Sovereign green bonds announced in the budget are now being unveiled. But, arguably, the same goal can be achieved even without calling it a ‘sovereign green bond’ by just allocating resources for green projects with the same outlay. These green projects have to necessarily be part of the capital expenditure from allocations made to various ministries.

Critics may say that there is too much ado about what could have been a simple transaction. The interesting part will be the pricing of such bonds, tax concessions, regulatory structures and definition of green projects that could make them attractive for investors.

The Delhi-based think tank Council on Energy, Environment & Water (CEEW) calculates that India requires an aggregate investment support of $1.4 trillion (Rs105 lakh crore) to achieve its 2070 net-zero target. This works out at an average of $28 billion (Rs2.1 lakh crore) per year. That appears a far cry.

Private sector drive

The financing of renewable energy in India continues to face multiple conundrums, largely entrenched with the nature of current financial market in India in general, such as short tenure of loans, high capital costs and lack of adequate debt financing, etc.

Infrastructure problems have surfaced. The ambitious programme of rooftop solar has been hit by lack of maintenance infrastructure. Poor after-sales service has resulted in defunct rooftop solar projects. Though Modi recently hailed a major clean energy project to make Modhera in western Gujarat the nation’s first 24x7 solar-powered village, with citizens producing their own electricity from 1,300 rooftop systems, the key to the project’s success – and ensuring sustained power generation – will depend on good maintenance of the systems.

True, India has made progress in recent years to electrify households, rapidly increasing access to clean cooking energy and is also one of the world’s largest markets for the deployment of renewable energy. The country’s National Green Hydrogen Mission promises to be a game-changer for reducing emissions from hard-to-abate sectors.

Green hydrogen is made by breaking down water using electricity from renewable sources. New Delhi is aiming for an annual production capacity of 25 million tonnes by 2047 and is in talks with the governments of other countries to export the fuel. 

The upside is that India’s goal of getting to net zero by 2070 has found support from the private sector, with the Adani group and Reliance Industries’ business taking the initiative, along with state-run energy companies, such as NTPC and Indian Oil Corp. Adani has pledged to spend $70 billion on clean energy assets, including green hydrogen, while Ambani plans to add production of solar panels, electrolysers for clean hydrogen and rechargeable batteries. French oil giant Total Energies SE is partnering with Adani on hydrogen.

India has set up its first pure hydrogen producing plant as well as its first 2G bio-ethanol refinery this year. The country has also followed up with other policy measures since, including production-linked incentives (PLI) for manufacturers of electric vehicles and batteries and amendments to energy use laws. Of late, in the drive for electric vehicles, India is moving towards the targets, despite the high cost of vehicles.

India is also developing a long-term strategy (LTS) to achieve net-zero emissions by 2070, though it has not been decided when LTS will be ready for submission to the UN. “We are totally committed to driving its low-carbon industry transitions through a multi-pronged approach that cuts across sectors and issues,” claims a top Indian official.

Quest for energy, food security

However, recent geopolitical and economic developments are threatening to deter India’s drive in fighting climate change. Finance Minister Nirmala Sitharaman gave a loud hint of India’s recalibrated stance, while speaking at an intervention of the World Bank Development Committee’s meeting in Washington DC in October. She said that India’s quest for energy and food security necessitates non-exclusion of fossil fuels from our energy mix. Clearly, the issue of the global economic slowdown or even recession in some countries was on her mind. 

Recently, while addressing the opening ceremony of the G20 environmental and climate ministerial meeting in Bali, Indonesia, Yadav too spoke of the need to decouple economic growth from greenhouse gas emissions, while considering national circumstances and the principle of common but differentiated responsibilities and respective capabilities (CBDR-RC), which acknowledges the different capabilities and differing responsibilities of individual countries in addressing climate change.

The drive for renewables continues unabated, nevertheless. According to the Ministry of New & Renewable Energy, India has 15-20 GW of the solar manufacturing capacity construction against 90 GW of solar equipment manufacturing capacity projected by 2030. It has 170 GW of renewable energy and another 80 GW is under construction against 500 GW projected by 2030.

To further its aim, the Ministry of New & Renewable Energy has just released bids under a Rs19,500-crore Production Linked Incentive (PLI) scheme for domestic manufacture of solar photovoltaic (PV) modules. According to Indu Shekhar Chaturvedi, secretary, ministry of new & renewable energy, it is expected to bring in an investment of Rs94,000 crore. 

Yet, even a quantum jump in renewables may not help, once economic growth picks up pace as the demand for jobs multiplies, negating the impact of this mitigation efforts. Besides, agriculture, which contributes almost 20 per cent to our total GDP and provides employment to over half the 1.4 billion-population, is also a primary contributor to greenhouse gas emissions (GHG) through deforestation, land use and the cultivation of rice.

Rice alone accounts for 11 per cent of total methane emissions globally. Indeed, India is the world’s third largest emitter of GHG. Millions of tonnes of paddy stubble are burnt in New Delhi’s neighbouring states, contributing to its pollution, taking a toll on people’s health and producing carbon dioxide, which leads to global warming. 

