Expert Speak Terra Nova
Published on Nov 11, 2021
What are the policy changes that need to be adopted by India to ensure that it fully utilises the opportunities arising from green transition?
India’s policy pathways for deep decarbonisation

This piece is part of the essay series, Shaping our green future: Pathways and Policies for a Net-Zero Transformation.


Climate change represents a significant threat to the Indian economy due to already evident heat stress, reductions in freshwater supply, soil drying, more intensive tropical cyclones, monsoons, and sea-level rise, amongst other impacts. At the same time, global warming creates economic opportunities for India as new technologies and industries required to decarbonise must be developed, manufactured, and deployed at scale. This article identifies specific and concrete policy pathways for deep decarbonisation in India. It emphasises the country's economic opportunities, including job creation, in the transition—as the country becomes competitive in its transition towards a net-zero economy beyond the mid-century.

India's Climate and Development Challenges

Without urgent global action, temperatures are likely to reach 4.9 degrees Celsius by the end of this century, even with current policies in place.<1> Achieving the Paris Agreement's desired goal of 1.5 degrees Celsius warming requires deep and rapid reductions in carbon emissions. Industrialised countries must reach net-zero GHG emissions rapidly. Emerging economies like India need to decouple economic growth from GHG emissions to put their economies on a low-carbon pathway. These economies, however, face enormous developmental challenges as they attempt to grow in a climate-constrained world. India's climate policy challenge is situated in the context of its urgent need to create millions of new jobs, increase incomes, and improve public health in the next few decades. India's youth constitute about one-third of its 1.38-billion population, and one-third of them remain unemployed at any given time (the prevailing youth unemployment rate is 32 percent). Moreover, four-fifths of its existing workforce of 500 million people are employed in the informal sector. Therefore, any low-carbon transition effort must generate job opportunities while also finding alternative livelihoods for the jobs lost in the fossil-fuel-dependent industries that are expected to decline.

To be sure, India’s energy system has changed significantly in the past two decades. The government’s efforts to promote renewable energy technologies reflect a high level of policy support. Policy targets are ambitious, aiming to deploy 450 GW of renewables in the electricity system by 2030. In 2017, India added more renewables than coal for the first time in history. The proportion of thermal power capacity decreased from 64.8 percent in 1990 to 57.3 percent in 2018, while renewables increased to 21 percent in the same period. Yet, India’s current market share in critical clean energy technologies remains well under its potential. India accounts for 10 percent of the global market for solar, 5 percent of wind, and 1 percent of battery storage. In a deeply decarbonised/net-zero world, India should account for some 30 percent of global solar, 15 percent of global wind, and 12 percent of the battery market. A policy gap exists between current policies and those that would be needed to reach this market potential.

Emerging economies like India need to decouple economic growth from GHG emissions to put their economies on a low-carbon pathway.

A particular challenge confronting Indian policymakers today is the question of whether or not Indian goods and services can compete in the emerging global landscape of trade-modifying decarbonisation policies. These include the EU's proposed Carbon Border Adjustment Mechanism (CBAM), which threatens US $41 billion worth of Indian steel exports, and an unfortunate developing trend of trade disputes over policy support to domestic renewable energy manufacturers. A related question is whether India can become a global leader in the innovation and manufacturing of deep decarbonisation technologies. Emerging technologies such as carbon capture and storage (CCS) and green hydrogen will require high price signals and R&D investments today for their economic benefits to materialise closer to mid-century.

Policy Pathways for Deep Decarbonisation

India’s path to a prosperous low-carbon economy rests on three types of strategies: job creation in low-carbon industries; robust low-carbon economic growth; and peaking, and subsequently reducing, its GHG emissions in a way that does not disrupt development aspirations.

Green job creation has indeed been robust, although it still remains subpar when compared to other countries with large domestic markets. India also has yet to put in place a policy for a just transition of workers from the coal mining and other energy industries, to lighter industry or green jobs. While India's policy efforts have achieved significantly competitive electricity prices from renewables, it has fared relatively poorly in its participation across the global renewable energy value chain.

