Infrastructure

Green recovery pathway for India

Read more at www.orfonline.org

To mobilise a green, resilient and inclusive recovery, India will have to build stronger and broader partnerships domestically between central and state governments across multiple sectors.

This article is part of the series — Colaba Edit.


As India starts a nationwide inoculation drive with domestically manufactured vaccines, it continues to cope with the economic and social fallout of the COVID-19 pandemic. The impacts of the pandemic and lockdown have led to a decline in development gains, disproportionately affecting low-income and vulnerable households. The impacts have been severe for India, given that the economy had begun slowing even before the crisis struck.

The Indian government has already committed US$397 billion, accounting for 15 percent of GDP, in a fiscal stimulus as a relief and recovery package to make India atma nirbhar (self-reliant). There have been some bright spots in the economic stimulus, with its support for rural job creation and support for afforestation (US$792 million), as well as medium-term policies based on production linked incentives for building domestic manufacturing capacity, such as battery storage (US$2.6 billion). At the same time, the economic package also focuses on spending on coal infrastructure (US$6.5 billion), including the commercial mining of coal. So, the signals are mixed and leaning towards a ‘brown’ stimulus rather than a ‘green’ recovery package.

Globally, there is a consensus that a strong, coordinated, green public investment can catalyse investments to jumpstart the recovery and decrease the likelihood and impact of human and economic catastrophes (including climate change and global health emergencies such as pandemics). Green recovery packages will have different starting points due to prevailing social, economic and political contexts. However, there is an acceptance that stimulus policies can deliver: (1) long-term economic multipliers through investments in physical clean infrastructure and creating jobs (new opportunities as well as re-skilling), (2) be implemented reasonably quickly as there are shovel-ready projects across sectors when compared to the 2008 financial crisis; and (3) shift emissions trajectory towards net zero. Policy design is critical as poorly designed recovery packages will be ineffective in delivering social, economic and climate outcomes.

Given the aspirational vision of the Indian government to be a US$10 trillion economy by 2030 and the fact that much of India’s development and infrastructure growth is going to unfold in the coming decade, integrating principles of green recovery is a win-win proposition. For India, unlocking a green recovery stimulus that can address the troika of jobs, growth and sustainability while addressing the impacts of climate change presents a huge opportunity. ‘Resilience’ and ‘people’ need to be the pillars on which the vision can be realised in the form of a green recovery.

The pandemic has emphasised the importance of including the slow onset of climate and biodiversity crises in economic analysis and development models. India needs to ensure that the trade-off is not made between economic growth and environmental protection in the future. In particular, the costs of mitigation, which currently appear too high to policymakers, must be explicitly compared to the costs of future catastrophic events (climate or non-climate). The new development architecture must be less fragile and more diverse and inclusive — thus a need for greater emphasis on ‘resilience.’ While the immediate attention for green recovery will be to address climate action through shovel-ready projects like renewable energy and energy efficiency, there is a need to complement these solutions by strengthening resilience to climate change and investing in nature-based solutions.

Solutions exist, but these need to be identified, implemented and amplified — for instance, additional investment as part of an economic stimulus package for the creation of rural infrastructure assets through land, soil and water management as part of the Mahatma Gandhi National Rural Employment Guarantee Act enabled short-term sustenance of jobs and long-term climate resilience and environmental benefits. However, there is a need to identify and integrate concrete sectoral opportunities in infrastructure development in rural and urban areas in the future. Resilience — through health, livelihood and social protection — is crucial to managing the post-COVID-19 recovery and the emerging world’s climate response and should be seen as part of India’s Paris climate commitments. Equally important will be to emphasise building social security nets for the ‘people.’ The images of mass migration from urban/industrial regions during and post lockdown and the suffering the people went through should guide policymakers to keep ‘people’ at the centre of policies.

Economic and environmental conditions impact individual welfare. High levels of pollution, lack of access to clean water and cramped living conditions all affect health outcomes. Poverty also forces individuals to make choices that degrade the environment. As India unfolds an additional stimulus package, there is a need to ensure that people’s livelihoods are protected, and they have access to clean air, water, energy, healthcare and education. India’s Paris commitments can only be achieved if the Sustainable Development Goals are met simultaneously. For a growing economy like India, this also offers an opportunity to build back better around people’s aspiration by engaging with them at the national and sub-national level in deciding the growth model and importance of integrating societal and environmental wellbeing as part of development policies.

