Climate change has expressed itself in visibly powerful and quite traumatic ways, from floods to droughts. The economic upheaval that it portends is deeply concerning. Agricultural yields could drop or become more erratic leading to sustained food inflation. Monsoon-linked and coastal flooding could become more severe. In addition, our high-carbon exports could face high import tariffs. Thus, it is imperative for us to accelerate our green future.
Prime Minister Narendra Modi’s government has prioritized ‘green’ growth. Not only has the government announced a ‘Net Zero’ by 2070 target, but several important policy initiatives have been taken to achieve this goal, especially through strong supply-related policy interventions. For example, renewable energy capacities, especially solar, are being set up at an extraordinary pace. The transmission grid is being augmented and re-engineered to move electricity from remote areas to large population centres. ‘Smart’ meters are being installed across the country at a feverish pace.
On the demand side, measures have been introduced to promote electrification of the transport sector. The market is responded well, with battery swapping networks and charging stations growing at a fast pace. Mass transportation systems are becoming cleaner with the growing population of e-buses, metro and passenger rapid transit networks, and e-rikshaws. Green hydrogen and biofuels are also being encouraged in mission mode.
Going forward, in his third term, the prime minister can pursue a ‘Green Frontier’ economic development model for Viksit Bharat. This approach will strengthen India’s global competitiveness by driving rapid decarbonization and digitization across the entire economy. This can help India leapfrog to the global production frontier and enable us to compete successfully with the world’s leading economies such as the US and China. On the other hand, it will also significantly accelerate our net-zero policies, dramatically increase private sector investments and, consequently, generate millions of incremental green jobs.
To that end, there are three major structural reforms that could be undertaken to establish a Green Frontier decarbonization trajectory: (1) implement a legal framework to enforce net-zero targets; (2) roll out a comprehensive emissions trading scheme; and (3) establish and scale up a large Green Bank in Gift City. These three structural reforms complement each other and should be implemented in a synchronized manner.
National Net Zero legislation is one of the most important structural reforms for a green frontier development model. I had introduced India’s first net-zero legislation in the Lok Sabha as a Private Member Bill in 2021. Such legislation is required urgently since it provides a consistent framework within which States, companies, financial institutions civil society, other stakeholders, and the public at large, can align their efforts. To be sure, this will require a complex reform process, similar in scope to GST implementation, since it spans the entire economy and all our states.
In my 2021 Bill, I proposed that we establish a National Climate Change Commission (NCCC) to provide independent, expert advice to the government on setting net-zero targets, adapting to the effects of climate change, and to monitor the government’s progress towards these goals. The commission would propose annual emissions budgets for economic sectors and provide greater predictability for those impacted by giving advance information on the emissions reductions required of them. The NCCC would also undertake risk assessments so enable appropriate early action. Finally, the commission would prepare a National Adaptation Plan to engage and inform the public of the government’s policy responses to climate change and the indicators that would enable regular monitoring of the outcomes.
The second major structural reform would be to take forward the enabling legislation for carbon trading created in 2022, namely, the Carbon Credit Trading System. The government now needs to develop a comprehensive Emissions Trading System (ETS) for selected sectors such as steel, cement, and fertilizers. Companies that reduce emissions below their allowances can trade their credits, enabling us to discover a carbon price.
Over time, if we can align our ETS with the European Union’s standards and enable high-quality carbon accounting, we can help strengthen our industrial competitiveness. A strong ETS will also aid us in creating a global carbon market and develop a global carbon price, which may well be above the Indian price. Such an ETS will also assist us in avoiding carbon border taxes of the kind to be introduced shortly by the EU.
Mobilizing climate capital through a hard-currency Green Bank is the third necessary structural reform. Various economic studies have shown that a trillion dollars of incremental foreign capital is required for climate investments by India over the next 10-20 years. A Green Bank based in Gift City is required to funnel this hard-currency capital from the Global North to Indian financial institutions.
To enable wider reach, the bank can be set up in collaboration with various Global North institutions such as multilateral development banks (MDBs), development finance institutions (DFIs), philanthropies, sovereign funds, as well as investment banks. Its ownership could be spread across major MDBs to assist Global North investors in dramatically ramping up climate finance in India. A key incentive for Global North institutions in pursuing this arrangement is that it would protect Global North investors that are funding decarbonization efforts for India’s companies.
Leveraging its Global North links, the Bank needs to design various ‘blended’ finance instruments such as currency swaps to lower the cost of capital for climate investments. Various guarantee mechanisms can also be originated. Climate insurance products could be created with global reinsurers to insure against extreme weather events such as the recent destruction of the Teesta III dam in Sikkim.
The development trajectory for Viksit Bharat is being defined now. These three proposed structural reforms can help transform our economy just like GST and IBC have done. Let’s make Viksit Bharat a Harit Bharat.
Jayant Sinha is a former Union Minister and Lok Sabha MP.