India’s solar PV deployment, for example, depends primarily on imported components from China, whose policy approaches have created big employment gains across both manufacturing and deployment of renewables domestically. As of 2019, India created less than half the number of jobs per MW (full-time jobs per MW cumulative capacity installed) created in China (3.61 jobs per MW vs. 6.57 jobs per MW). Owing to the singleminded focus by state discoms on the cost-effectiveness of renewables deployment, as well as the central government’s proclivity for cost-effectiveness over other objectives,<2> industrial development and job creation objectives have taken a back seat.

Economic growth remains modest, especially as India struggles to recover from the COVID-19 pandemic. While growth projections for the coming years are more optimistic, there are continuing concerns about inflation and unemployment-despite-growth which partially predate the pandemic.<3> The Indian government has also yet to articulate a green recovery strategy. Historically, India’s “all-of-the-above” energy policy – encouraging fossil fuels and renewables simultaneously – was justified by the clear need to drastically improve energy access.  However, the benefits of this approach are being overwhelmed by the costs of different energy sub-sectors working at cross-purposes, as well as the increasingly clear costs of climate change.

The clearest example is propping up certain coal power plants despite billions of dollars of potential savings (starting today) from their well-managed retirement. Clarifying India’s energy future, on the other hand, will have huge potential to deliver employment, income and public health gains. The ongoing research of the authors of this article quantifies and contextualises this potential.

India also has yet to put in place a policy for a just transition of workers from the coal mining and other energy industries, to lighter industry or green jobs.

That research, as well as those of other analysts, indicate that India’s current emissions trajectory is one of continued slow but steady growth due to its existing limited package of policies that directly and indirectly influence emissions. There are approximately 150 individual policies at the national level that influence India’s greenhouse gas emissions in every sector—land use, agriculture, power, transportation, residential, commercial, and industrial. Some of those policies, such as capital subsidies for renewable energy deployment, the National Solar Mission, Perform Achieve and Trade (PAT) pilot energy efficiency trading scheme, and the LED lighting programme, have directly limited India’s emissions.<4> Many other policies, due to their voluntary or general nature, are less likely to have a significant influence on reducing emissions. India’s emissions, while the third highest in the world on a national basis, continue to be one of the lowest of the bigger economies on a per capita basis. Many policy gaps exist, primary amongst them the absence of comprehensive climate legislation.

Policy Implications         

India’s efforts to meet its NDC commitments are commendable in many ways. After all, India is one of the few countries whose NDC targets and policies are commensurate with the Copenhagen 2°C goal. Yet, its emissions trajectory shows no signs of peaking under existing policies, and its policies are highly insufficient to meet the 1.5°C goal set under the Paris Agreement. India would need to implement a comprehensive sequence of climate policies to put its economy on track to achieve, simultaneously—robust economic growth, job creation, and emissions reductions. Research by these authors indicates that India could create tens of millions of new jobs, fuel economic growth substantially above business-as-usual (BAU), and reduce the country’s GHG emissions by more than two-thirds the BAU by mid-century if appropriate policies are put in place.  The following paragraphs provide specific recommendations for how India could embark on this low-carbon growth trajectory through to mid-century.

India would need to implement a comprehensive sequence of climate policies to put its economy on track to achieve, simultaneously—robust economic growth, job creation, and emissions reductions.

Economy wide, India could:

  • Shift tax revenues from fossil fuel sales to carbon emissions. Implement a carbon pricing policy that ramps up the direct taxation on carbon emissions from 0 to 6000 INR per tonne by 2050. In doing so, the Indian government’s fiscal revenue could increase in the near term, shoring up the government’s balance sheet.

To decarbonise the electricity sector, India could:

  • Pursue the well-managed retirement of coal power plants and make significant investments in transmission and distribution infrastructure, demand response, and a doubling of storage capacity from BAU projections (450 GW by 2050). These efforts will prepare India’s electricity grid to become more flexible and ready for a renewable energy-powered future.
  • Implement a carbon-free electricity standard to achieve 90 percent of electricity from non-fossil fuel sources by mid-century. This target is a 20 percentage points increase from the current trajectory of 70 percent renewables under business-as-usual.
  • Subsidise costlier emerging technologies such as off-shore wind in the near-term, and then reduce the subsidies as the technology becomes cost-competitive.

