Budget takes a green turn towards net zero target

The finance minister used the words ‘green‘, ‘clean’, ‘sustainable’ and ‘carbon-neutral’ economy multiple times in her 90-minute budget speech on Tuesday, underlining the importance the government is according to sustainability and decarbonisation goals.

As per the International Energy Agency, India was the third-largest polluter-nation with nearly 2.35 giga tonnes of carbon emissions in 2021, though one of the lowest on per capita basis. Further, considering India’s strong developmental agenda and growth aspirations, big policy initiatives and investments are crucial to achieve ‘net-zero’ target.

To begin with, of the nine key ministries in the infrastructure sector that account for close to 55% of the government’s capital expenditure of ₹6.5 lakh crore, allocations to the Ministry of New and Renewable Energy (MNRE) have doubled from 2% of total allocations to the nine ministries last fiscal to a targeted 5% next fiscal.

The power sector is the largest emitter of carbon – with a share of over 50% – and, thus, deservedly in focus.

The budget has reiterated the government’s stance of going beyond targeting investments in green infrastructure and building a viable ecosystem with scalability to contain emissions. Accordingly, allocation to the production-linked incentive (PLI) scheme for high-efficiency solar modules has been raised to ₹24,000 crore from ₹4,500 crore with a dual objective of both building in-house capability and grabbing a pie of international opportunity pie.

While increase in customs duty on windmill parts and a number of capital equipment linked to green power and firming basic customs duty implementation in solar with an eye on boosting the domestic value chain may be a short-term negative, over the long-term, ecosystem development clearly remains the agenda.

The push for a circular economy (the manufacturing to recycling chain) and expanded producer responsibility for 10 sectors, including auto, e-waste, infrastructure, and logistics, and facilitating ‘sustainability-as-service’, will provide opportunities for sustainability startups and ultimately help reduce India’s carbon footprint.

Another area of focus is transportation, second only to power with a share of over 13% in emissions, of which nearly 80% is via road transportation. Most modellers believe this segment will see a sharp rise in emissions over the next 20 years as the Indian middle class buys under-penetrated products such as cars and utility vehicles, and experiences enhanced travel needs amid rising per capita income. That re-emphasises the importance of zero-fossil-fuel policies.

For electric vehicles, enabling the evolution of a better ecosystem, mitigating range-anxiety, and setting battery swapping standards will promote battery-as-a-service business models.

Policies linked to ethanol blending are yet another way of reiterating the importance of efficient usage of fossil fuels. Though the percentage of volumes attracting higher excise under unblended fuel will be less than 5%, the move does underline the government is keen on transition to a net-zero economy by 2070.

That being said, improving efficiency is as much a part of the decarbonisation agenda. The government has tried to build capacity focusing on efficiency under PM Gati Shakti and has spoken of specific commitments to develop milestones to improve logistical efficiency, where India ranks at 45, below competitors such as China at 26 or Vietnam at 39.

Awarding four multimodal logistic parks, 100 cargo terminals in three years, and building metros and mass-commute infrastructure between railways and metros also underline the focus on cost efficiency and fuel savings alike.

The first steps towards sovereign green bonds for funding green infrastructure capex also bear watching. With this India will join the ranks of 19 nations that have so far issued similar bonds.

Additionally, under Parivesh, the government has touched upon the need for quick environmental clearances and land availability to spur capacity additions in the green world.

Overall, much has been addressed, and a lot remains to be done.

The hydrogen policy to be released in a week will be crucial to initiate an ecosystem to reduce emissions in the five largest polluting sectors of India on the industrial side – refining, chemicals, steel, cement and fertilisers.

Given the vast reserves of coal, and the environmental benefits and wider applications for energy usages associated with coal gasification, setting up pilot projects for coal gasification and demonstrating its technical and financial feasibility will boost private sector confidence in the segment.

The government can further earmark high-quality coal blocks for more of such projects and incentivise technology usage through waiver of various cess and levies that are currently applicable for mining coal.

Incentives to drive viability will also be needed. We have to navigate swiftly between optimisation, transition and deep decarbonisation. Given the green agenda, the investment cycle triggered by PLI could extend to an investment supercycle. The fact that nearly 40% of PLI investments are linked to green ecosystem sets a good augury.

The writer is MD, Crisil