Transitions for a green economy

As the central and state governments step in to revive the economy, this provides a significant opportunity to shift from the current inefficient, high-emissions model and accelerate the transition to a low-carbon, resilient, regenerative economy. Drawing on the experience of the Children’s Investment Fund Foundation (CIFF) in India and elsewhere, the following transitions are essential for building back better: (1) phasing out of technologies and processes of past (such as coal power) to be replaced by clean energy transition fuelled by renewables; (2) accelerating transitions of the future (electric vehicles, battery storage and regenerative agriculture including ecosystem restoration); and (3) transformation for change in sectors that are in transition (industries suited for decarbonisation such as steel and cement and urbanisation/cities). India is in a unique position to put in place policy frameworks in the coming months to shape the medium- to long-term recovery efforts for these transitions.

Clean energy transition

India has set itself an ambitious target of 175GW of renewable energy by 2022 and has further raised the 2030 ambition by committing to having 450GW of installed capacity. Projections show that India is expecting over 60 percent of its energy generation to come from non-fossil fuels by 2030. Renewables, especially solar, are already cheaper in India, and despite the negative impacts of the pandemic, investments in solar projects have continued. In 2020, solar tariffs have set new benchmarks and the latest auction realised a tariff of INR 1.99-INR 2.00 (~$0.0270)/kWh, much below the marginal fuel cost of existing domestic coal-fired power. This implies that the economics are stacked up for a much-needed acceleration and integration of renewable energy. Further, the decline in energy demand during the lockdown has mainly come at the expense of coal-based power due to the lower operating costs and must-run status of renewables. It also demonstrated the stability of grid with a large share of renewables. Similar trends are visible in other geographies; in 2020, renewables overtook fossil-fuel based generation for the first time in Europe. As India emerges from the crisis and as energy demand returns, efforts should be undertaken to accelerate the uptake of renewables through much needed power sector reforms at the distribution end of the grid, new investments in building green transmission corridors, and policy and regulatory support for decentralised renewable energy. Our grantees are supporting policy and regulatory frameworks for solarisation (at the sub-station level) of the distribution grid (in Maharashtra) and a scheme around regulatory and tariff design for solar irrigation (in Tamil Nadu and Maharashtra).

Transitions for future

Promoting electric mobility has emerged as the cornerstone of the Indian government’s efforts towards decarbonising the transport sector. India is already witnessing signs of transformation, but numerous gaps and barriers continue to exist. India aims to be a manufacturing hub for electric vehicles and is building a domestic manufacturing capacity for battery technology. As part of the economic recovery package, US$2.6 billion has been earmarked for a production linked incentive for building battery manufacturing capacity. In the next 15-18 months, there is a need for sending consistent and coordinated policy signals at the national and state level to embed long-term benefits of electric mobility. Incentivising cleaner transport is one way to create economic demand and jobs and raise substantial private investment through policy and regulatory interventions. CIFF’s grantees are providing technical assistance and policy/regulatory support at the national and state level (Delhi and Maharashtra) for accelerating the deployment of zero-emission vehicles and a modal shift focusing on public transport and shifting freight from road to rail.

The agriculture sector is the mainstay of India’s economy as it provides livelihoods to nearly 60 percent of the rural population. The political economy of the sector makes it complicated and challenging. There is a growing acceptance that the current form of agriculture practices has resulted in land and soil degradation, excessive dependence on chemical inputs, and inefficient water use, leading to a decline in yield and lower income for farmers. The Indian government and few state governments have recognised the need to transform the agriculture sector by shifting it towards natural farming or regenerative agriculture and integrating ecosystem restoration as part of a nature-based solution. India needs to unfurl structural reforms that recognise the role of agriculture and food systems in protecting and restoring ecosystems. India needs to use the recovery efforts to include the strengthening of supply chains that promote inclusive, sustainable and resilient practices in agro-commodities; agri-tech innovations from farm to table; and restoration efforts that provide jobs. CIFF, in collaboration with partners in Uttar Pradesh, Madhya Pradesh and Gujarat, is focusing on the transfer and adoption of regenerative agriculture practices by farmers, market linkages for regenerative agriculture, evidence-based policy change, building farm-level evidence of greenhouse gas emission reductions, and the environmental and economic benefits to farmers from adopting regenerative agriculture.

