India needs climate action targets for next 10 years

How should India navigate these choppy waters? Two issues are critical. First, what do we say as we go into these negotiations about our climate strategy, and second, what position do we adopt on the issue of international financing for developing countries to help manage climate change.

India’s strategy for managing climate change: The major targets in our strategy for managing climate change were announced at CoP-26 in Glasgow last year. They include: (a) a long-term commitment to reach net zero by 2070; (b) a shorter-term objective of reducing the emissions intensity of GDP by 45% over our 2005 level, by 2030; and (c) raising India’s non-fossil fuel-based electricity generation capacity (mainly solar and wind) to 50% of the total by 2030.

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The target of taking renewable electricity (RE) capacity to 450GW by 2030 is a critical supply-side element of our strategy and many steps need to be taken to realize it. These must be accompanied by demand side-steps to reduce fossil fuel use in transport through electric vehicles and electrification of railways, and to promote green hydrogen-based technologies for steelmaking, fertilizers and petrochemicals. We must also increase the energy efficiency of buildings through better materials and designs, and efficient cooling and lighting, and expand the use public transport.

We have examined these issues in detail in our CSEP working paper ‘Managing Climate Change: A Strategy for India’ (bit.ly/3x4Zlns). An important point which emerged from our analysis is that success will call for interventions in many areas, with different ministries of the Centre working in tandem with each other. Coordination will also be necessary across different levels of government (Centre, states and cities) and also with the private sector, which will play a major role.

While it is not possible to spell out all the policy interventions expected over the decades till 2070, a good way of proceeding credibly is to announce a 10-year programme detailing what we intend to do in each major sector. These details need not be part of our formal Nationally Determined Contributions submitted to UN Framework Convention on Climate Change (UNFCCC), but will serve as domestic targets to monitor closely and ensure we are on track to achieve our goals. The specific targets that could be set for the first 10 years are as follows:

1) Since achieving net zero emissions implies elimination of unabated coal-based power plants well before 2070, we could specify an interim target for peak coal use for power generation, perhaps around 2030. All capacity expansion in electricity generation could be from other sources. The peak date should consider the commissioning of coal power plants currently being built and the possible phasing down of inefficient ones. Studies show that at least 50GW of coal capacity could be phased out.

2) A date could also be set for peak economy-wide CO2 emissions, sometime in the 2030s.

3) The poor financial health of power distribution companies (discoms) is a serious impediment that discourages private investment in expanding RE capacity since it poses payment risks. We are going through a fourth attempt to resuscitate discoms. Targets emerging from this exercise could be publicized as part of our decarbonization strategy. It should be possible to mobilize financing from multilateral development banks to help restructure discoms. MDB involvement would offer a degree of independence in setting terms that might reassure states, which could be encouraged to set targets for privatizing parts of the distribution system.

4) RE is an intermittent source of power and increasing its share in total electricity supply will require innovations in electricity regulation and grid management practices. Central regulators would have to collaborate closely with state regulators. Regulatory changes aimed at improving grid flexibility should be a top priority in the first 10 years, as they would lay the basis for continued expansion of RE later. A road map for such changes should be announced.

5) Growth of green hydrogen production could be supported by setting offtake targets for major industries that can shift to it.

6) The Indian Railways has announced that it will reach net zero by 2030. This would require the network’s entire traction to be electric (from RE/carbon neutral sources), and this implies phasing out diesel locomotives or converting them to electric. The timeline for this should be built into the target.

7) Separate target/s should be set for increasing the share of EVs in new auto sales of 2- ,3- and 4-wheelers, and also for expanding EV-charging networks. The government could also consider announcing a date after which the sale of new internal-combustion-engine vehicles is banned.

8) Our minimum energy efficiency standards for popular household appliances, especially fans, refrigerators and air-conditioners, should be reviewed and higher standards set periodically.

9) State governments should be encouraged to prepare climate action plans for cities and rural areas. These must have targets for expanding public transport networks, water harvesting facilities, etc.

10) Any strategy for decarbonization would be helped by the introduction of a carbon tax. Cap-and-trade systems are a substitute for carbon taxation and the Energy Conservation Bill makes a provision for introducing such systems. The 10-year plan could involve studying the pros and cons of the two systems. There is a strong case for introducing a carbon tax, as it will send the right price signals to switch to renewables and will also raise revenues.

11) Finally, we should ensure progress towards our Paris target of afforestation, and perhaps even plan to ratchet it up. Investment in afforestation helps not only in mitigating climate change by sequestering carbon, it also helps in adaptation by supporting water conservation.

A 10-year plan along these lines would help increase public consciousness and generate a public debate on aspects of the strategy that may seem contentious. It would show Indian leadership too.

Financing the transition: How to finance the transition to a carbon-neutral economy is a major unresolved problem facing the global community. Climate change negotiations under the UNFCCC were conducted on the understanding that developing countries will get financial assistance from advanced countries to help make the transition. The 2015 Paris Agreement promised assistance of $100 billion per year by 2020, comprising an undefined mix of public and private flows. This amount has yet to be realized. The Glasgow Pact recognized the failure on this count and urged that the promised amount be delivered at the earliest and continued up to 2025, and increased substantially thereafter. Financing is a major issue because decarbonization commitments made at CoP-26 involve massive investments in the energy and related sectors. Estimates of the amount needed above the business-as-usual (BAU) projection of investment for developing countries excluding China come close to 4% of GDP, or almost $1 trillion per year by 2025. There is no prospect of resources on that scale being available from external sources. Developing countries will have to accept that a large portion of this amount, say 45%, would have to be mobilized domestically. This would reduce the international contribution to $550 billion. Since this is meant to be a combination of public and private flows, we could break it up into $220 billion public flows (bilateral and multilateral) and $330 billion of private flows. Public flows can be used to leverage private flows through creative forms of blended finance and risk mitigation. The problem is that even this reduced amount of public flows is five times the level expected under BAU.

The G7 countries have given no indication of their willingness to consider funding on this scale. The upcoming G20 Summit under the Indonesian presidency will provide some indication of whether there is flexibility on this issue. The G20 baton will then pass on to India in 2023, followed by Brazil and South Africa. It will be a test of developing countries’ global economic diplomacy to see if progress can be made over the next three years.

Whatever the outcome on financing, we should lay out our own roadmap for the transition with an associated investment cost. All developing countries should do the same.

Montek S. Ahluwalia & Utkarsh Patel are, respectively, former deputy chairman, Planning Commission and currently distinguished fellow at the Centre for Social and Economic Progress (CSEP); and associate fellow at CSEP.

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