National carbon market

Given the situation, a solution gaining traction revolves around a planned national carbon market as a key mitigation move to get the country on track to meet its net-zero goal by 2070. Globally, the idea has caught the imagination of the private sector. According to the International Climate Action Partnership’s (ICAP) Status Report 2022 on Emissions Trading Worldwide, jurisdictions making up 55 per cent of global GDP are using emissions trading, 17 per cent of global greenhouse gas emissions are covered by an emission trading system (ETS), and eight countries, 19 provinces and states, one supranational (the EU), and six cities are implementing carbon markets. This is why the global markets for carbon credits increased by almost 164 per cent in the previous year, and the total size of the sector is expected to breach the $100- billion mark by 2030.

Catching up somewhat late, the Modi government passed The Energy Conservation (Amendment) Bill 2022 in Parliament, green-lighting the creation of a ‘carbon credit trading scheme’, whereby polluters exchange credits equivalent to a certain amount of emissions. According to the bill, the government will issue carbon credits to entities such as businesses or other institutions that choose to register under the scheme. Scheme members will be free to sell and buy credits to meet their individual carbon budgets.

The carbon market will be voluntary at first, although the plan is to follow with the roll-out of a mandatory cap-and-trade system. This means the government would set an overall emissions cap and issue a corresponding number of credits that members could trade between them.

The bill, however, has raised certain issues, which the government needs to resolve at the earliest, for the idea to take off. Is the Ministry of Power the appropriate authority to regulate this scheme? A further question is whether the market regulator for carbon credit trading should be specified in the act. Will the same activity be eligible for renewable energy, energy savings, and carbon credit certificates? The bill does not specify whether these certificates will be interchangeable.

 Companies evince interest

Once these anomalies are fixed, officials say the carbon market will create an incentive for more sectors and individual corporations to transition to low-carbon fuels and operations. Companies that find it hard to decarbonise their operations for lack of capital can still meet their climate goals by buying carbon credits on the market. Micro, small and medium enterprises (MSMEs) are one example. These units account for 45 per cent of the national output, yet their disorganised and informal nature makes it difficult to estimate their carbon output and control it. 

“What we are going to put in place is a system of the carbon market,” affirmed R.K. Singh, Union power minister, speaking on the sidelines of the fifth general assembly of International Solar Alliance recently. “We already have some sort of carbon market here because, when we have a renewable energy certificate, that’s carbon credit. Then we have energy-saving certificates that are carbon credits. Now, we are going to combine that into one carbon credit and will be sold.” The carbon credits generated in India will first be used to meet the country’s NDC goals; the remaining can be sold outside India, Singh added.

“There are several companies in India which are willing to invest in (emission reductions for) carbon trading,” informs Abhinav Trivedi, an energy consultant with NITI Aayog. “But, they are not getting good prices on the international market; so, it was decided to develop an indigenous carbon market”.

States could follow suit. Recently, Gujarat announced it will roll out its own carbon market, based on the success of a previous cap-and-trade scheme for particulate air pollution. The latter, which covered industrial clusters in the city of Surat, has been able to reduce particulate matter emissions by 24 per cent since its launch in 2019.

Exposure to heat

India needs to get its act together as it is one of the five countries with most exposure to extreme heat over the last five years, according to 2021 Lancet Countdown report. This year, India recorded its warmest March in 122 years, with a severe heat wave scorching large swathes of the country. The average temperature, at 32.9 degree Celsius, was a full 3 degrees higher than the long-period average of 29.6C. The heat wave was unabated in April as well. 

Farmers in Uttar Pradesh lost 35-40 per cent of their wheat crop due to the heat wave. The quality of the harvest was not that good either as the heat wave resulted in shrivelled grains in the northern states. The paddy crop was affected as well, though it was not as bad as the wheat crop. Climatic conditions such as drought and heavy rainfall were considered abnormal just a decade back, but now they are the new normal.

Grappling with this crisis, farmers may be forced to grow crops with shorter harvesting season like peas and maize alongside wheat so as to not be completely dependent on just one crop. In the long term, heat waves can impact India’s food security.

Experts feel such compulsions should guide India’s stand. “For countries like India, where the malnutrition rate is high and it is an agriculture-centric country, we feel the commitment for food security and green energies has to be balanced,” remarks Shweta Saini, senior consultant, Indian Council for Research on International Economic Relations (ICRIER). “So, while India is talking about bio-fuel, the question we should be looking at is whether food can be used for fuel.” she adds. The National Policy on Bio-fuels 2018 allows production of ethanol from damaged food grains like wheat and broken rice.

Yadav, speaking for the government, admits that climate change has begun to directly impact our lives. The maximum impact of the climate crisis is being borne by the countries, which have no role in global warming and most vulnerable communities, which have contributed the least to the climate crisis and lack the technology and capacity and finance required to significantly alter the status quo. 

As finance remains iffy, each country will have to fend for itself. But, how far India will go in balancing its need for higher GDP, with the quest for a prominent place on the high table (of climate change negotiations) remains to be seen. Meanwhile, the carbon market and green hydrogen presents a viable solution of sorts. It could help align growth with environment conservation.