In the transport sector, India could:

  • Incentivise the build-out of electric vehicle charging infrastructure alongside implementing EV sales mandates.
  • Implement an EV sales mandate that increases over time along with a gradual decrease in purchase incentives to ensure that the passenger segment (cars and two-wheelers) can become mostly electric by mid-century.
  • Establish stricter fuel economy standards for heavy-duty vehicles in the near term, along with a longer-term policy to convert the fossil-fuel dependent heavy duty vehicle segment to electrification and hydrogen.
  • Mode shift at least one-third of passenger vehicle demand to electrified public transport options.

In the industry sector, India could:

  • Expand the Perform, Achieve, and Trade (PAT) scheme from a pilot programme and reduce the energy use across cement, iron, and steel, and chemicals industries by 25 percent.
  • Implement a progressive carbon tax that incentivises industries to further reduce their dependence on fossil fuels through material efficiency improvements and conversion to electrification and green hydrogen use.

Decarbonising the transport and industry sectors are more complicated than the power and residential/commercial sectors as technology alternatives are yet to become cost-competitive globally. This challenge, however, is not a reason to wait until technology costs come down. India could use this challenge as an opportunity to invest in the innovation and manufacturing of these technologies and build domestic capabilities to serve both the domestic and global market on components related to technologies such as electric vehicles, battery storage, and green hydrogen for industrial decarbonisation. Decarbonising the industry sector early could create a first-mover advantage that is also likely to increase India’s competitiveness in a world of carbon border adjustment prices. Infrastructure investments related to electric vehicle charging infrastructure, industrial energy efficiency improvements are projected to create a significant share of good quality direct jobs in the economy post-2030 provided the government implements the policies necessary to kickstart the transition today.

India’s ambitions in the areas of renewable energy, low-carbon transport, and energy-efficient buildings and industry are well-documented. While making progress, they are running into headwinds and their potential economic benefits are yet to be fully realised. To address both these issues, existing policies would need to be augmented and supported by three key additional policy types.

India’s ambitions in the areas of renewable energy, low-carbon transport, and energy-efficient buildings and industry are well-documented.

First, policies that set clear immediate signals to phase-out polluting and inefficient technologies (e.g., coal thermal power, gasoline vehicles) during the next three decades. Second, policies that raise new types of low-carbon government revenue to compensate for the reduction in carbon-intensive revenue by 2050 and sustain an ambitious development and social investment programme. Finally, policies that crowd investment over the next decade into the low-carbon technologies and enable the transition to a prosperous innovation economy. These shifts in focus, which build on India’s already existing ambitions, will serve the climate and India’s own economic goals.

Download the PDF of the report here


<1> Raftery, Adrian E., Alec Zimmer, Dargan MW Frierson, Richard Startz, and Peiran Liu. “Less than 2 C warming by 2100 unlikely.” Nature climate change 7, no. 9 (2017): 637-641.

<2>  Quitzow, Rainer. “Assessing policy strategies for the promotion of environmental technologies: A review of India's National Solar Mission.” Research Policy 44, no. 1 (2015): 233-243.

; Behuria, Pritish. “Learning from role models in Rwanda: Incoherent emulation in the construction of a neoliberal developmental state.” New Political Economy 23, no. 4 (2018): 422-440.

<3>  Victor, Vijay, Joshy Joseph Karakunnel, Swetha Loganathan, and Daniel Francois Meyer. “From a Recession to the COVID-19 Pandemic: Inflation–Unemployment Comparison between the UK and India.” Economies 9, no. 2 (2021): 73.

<4> Malhotra, Abhishek, Ajay Mathur, Saurabh Diddi, and Ambuj D. Sagar. “Building institutional capacity for addressing climate and sustainable development goals: achieving energy efficiency in India.” Climate Policy (2021): 1-19.

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