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Home / Opinion / Views /  The case for a comprehensive Indian climate bill

The US recently passed the Inflation Reduction Act (IRA) of 2022 with an outlay of $370 billion for the decarbonization of its economy. The IRA, which has little to do with current price inflation, is being hailed as the “biggest climate expenditure in US history" and the beginning of “a new era for climate technology". President Joe Biden recently also signed the US CHIPS and Science Act, which will invest a historic amount in science, technology and manufacturing. Both these Acts are intended to help the US keep up its technological competitive edge vis-à-vis its primary challenger, China. But what does this mean for India? Does it offer any lessons for India’s climate journey and strategy?

Let us first examine what the IRA focuses on. It systematically targets a reduction of emissions across various sectors: buildings, industry, transport and power. It includes investments to promote residential energy efficiency improvements; tax credits for wind, solar and storage; manufacturing tax credits; nuclear credits; clean hydrogen tax credits; and incentives for clean vehicles, clean refuelling/recharging, and for bio-fuels. The investments and tax credits included sync with the $80 billion investment envisioned under the Bipartisan Infrastructure Law passed last November. Overall, the IRA seeks to reduce greenhouse gas emissions while positioning the US to compete with China in the climate tech space.

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India has seen its own share of climate-related legislation, including the new Energy Conservation Bill of 2022. Under it, India has approved the setting up of a carbon market. It also promises to boost renewable energy generation capacity while specifically mandating its consumption by certain sectors. The Electricity (Amendment) Bill 2022 seeks to facilitate greater competition in electricity distribution while proposing automatic adjustments in tariffs based on changes in fuel cost. The cabinet also approved India’s Nationally Determined Contributions, which included a commitment to reduce the emission intensity of the country’s gross domestic product by 45% by 2030 (from 2005 levels) and achieve a cumulative 50% installed capacity for electric power from non-fossil fuel sources by the same year.

This flurry of climate-focused legislation is an excellent sign that Indian legislators have their eye on the ball. But are we doing enough? No. India needs a comprehensive Climate Bill—with a clear vision, multi-sectoral strategy and substantial investment—to make the country a climate tech power and seize the climate-action moment.

The IRA is a geostrategic move by the US that also aims to assuage domestic concerns about inflation by reducing its dependence on hydrocarbons, seen as a big cause of price instability. In that dual focus, it offers several lessons for India. First, the IRA will enable the US, through all the investment envisioned in climate tech and manufacturing, to identify and deploy at scale the solutions necessary to get to net zero by 2050. Viewed along with the investments outlined in the CHIPS Act, this will allow the US to reduce its current reliance on China for much of its climate tech supplies. India has committed itself to carbon neutrality by 2070. To achieve this realistically and self-reliantly, India also needs to invest heavily in climate technologies and domestic manufacturing.

Second, as the name of the Act suggests, IRA is part of a long-range effort to cap the impact of volatile energy bills on retail prices. As fuel costs for Indian consumers have risen and remain exposed to global oil prices, India could use its green plans to meet similar goals.

Third, several policies included in the IRA could be tailored to suit the Indian context. One, it includes tax credits up to $7,500 (about 6 lakh) off the price of a new electric vehicle (EV). These credits can be transferred to the dealer at the time of purchase, so you get the rebate instantly instead of having to wait until you file your tax returns. This is expected to spur EV adoption. While India has an incentive scheme, it lags many other countries on EV adoption. Tax credits could give it a boost.

The IRA also provides 5 years of tax credits to make sustainable aviation fuel cost-competitive with jet fuel. This fuel reduces emissions by 50-80% compared to jet fuel and can be used for existing aircraft. India’s transport minister Nitin Gadkari spoke at the recent Mint Mobility Summit about leveraging Indian ethanol manufacturing capabilities to produce aviation-grade biofuels. This needs policy interventions.

The IRA also sets aside $5 billion for low-carbon procurement by the US government to promote the use of clean materials. The central and state governments in India could embark on a similar drive to spur domestic innovation. This will hopefully drive price reductions, which could in turn promote a similar increase in low-carbon procurement by the private sector.

In general, India must invest sufficiently—and early—to build domestic climate-tech manufacturing capabilities, enhance the adoption of existing climate technologies, and enable innovation. The country requires comprehensive climate legislation at the earliest if it is to become a global leader in climate technology. And only by becoming an early leader can India emerge victorious in this Great Tech Game.

Anirudh Suri is a non-resident scholar at Carnegie India and author of ‘The Great Tech Game’.

Elsewhere in Mint

In Opinion, Manu Joseph argues why science is disappointing in comparison to its own reputation. Ashish Dhawan tells why Indian philanthropy is now poised to take off. Anirudh Suri writes what America’s Inflation Reduction Act means for India. In Long Story, an economist girlfriend explains why stock prices have rallied again. 

 

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