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Getting to the Green Frontier Report

India’s overarching development goal is to deliver sustainable prosperity to its people. Indians should be able to lead peaceful, fulfilling lives in a clean and green environment. Achieving this goal requires that the Indian economy be simultaneously transformed along two different dimensions. First, India must strive to be globally competitive across a range of key sectors such as infrastructure, energy, financial services, aviation, telecom, and manufacturing. Second, India must also adopt a resource-efficient, low-carbon development pathway to utilize scarce natural resources effectively. Note that the world needs India to be a global leader in combating climate change to achieve the 2 degree Celsius global warming target. In short, India’s growth has to be green.

Source: Emissions Gap Report 2019, United Nations Environment Programme[/caption]

No nation has ever attempted these twin transformations simultaneously. The traditional development model has been a Farm-to-Factory development model with economies transitioning from traditional agriculture to resource-intensive, urban manufacturing. India has to forge a unique and different development model – a development model that will shift India’s workforce from agriculture to resource-efficient, globally leading businesses. These super competitive businesses will define the global technology/productivity frontier so that they can surpass the production processes of the best companies in the world. In addition, given India’s scarce natural resources and the global requirement to minimize carbon emissions, these companies will have to ensure that they use the most advanced green technologies and business models. India’s development model will therefore need to take the Indian economy from Farm-to-Green Frontier.

There is no country that can serve as a role model for India. However, there are lessons that can be learned from certain economies that have successfully combined economic growth with a full-fledged green transformation.The experience of three such regions—the United Kingdom, California and Germany is instructive. In this report, the five economic sectors that are responsible for 80% of greenhouse gas (GHG) emissions in each region—power, residential, transportation, industrial and agriculture—have been studied closely and the green transformation maps for each sector have been prepared.

Our study of global best practices reveals five key insights that should inform India’s green transformation. These include:

  • Deep public support for pursuing a green transformation, which is reflected in electoral outcomes (e.g., support for Green parties, inclusion in political manifestos)
  • Specific and stable policy goals laying out GHG emission targets, regular monitoring of green efforts, and willingness to take global leadership on climate change matters
  • An appropriate institutional architecture to support the green transformation including legislation, independent monitoring organizations at Federal and provincial levels, dedicated funding agencies, major research programs at leading academic institutions, and expert bodies.
  • Unleashing market forces that drive green innovation and world-leading business models.
  • Sufficient financing capacity (including establishment of dedicated financial institutions) through public and private sources to ensure that necessary investments are made in low-carbon technologies and production processes

While these insights can help shape how India attempts to reach the Green Frontier, it is also valuable to evaluate India’s current efforts to pursue low-carbon strategies in the five major sectors that chiefly drive GHG emissions. This report assesses government policies and actual on-the-ground results in each of the five sectors. The power sector is the key driver of the Indian economy’s green transformation, closely followed by residential and industrial sectors. Further, the report evaluates the progress made in the transportation sector, the hardest sector for many developed countries to conquer, and emphasises the need for better monitoring and evaluation in the agriculture sector.

India’s most heralded climate policy breakthroughs have stemmed from the transformation that its power sector is undergoing. Given India’s ambitious renewable energy goals and the exponential growth that has been seen over the past decade, it is easy to see why India’s climate policies are so closely tied to the decarbonisation of the power sector. In a span of 12 years, renewable energy has quadrupled – from making up 6% of capacity in 2007 to approximately 23% towards the end of 2019.

Note that India has made the most progress in an arena that is also most in need of a green transformation. Detailed analyses show that 45% of India’s GHG emissions originate from the power sector. This is largely due to the high proportion of coal power plants within India’s energy mix – which despite the growth of renewable energy, still make up 60% of India’s power capacity and account for more than 80% of its electricity generation. India plans to add 450 GW of renewable energy capacity by 2030, which is much needed, if it wishes to mitigate the deleterious effects of its coal power plants. Finding solutions for clean coal usage as well as carbon capture and storage technologies, will be vital for India’s green growth.

