“The risks of Climate Change are the strongest negative externalities that affect India and other countries”, Finance Minister Nirmala Sitharaman said presenting Budget 2022 in the Parliament on February 1 that has “Climate Action” as one of its four pillars. “This strategy opens up huge employment opportunities and the budget proposes several near-term and long-term actions in this regard.”
In a speech peppered with references to clean energy powered railways, aanganwadis, and remote border villages, Sitharaman reiterated Prime Minister Narendra Modi’s “panchamrut’ offer at the COP-26 conference in Glasgow, Scotland, the five commitments on climate action made by him: namely, India will get its non-fossil energy capacity to 500 gigawatts by 2030; meet 50 percent of its energy requirements by 2030 with renewable energy, reduce its projected carbon emission by one billion tonnes by 2030, reduce the carbon intensity of its economy by 45 percent by 2030, and achieve net-zero by 2070.
Clearly there is an attempt to synchronise the first Union Budget after the COP-26 with India’s climate action commitments. As anticipated, solar energy gets a leg up with Rs 19,500 crore additional allocation to facilitate uptake of up to 280 GW by 2030. Budget 2021 saw the announcement of a Production Linked Incentive (PLI) scheme, which included an outlay of Rs 4,500 crore (Rs 45 billion) for solar manufacturing, which resulted in a demand of about Rs 24,000 crore (Rs 240 billion) as PLI for setting up 55 GW annual manufacturing capacity. The additional budget offers incentives for the manufacture of high-efficiency modules, with priority to fully-integrated manufacturing units from polysilicon to solar PV modules, will be made.
As part of a larger plan to achieve the subcontinent's decarbonisation goals, another welcome announcement was the government’s intention to promote a shift to the use of public transport in urban areas, and encourage the private sector to create sustainable and innovative business models for battery and energy as a service, improving the efficiency in the EV ecosystem. Towards this a much-needed battery swapping policy will be brought out, and interoperability standards will be formalised — an announcement that has been welcomed by climate experts as well as clean energy entrepreneurs.
The speech also mentioned myriad of other initiatives including, energy efficiency, and saving measures through setting up of Energy Service Company (ESCO) business model in large commercial buildings, and promises of policies and required legislative changes to promote organic and natural farming, agroforestry and private forestry.
But by far the most important announcement that signals the intention of the government to drive economic growth with climate action as it engine, is the announcement that green bonds will be part of the government’s borrowing programme in FY2023.
Green bonds are debt instruments that differ from conventional fixed-income securities only in that the issuer pledges to use the proceeds to finance projects that are meant to have positive environmental or climate effects. Sitharaman announced that sovereign green bonds will be issued to fund green infrastructure, with the goal of lowering the carbon intensity of the economy.
Green bonds is being seen as a game-changer, and will be a big boost for achieving India’s ‘panchamrut’ climate commitments that require massive funding. According to S&P, India the world's third-largest emitter of carbon dioxide will need as much as $10 trillion to be carbon-neutral by 2070. Green bonds are a big step towards clean-energy financing and will lure investors to domestic green bond market, and eventually create a long-term financing avenue for private sector player.
The focus now should be on building capacity of local governments to access green bonds that will enable local governments to cost-effectively finance basic public infrastructure projects that will lead to climate co-benefits.
Budget 2022 has set the foundation for climate action, even if the details are scanty, the intention and motive is clear — India is beginning to look at its economic development through the Climate Change lens, and is making attempts to honour its commitments at international climate forums.
In what is being hailed as a ‘climate friendly budget’ the trick will be to accelerate the design and implementation of the promised policies and projects while ensuring that further environmental destruction is halted by not wasting more money or energy on controversial, and ecologically harmful projects such as the Ken-Betwa river-linking project.