Nobel laureate Esther Duflo, speaking at the Kerala Literature Festival in Kozhikode last week, weighed in on President Donald Trump’s re-withdrawal from the Paris Agreement. She said, “It puts an onus on countries like India to take action…when a country like the US turns its back on climate action, it sort of turns the tables and puts other countries of the world into the picture.”
This is important as it may be tempting for India to take inspiration from Trump’s withdrawal and go slow on climate-based action. For example, there has been a rising chorus in favour of thermal power which is seen as essential to support the growing industrial and residential electricity consumption, especially as the country aims for higher economic growth and improved living standards. Admittedly, India’s strategy to balance the expansion of thermal power with renewable energy (RE) commitments is complex but it is necessary. The expansion of coal-based power can at best be a stopgap measure to ensure energy security and support economic growth while RE infrastructure is scaled up.
India did call for developed nations to contribute $1 trillion a year to provide to developing countries as climate finance annually at COP29, and is itself a recipient of aid from funds like the Green Climate Fund, Climate Investment Funds, and World Bank loans. Trump’s withdrawal, thus, may adversely affect climate finance targets. However, the other half of her statement, on India taking up the mantle of climate action, warrants examination, especially with the Union Budget around the corner.
A Reserve Bank of India (RBI) report in 2023 estimated that to fund climate change adaption, a cumulative cost of Rs 85.6 lakh crore will be incurred, which will subsequently require allocating 2.5% of the GDP to green finance. The road to Net Zero by 2070 is long — reports suggest solar and wind installments will need to grow by 70 times, and infrastructure for manufacturing green hydrogen (GH2) will need to support production of 114 million metric tonnes per annum.
The transition to RE sources will affect three major sectors — electricity, industry, and transport. The good sign is that the government has, over the years, recognised that these need boosts and has come up with policies to do so. A Council on Energy, Environment and Water analysis said the impact of present policies “translates to a 23% reduction in cumulative emissions between 2015 and 2070 compared to a no-policy scenario”.
At the same time, a lot remains to be done. An International Institute of Sustainable Development (IISD) analysis found that cost gaps remain for instrumental sectors like offshore wind energy and green hydrogen (GH2), even as government support has been instrumental for other critical technologies and has, in fact, ensured that subsidies have helped their adoption attain cost parity. Gaps for sectors specified in the report will require Rs 9,000 crore per Gw in the short term for expanding offshore wind to utilise India’s potential fully, and 0.96% of GDP to be invested for GH2.
However, the picture is not exactly dismal — IISD’s study states that such gaps exist due to technology being nascent and India’s ambitious targets, not inaction. Additionally, experts have pointed out that such financial targets cannot be met by the government alone, and the private sector should pitch in To that end, the government has established an Indian Carbon Market under the Carbon Credit Trading Scheme. The Centre has also taken up green finance instruments, with sovereign green bonds worth Rs 16,000 crore being issued by the RBI in its inaugural tranche in 2023, and another tranche scheduled for the latter part of FY25 being open till January 31.However, these will need to be expanded as India’s sovereign green bonds represented a meagre 2.2% of global issuances in 2023, despite its large economy and emissions.
Recent Budgets provide some hope. The most recent one set an aim to define the taxonomy for climate finance, and included an announcement to draw up transition road maps for the industries where such aims would be difficult to achieve. Thus, all the bricks laid so far appear to be building a strong foundation. The Centre would do well to allocate more funds to sectors where funding gaps are bigger (like GH2, where funding was effectively doubled from FY24), scaling existing technologies that work, and establishing a framework where the private sector is also incentivised.