evolving nature and focus of the India-U.S. relationship and about the road ahead for the pathbreaking Paris Agreement.

The Paris Agreement came into existence in 2015 when 196 countries vowed to collectively work together to limit global temperature rise to below 2℃and promised to use their best efforts to limit it to 1.5℃. Countries around the world submitted individual Nationally Determined Contributions (NDCs) as part of the Agreement, with specific plans of how they would reduce carbon emissions over a certain timeframe. In 2016, the outgoing Obama administration recognized India’s unique position as both the third-largest carbon emitter in the world as well as a bulwark against China in South Asia and aggressively courted India’s ratification of the Paris Agreement. This action would make it legally binding for India to reduce national emissions intensity and U.S. efforts were successful when India officially ratified the Agreement in October 2016. However, following the November 2016 U.S. Presidential election, newly-elected President Trump announced he would pull the United States out of the Paris Agreement in a bid to put “America First” and bolster the U.S.’domestic fossil fuel industry. During the Trump administration, climate change ceased to be an issue of diplomatic importance in the U.S.-India relationship. However, with the election of President-elect Biden, the issue is likely to not just resurface, but premier at the forefront of the U.S.-India bilateral partnership. President-elect Biden, in a recent article he wrote for Foreign Affairs, said he would rejoin the Paris Agreement on his first day in office. Biden has vowed to “place the United States back at the head of the table”, taking the lead on combatting what he views as the biggest existential threat of our times, climate change.

While this marks a return to an erstwhile policy position for the United States, India is a remarkably different country than it was four years ago, particularly as it relates to its energy mix and its progress towards achieving its Paris climate goals.According to a September 2020 brief by the Natural Resources Defense Council (NRDC), India is well on its way to achieving its Paris Agreement targets, which include reducing emissions intensity by 33% to 35% of its Gross Domestic Product (GDP) by 2030 from 2005 levels and achieving 40% of installed capacity from non-fossil fuel sources by 2030. Prime Minister Modi announced ambitious targets for renewable energy installation in India, particularly 175 GW by 2022 and 450 GW by 2030. India is already halfway towards meeting its 175 GW by 2022 goal and renewables currently make up 23.5% of total electricity generation capacity in the country. India’s solar tariffs are now among the lowest in the world for large utility-scale projects, and the Indian government has allocated $1.4 billion towards the electrification of transportation infrastructure. These significant strides have occurred despite the abdication of climate change leadership by the United States over the last four years and absent any external pressure on the Indian government to decarbonize its developing economy. Going into the November 2021 Conference of Parties (COP26), the Indian government will enjoy the benefits of the past four years through increased self-reliance as well as negotiation leverage as it reviews NDCs and targets for both emissions reductions and financial aid from developed nations in the future.

On the flip side, as the United States seeks to once again start leading from the front on the issue of climate change, it still has an important role to play in influencing India’s trajectory. Despite the massive strides in renewables deployment, India’s current and planned energy mixes reflect an “all of the above” strategy, which includes coal, oil and natural gas, rather than a predominantly renewable energy focus. Coal India Limited, owned by the Indian government, has been instructed to nearly double annual coal production by 2024 and an additional 40 coal blocks are being auctioned for commercial coal mining by both public and private entities. Since 2017, a large number of international oil and gas majors such as Rosneft (Russia), Aramco (Saudi Arabia), Total (France), British Petroleum (U.K.) and Exxon (U.S.) have invested in oil and gas projects in India, with the view that the country is one of the last remaining large markets for fossil fuels. Even as India builds renewable energy capacity, it remains the second-largest importer of coal, the third-largest importer of oil and the fourth-largest importer of liquefied natural gas (LNG) in the world. The United States, particularly under the Trump administration and emboldened by a fracking boom in the country, has pivoted to being a net exporter of oil and gas and has driven American shale producers to ink supply contracts with Indian public sector firms. In October 2019, the Union Minister for Petroleum and Natural Gas indicated that the Indian oil and gas sector is expecting nearly $118 billion in new investment by 2024 in oil and gas exploration and natural gas infrastructure.

As climate change takes centre stage in the U.S.-India relationship, the nature of the Strategic Energy Partnership (SEP) between the two countries will come into increasing focus. The American administration, looking to return to the helm of climate change leadership with renewed vigour under President-elect Biden can push for faster decarbonization and a more renewables-focused energy transition for India. The greatest assets in America’s toolkit are financial and knowledge transfers. Providing both aid and credit backstops for international investors to invest in renewable energy projects through agencies such as the Green Climate Fund, the Overseas Private Investment Corporation, the U.S. Agency for International Development and U.S. International Development Financial Corporation will provide the most tangible economic incentive. However, going one step further to share technical expertise and knowledge can be a needle-mover in helping India leapfrog. The United States has a mature and rapidly evolving power market, which has experience with everything from interstate power flows, utility-scale battery storage and large corporate procurement to asset-based securitizations of residential solar loans, power price hedges and net metering. The exchange of this wealth of information across policymakers and financial engineers will be crucial if the United States would like to work with India to push the envelope and move towards the more ambitious 1.5℃ target for global temperature increase.

(The author is an Investment Associate at New Energy Capital Partners in the United States. She received her MBA as a Silver Scholar and Kerry Fellow from the Yale School of Management and her Bachelors of Science in Engineering in Mechanical Engineering from Princeton University. Views are personal.)

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