How should India navigate these early waters? Two issues are serious. First, what do we say when we go into these talks about our climate strategy, and second, what do we take on the issue of international funding for developing countries to help manage climate change.
India’s strategy for managing climate change: The key goals 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 short-term objective of reducing the emissions intensity of GDP by 45% over our 2005 levels by 2030; and (c) to increase India’s non-fossil fuel based power generation capacity (primarily solar and wind) to 50% of the total by 2030.
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The target of taking renewable power (RE) capacity to 450 GW by 2030 is an important supply-side element of our strategy and several steps need to be taken to realize this. This should be accompanied by demand side-steps to reduce the use of fossil fuels in transportation through the electrification of electric vehicles and railways, and to promote green hydrogen-based technologies for steelmaking, fertilizers and petrochemicals. We must increase the energy efficiency of buildings and expand the use of public transport through better materials and design, and efficient cooling and lighting.
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 that emerged from our analysis is that success would require interventions in multiple areas, with the various ministries at the Center working closely with each other. Coordination will also be necessary with various levels of government (centre, states and cities) and the private sector, which will play a major role.
While it is not possible to describe all the policy interventions expected over the decades to 2070, a good way to reliably proceed is to look at a 10-year program detailing what we intend to do in each key area. Declare. These details do not have to be part of our formal nationally determined contribution presented to the United Nations Framework Convention on Climate Change (UNFCCC), but will serve as domestic targets and ensure that we achieve our goals. are on track to do. The specific targets that can be set for the first 10 years are as follows:
1) Since achieving net zero emissions implies the elimination of coal-fired power plants unabated before 2070, we can specify an interim target for maximum coal use for electricity generation, perhaps around 2030. All capacity expansion in electricity generation can happen from other sources. The peak date should consider the commissioning of coal power plants currently being built and the possible phasing out of disabled ones. Studies suggest that at least 50GW of coal capacity can be phased out.
2) A date could also be set for peak economy-wide CO2 emissions sometime in the 2030s.
3) Poor financial position of power distribution companies (discoms) is a serious constraint which discourages private investment in expansion of RE capacity as it poses payment risk. We are in the fourth attempt to revive the discoms. Targets emerging from this exercise can be promoted as part of our decarbonization strategy. It should be possible to raise financing from multilateral development banks to help with the restructuring of discoms. The participation of MDBs would provide a degree of freedom in setting the conditions that could assure states, which could be encouraged, to set targets for the privatization of the distribution system.
4) RE is an intermittent source of electricity and increasing its share in total electricity supply will require innovations in electricity regulation and grid management practices. Central regulators will have to work closely with state regulators. Regulatory changes aimed at improving grid resilience should be a top priority in the first 10 years, as they will subsequently lay the groundwork for continued expansion of RE. A road map for such changes should be announced.
5) Growth of green hydrogen production can be supported by setting offtake targets for key industries that can move to it.
6) Indian Railways has announced that it will reach zero by 2030. This would require the entire traction of the network to be electric (from RE/carbon neutral sources), and would mean phasing out diesel locomotives or converting them to electricity. For this the time-frame should be made in the target.
7) To increase the share of EVs in new auto sales of 2-, 3- and 4-wheelers and also to expand the EV-charging network, separate targets should be set. The government may 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 home appliances, especially fans, refrigerators and air-conditioners, should be reviewed and higher standards set from time to time.
9) State governments should be encouraged to prepare climate action plans for cities and rural areas. These should have targets for expansion of public transport network, water harvesting facilities etc.
10) The introduction of carbon tax will help in any strategy of decarbonisation. Cap-and-trade systems are an alternative to carbon taxation and the Energy Conservation Bill provides for the introduction of such systems. A 10-year plan may include studying the pros and cons of the two systems. There is a strong case for implementing a carbon tax, as it would send the right price signals to switch to renewable energy and also increase revenue.
11) Lastly, we must ensure progress towards our Paris goal of afforestation, and perhaps even plan to meet it. Investing in afforestation not only helps mitigate climate change by sequestering carbon, it also helps in adaptation by supporting water conservation.
A 10-year plan along these lines would help raise public awareness and generate a public debate on aspects of the strategy that may seem controversial. It will also show the Indian leadership.
Funding 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 held on the understanding that developing countries would receive financial support from advanced countries to help them make the transition. The 2015 Paris Agreement promised $100 billion in aid per year by 2020, which included an undefined mix of public and private flows. This amount is yet to be recovered. The Glasgow Treaty recognized the failure in this matter and urged that the promised amount be delivered at the earliest and continued until 2025, and substantially increased thereafter. Financing is a major issue as the decarbonization commitments made in COP-26 involve massive investments in energy and related sectors. The required amount, above the business-as-usual (BAU) investment estimate for developing countries excluding China, is estimated at 4% of GDP, or about $1 trillion per year by 2025. There is no possibility of resources on that scale being available from outside sources. Developing countries have to accept that a substantial part of this amount, such as 45%, will have to be raised domestically. This will reduce the international contribution to $550 billion. Since it is a combination of public and private flows, we can divide this into $220 billion of public flows (bilateral and multilateral) and $330 billion of private flows. Public flows can be used to leverage private flows through creative forms of mixed finance and risk mitigation. The problem is that even this low volume of public flows is five times the level expected under the BAU.
G7 countries have given no indication of their willingness to consider funding at this scale. The upcoming G20 summit, chaired by Indonesia, will give some indication of whether there is flexibility on the issue. The G20 baton will then go to India in 2023, followed by Brazil and South Africa. It will be a test of global economic diplomacy of developing countries whether progress can be made in the next three years.
Whatever the funding outcome, we must design our own roadmap to transition with an associated investment cost. All developing countries should do the same.
Montek S. Ahluwalia and Utkarsh Patel, respectively, former Deputy Chairman, Planning Commission and currently Distinguished Fellow at the Center for Social and Economic Progress (CSEP); and Associate Fellow in CSEP.
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