The evolution of India’s building stock has a crucial role to play in reducing GHG emissions. India’s buildings are responsible for around 35% of the total energy consumption and their energy use is increasing at 8% annually. As per the predictions of the Bureau of Energy Efficiency (BEE), India’s constructed floor area will increase by around five times from 2005 to 2030. This unprecedented growth in the building stock presents a potential opportunity for achieving reduction in energy use in new residential and commercial buildings through energy efficient measures. There are several legislative measures and market incentives that the Indian government has launched to achieve this end.

The development of a green residential and commercial sector has the potential to transform the energy landscape in the country. The Indian government has taken multiple steps in terms of offering market incentives and introducing behavioural nudges for promoting energy efficiency in the buildings sector. To effectively leverage the residential sector’s potential, it appears that a more robust set of regulations may be required along with better adoption, enforcement and compliance.

Transportation is among the lowest GHG emitting sectors in India. Responsible for a little less than 10% of emissions, it is on par with industry and far behind power and agriculture. Despite this, as India grows, reducing transportation-based GHG emissions will likely be a key factor in India’s overall climate strategy. The Government of India has launched a wide range of policies aimed at enhancing passenger mobility, fuel efficiency, improving freight transport logistics and promoting rail use and low-carbon transport.

Since many of the policies have only recently been rolled out, it is difficult to ascertain their effectiveness. Despite this, there are numerous positive signs – among them the sizeable financial commitment the government has made towards its electric mobility schemes.  Other policies are just getting started – including the Biofuel policy which achieved only 2% blending as of 2018. There is still more that India can do to reduce its transportation-based emissions – which has proved to be the hardest sector for many developed countries to conquer.

The competitiveness of Indian industrial units is intricately related to energy consumption and its consequent impact on climate change. In several Indian industries, energy is often the single largest expense and energy productivity is hence essential to their survival and growth.  However, large scale increase in energy conservation has been limited for Indian industries, particularly in the MSME sector. Despite these difficulties, the Indian government has passed a number of policies aimed at creating a cleaner, greener and more energy efficient industrial sector.

The agriculture sector has a crucialrole to play in India’s path to achieving green growth. With a share of about 16% in the country’s overall GHG emissions, agriculture is the second highest emitter in the economy after the energy sector. Moreover, the fact that 50% of the country’s labour force is employed in agriculture makes the handling of a green agricultural transformation extremely important. An examination of the schemes introduced in the agricultural sector reveals that the government has done an impressive job in designing policies to achieve the dual objectives of economic productivity and climate mitigation.

Getting to the Green Frontierwill fundamentally reconfigure the structure of the Indian economy and reshape investments, generation of jobs, and wealth creation.The process is already underway, and India is moving steadily towards the Green Frontier. India was a prime mover in the Paris COP 21 negotiations and committed to far-reaching Nationally Determined Contributions (NDCs) to reduce carbon emissions. As part of these NDCs, India will reduce carbon intensity (carbon emissions per unit of GDP) to 33-35% below 2005 levels; increase renewable energy contribution to power supply to 40%; and restore 26 million hectares of degraded land. All these goals are to be achieved by 2030.

To further accelerate our progress towards the Green Frontier, global best practices and India’s current efforts suggest three major focus areas: (1) specific and stable policy goals which set carbon emission targets across sectors; (2) a revamped institutional architecture; and (3) appropriate financing capacity – perhaps through a Green SuperFund.

First, specific and stable policy goals may need to be established to set detailed carbon emission targets for various sectors. A macro-economic model of the Indian economy that factors in current skills, sectoral connections, relative emissions, and financial constraints is necessary to inform such policy goals going forward. Such a model can then be used to evaluate various different green growth scenarios.  Exhaustive simulations will be necessary to evaluate the quantum of projected emissions under the baseline scenario versus the Farm-to-Green Frontier scenario. Decarbonisation approaches in the Green Frontier scenario will drive the growth of green industries, green jobs, green skills, green entrepreneurs and green finance. It is therefore essential to develop a sound, data-driven analytical framework to model and assess the implications of green growth for India. In particular, policy trade-offs among jobs, investment requirements, and growth will have to be studied carefully to understand how different pathways might unfold over the next few decades.

Another key area requiring detailed evaluation is in what way and to what extent green transformation will impact employment. While there are no official numbers on the employment generated in renewable energy sectors in India till date, several independent studies estimate that the workforce employed in India’s renewable energy sector has increased nearly five-fold in the past five years.

