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India’s Green Transition
Context:
India’s shift towards a green economy, often referred to as the green transition, is becoming an urgent global imperative to combat climate change.
Key Aspects of India’s Green Transition:
- Electric Vehicles (EVs): India is working towards scaling up electric vehicle adoption, aiming to reduce emissions from the transportation sector. This shift, however, relies heavily on imported technology like batteries and raw materials such as lithium, which could drive up initial costs.
- Green Hydrogen and Renewable Energy: The country is also focusing on green hydrogen as a clean energy source and increasing investments in renewable energy (solar, wind), which are expected to play a pivotal role in India’s net-zero ambitions.
- Industry Shifts: Carbon-intensive sectors like coal, steel, and cement need to undergo major transformations to become more sustainable. This may involve adopting low-carbon technologies, which could increase costs in the short term due to reliance on imported components and raw materials.
Challenges of Transition:
- Initial Investment: Estimates suggest India needs to invest an average of US$200 billion per year for the next 25-45 years to achieve net-zero emissions.
- As financial resources are redirected towards green technologies, other sectors crucial for economic growth might struggle to attract sufficient capital. This shift could temporarily disrupt employment and GDP growth.
- Impact on Labour: States where coal is a major economic contributor will particularly face financial challenges in supporting workers displaced by this shift. Financial support for a just transition will be crucial, with the Global North needing to play a more active role in providing financial assistance to ensure a fair transition.
- Increased Costs and Technology Reliance: India will depend on imported technologies (e.g., batteries and solar panels) and raw materials like lithium in the short term until domestic manufacturing is scaled up.
- The introduction of carbon taxes could further increase costs, particularly in industries like steel, cement, and automobiles. Policies need to be designed to mitigate these cost burdens, possibly by using carbon taxes to incentivise low-carbon technologies instead of taxing essential industries.
- Fiscal Pressure: The government will need to attract private capital through innovative financial mechanisms, such as blended financing, without significantly raising the public debt burden. The Global North must provide concessional capital, grants, and patient capital to reduce the riskiness of green projects and attract private investment.
- Currency and Trade Balance: India’s reliance on oil imports has historically affected the rupee’s value, and importing renewable energy components could temporarily increase the current account deficit, exerting downward pressure on the currency.
Strategies for a Fair Green Transition:
- Equitable Distribution of Benefits: The transition needs to be managed so that its benefits are more symmetrical among states and communities. Additionally, vulnerable sections of society, such as workers in carbon-heavy sectors, must receive financial and technical support to transition smoothly into green jobs.
- Phased and Inclusive Policies: Policymakers should implement a phased approach to the transition, with clear roadmaps for industries and workers to move towards green sectors.
- This should include investment in skill development to reduce job losses and prepare workers for new opportunities in the renewable energy and green technology sectors.
- At the same time, flexible monetary policies and a responsive fiscal strategy should be adopted, supported by international climate finance, to ensure macroeconomic stability during the transition period.
- Regional Cooperation: The central government can support states with limited financial capacity to implement the green transition. States should be incentivised to design policies and regulations that attract green investments, while also ensuring a just transition for their labour force.
- International cooperation from the Global North will be crucial to ensure that India’s green transition is financially viable and socially equitable.
