Level Green Playing Field

Context: At the G20 climate summit, all eyes are on India not only because it is a large developing economy but also because it features among the top global emitters after China, the US and the EU.

Challenges for India:

• Adopting net-zero targets: The G20 summit aims to forcefully compel developing countries towards a net-zero target without considering their development needs.
• Countries accounting for 63% of the world’s GDP now have a mid-century net zero target in law or in the policy document.
• Critics point out that the target can deflect a country towards carbon removal rather than reduction.
• Impact of carbon border tax: The carbon border adjustment mechanism (CBAM) imposes a tariff on imported goods based on their carbon footprint. 
• Even though countries such as India contribute to only a per cent of the imported emissions, they may be priced out of an important export market.
• This is done to prevent carbon leakage — that is, the shifting of companies to jurisdictions with lower standards and less onerous compliances.
• The International Monetary Fund (IMF) has also advocated for a carbon tax at $75 per tonne of CO2, which is estimated to translate into a 6% tariff on goods.
• It is expected that the demand to switch quickly out of fossil fuels would, in turn, shrink India’s fiscal space, compelling it to find another tax base.

Just transitions compelling business models:

• Large coal, cement, steel and power conglomerates have committed to sustainable practices and announced diversification. 
• Large institutional investors, including mutual funds and private equity, are also allocating their portfolio to activities aligned with environmental, social and governance (ESG)-based indicators encoded in India’s business responsibility reporting (BRR) regulations.

Way Forward:

• Checking the rise of bad loans: As the transition trickles into corners of India’s economic activity, plenty of challenges await. With the shift of funding away from coal plants, the value of assets may disappear while leaving many unemployed.
• Good quality reporting and objective measurement of ESG elements of investment are imperative.
• Serious thinking is required on what may remain in India’s portfolio of priorities while greening the economy.
• Explore new sources of tax and non-tax revenues: The State’s role will remain critical in this transition, and the private sector must be willing to raise additional debt for this purpose.
• Developed countries raising revenue from carbon taxes must relay a clear plan to redistribute gains through finance and technology transfer to developing countries.

Conclusion: Net-zero target can serve as a means to design an agenda tailored to India’s needs. All such challenges should be appropriately addressed to better articulate India’s international position. The pace and nature of this transition must not come at the cost of inter-and intra-nation equity.