Specific carbon emission targets will help in reducing air pollution and conserve scarce natural resources such as water and land as well. However, global and Indian experience strongly indicates that these targets will have to be pursued in a stable manner across decades. Most large emitters and pollutants are associated with long-lived (20-30 plus years useful life) assets. Investments in resource-efficient assets will only be possible if there is sanctity of contracts, pricing stability, and consistent policies that are backed up by the full force of law. Finally, these specific and stable policy goals need to be implemented urgently to avoid carbon lock-in with high-carbon assets and to avoid a large stranded assets problem that will become a financial non-performing assets problem.

The standard global greenhouse gas abatement cost curve, produced by McKinsey, identified 40 different transformations that had differing costs and abatement potentials – ranging from low-cost interventions like LED lighting and real estate insulation all the way up to high-cost and still difficult-to-envisage rebuilds of entire sectors like iron and steel to incorporate potential carbon capture and storage technologies.

Source: Global GHG Abatement Cost v2.0 in ‘Pathways to a Low Carbon Economy’, McKinsey & Company[/caption]

Second, India may need to revamp its existing institutional framework for climate governance in order to align it with the country’s green transformation. As demonstrated by global best practice, a comprehensive institutional framework could include four levels—Super Sovereign, Sovereign, State/Province and City. Each of these different levels has an important role to play and strengthens the other levels.An independent Council or Board may also be required to monitor, report, and verify on GHG emissions and ensure that targets are being met. Some of these changes might also require legislative changes and/or revamping existing regulatory institutions.

Third, Indian policy makers and entrepreneurs will likely unleash market forces that will drive the growth of solar panels, electric vehicles, superefficient appliances (such as refrigerators and air conditioners), green packaging, clean coal, etc.. Promoting some or all of these green industries is likely to define the momentum of India’s green growth.These green industries will require massive investments and appropriate financing capacity will have to be created to support their growth.

Preliminary estimates suggest that India’s green growth will require an average investment of $95 billion to $125 billion per year for climate mitigation, thus representing a cumulative need of about $1.6 trillion between 2020 and 2033. The private sector is likely to play the primary role in financing this green transformation. To mobilize the private sector to step up investment in clean tech and energy sectors, public policy efforts, governance reform, capacity-building and regulatory intervention is needed in equal measure. Innovative mechanisms, solutions and green finance instruments will have to be designed to unlock private capital flows. However, to establish market confidence and attract capital, these solutions will require demonstrated economic returns and policy predictability.

The investment chain depicting the interaction of the private sector, public sector and real economy is shown below.

Source: Financing the Low-Carbon Future, Climate Finance Leadership Initiative (CFLI), September 2019[/caption]

A Green SuperFund could be established to jumpstart green investments by pooling together international and domestic capital. Such a financial institutioncould play a dual role in intermediating and mitigating risk for global capital, as well as serving as the entity which identifies sectoral priorities and project pipelines. For the first function, the National Infrastructure Investment Fund (NIIF) can serve as a model; the NIIF blends public and private finance in order to reduce perceived risks and catalyse greater funds flow into infrastructure. In general, Indian financial institutions have been very successful in building up new industries such as microfinance, EdTech, and affordable healthcare that have delivered both financial and social returns; however, financial support for green industries will have to be many times larger.Moreover, the Green SuperFund may have to be able to invest across the capital structure (debt plus equity) as well as across the company lifecycle (early stage, growth capital, infrastructure investments, and so on).

India’s future will depend on how fast we can grow while resolving our environmental challenges. Most importantly, we are now the world’s third largest carbon emitter and will play a crucial role in getting the planet to a low-carbon trajectory. The government has defined our national targets and established a clear framework for action. Now we must transform our economy to get to the Green Frontier.

The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.


Mihir Swarup Sharma

Mihir Swarup Sharma

Mihir Swarup Sharma is the Director Centre for Economy and Growth Programme at the Observer Research Foundation. He was trained as an economist and political scientist ...

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Tanushree Chandra

Tanushree Chandra

Tanushree Chandra was a Junior Fellow with ORFs Economy and Growth Programme. She works at the intersection of economic research project management and policy implementation. ...

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