Transformation for change

Economic recovery offers India the opportunity to transform its hard-to-abate industrial sectors, such as steel and cement, and the micro, small and medium enterprises (MSMEs). Analysis by The Energy and Resources Institute (TERI) suggests that it is possible to put the steel sector on a pathway to reduce emissions to near-zero levels by around 2050, making India the first country to industrialise while decarbonising its steel production. The inclusion of effective green conditions tied to a comprehensive package of measures (maximising use of domestic scrap, deploying energy and resource efficiency) will keep the steel sector competitive while reducing its environmental impacts. Further analysis from our grantee shows that there is a need to invest in radical decarbonisation technologies and fuel shifts such as green hydrogen to fast-track their commercial availability. At the pace and scale with which energy transition is ongoing, green hydrogen shows promise as the next ‘clean energy prize,’ offering an alternative to fossil fuels to transition to a carbon-neutral economy. As part of the green recovery package, India needs to establish policy frameworks that enable the development of a green business model for adopting green hydrogen as a significant opportunity to develop a new clean energy industry. CIFF is working with our grantee to establish an industrial decarbonisation strategy for hard-to-abate sectors and the MSME sector.

India is witnessing an exponential rate of urbanisation — by 2030, 40 percent of India’s population is expected be living in urban areas, and cities are expected to contribute to 70 percent of the country’s GDP. Cities are the centres of economic growth and job creation, a position recognised by the national government and embedded in the smart city mission. Cities enjoy economies of agglomeration that ensures steady growth. However, Indian cities have grown in an unplanned manner and are not fully equipped to deliver basic services like housing, water and sanitation to the growing number of residents. Hence, despite high economic growth, Indian cities are also the centres of high-income inequality and poor quality of life. The pandemic also showed that the current urbanisation model is not tenable and there is a need to alter the governance frameworks to make cities more resilient. As most of the infrastructure and rejuvenation of economic activities will start in the cities, it is possible to integrate climate resilience and low carbon solutions. Across several cities and towns, citizens saw cerulean skies and breathed clean air amid the lockdown, so there is a public appetite and growing political opportunity for shifts towards implementing low-carbon strategies. There are shovel-ready projects for many Indian cities that can make them greener, more liveable, equitable and more resilient to future climate (and pandemic) threats. These projects include integrating building energy efficiency as part of the housing for all (construction of 20 million houses for urban poor), the integration of renewable energy and energy-efficient street lighting, charging infrastructure for electric mobility, nature-based solutions for water supplies, sewerage management and urban green cover, and the upgrading of public transport and shift mobility models towards electrification. The Indian government has launched a Climate Smart Cities Assessment Framework (CSCAF) that serves as a tool for cities to assess their current climate situation and provides a roadmap for cities to adopt and implement relevant climate actions. CIFF is initiating a new programme with our partners to provide technical assistance and policy advocacy support to build capacities of cities on CSCAF, and technical support to Tier II/III cities to develop, design and implement a climate action plan.

The path ahead

As India moves towards building back better, there are two essential enablers for facilitating a green recovery — finance and just/social transition. Financial support needs to be ensured to stimulate demand in climate action and investment in sustainable and resilient infrastructure. For example, this should include mechanisms that reduce the cost of capital for renewables and low-carbon solutions. As India rolls-out a new economic and fiscal stimulus package as part of its 2021 budget, it needs to be supported in developing financial instruments and providing clear financial signals about pursuing energy transitions in line with the Paris Agreement. Although politically difficult, reforming energy subsidies and agricultural subsidies are an opportunity that needs to be pursued. The savings from reforming subsidies (or providing targeted subsidies to the poor) can be shifted to promote low carbon solutions and resilient activities. India will need to design and adopt context-specific innovative financial models that support low carbon strategies, including support for preservation and restoration of forests and ecosystems.

The second enabler that needs attention is embedding principles of just/social transition to accompany green recovery. A just/social transition in India minimises the opportunities missed out on due to mitigation actions but does not compromise rapid improvements in living standards and quality of life for society’s socially and economically vulnerable sections. The framework and elements of just/social transition in India require fundamentally different assumptions as green transitions may not lead to a huge loss of formal jobs, but it needs to factor in changes and impacts on the informal workforce. Similarly, the green transition may not lead to a contraction in consumption, yet there will be a real cost that must be measured in terms of the counterfactual.

To conclude, to mobilise a green, resilient and inclusive recovery, India will have to build stronger and broader partnerships domestically between central and state governments across multiple sectors. It will also have to build partnerships with other countries, global institutions and communities. This will need openness to learn, share experiences and lessons from best practices, cutting-edge technologies, business models, including challenges and failures, to build greater awareness of green and resilient recovery strategies.

Read more at www.orfonline.org

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