Financing India’s Green Future

Context: While India is currently are moving ahead of our target of reducing 33-35 per cent emissions intensity of 2005 gross domestic product (GDP) before 2030, the need to adopt other even lower carbon pathways (including Net-Zero emissions by mid-century) will require massive green funding.

Financing requirement of low carbon pathways

• Commercial (purely financial returns-driven) capital:
  • Commercial capital drives global economy and is many times larger than public or impact capital.
  • A “Green Frontier” of decarbonising technologies is developing in India that will define the production possibilities for the most efficient economies. For E.g. --
    • Renewable power is now cheaper than coal-fired power. Converting to renewable sources, whether at a utility-scale or at a retail level, is economically viable for end-users while still delivering a reasonable return on capital for investors.
    • Electric vehicles have a substantially lower total cost of ownership than internal combustion engine vehicles.
    • Plant-based proteins (including milk, eggs, and meat) are cost-competitive with traditional protein sources, thereby reducing the need to keep large animal herds that generate massive methane emissions.
    • There are other green technologies - offshore wind, battery storage, green hydrogen, biofuels, carbon capture, new nuclear fission and fusion technologies, among others.
• Impact (both financial and social returns-driven) capital: Three different sets of impact capital providers can assist - 
  • First, advanced countries are deploying capital (grants, aid, loans, equity) to help commercialise new technologies. 
  • Second, philanthropic capital, which is concerned about long-term social impact and does not judge its performance solely by financial returns. 
  • And, finally, there are many firms that are committing to net-zero targets: Their cash flows are being channelised into green investments.
• Public funds (social returns-driven): India will require trillions of dollars of commercial capital, tens of billions of dollars of impact capital, and hundreds of billions of dollars of public funds to get to the Green Frontier.

Role of the government

• Maintain a stable and supportive policy environment and help in unleashing market forces. Market and competitor dynamics will then drive us to the Green Frontier.
• Governments and markets will have to work in tandem to lower costs and jumpstart new green industries. This can be done with a wide range of options available such as – 
  • Government can absorb the initial capital expenditure of demonstration or pilot projects.
  • It can offer subsidies for part of the capital or operating costs.
  • It can mandate or incentivise the offtake of the final product.
  • Help push for and create technology transfer initiatives between countries. 
  • Offer connecting infrastructure or distribution for the new technology.